Nevada Considering Problematic “Margin” Tax

May 18, 2011

We’ve released a new report analyzing business tax proposals in Nevada. Some highlights:

  • Nevada lawmakers, hit hard by the recession, are considering new taxes to close their state’s budget gap. Options on the table include a corporate income tax, a gross receipts tax similar to Ohio’s, and a “margin” tax similar to Texas’s.
  • State corporate income taxes are in long-term decline across the country, and have proven to be volatile sources of revenue.
  • Gross receipts taxes greatly distort business activity and are widely understood by experts to be economically destructive.
  • The Texas “margin” tax, a hybrid between a gross receipts tax and badly designed corporate income tax, has faced persistent collection shortfalls, confusing rules, and a perception of unfairness toward small and unprofitable businesses. It should not be used as a model tax reform.
  • Nevada ranked 1st in the corporate income tax sub-index of our 2011 State Business Tax Climate Index, and 4th best overall.
    • If the state had had a California-style corporate income tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 32nd instead of 1st.
    • If the state had had a Ohio-style gross receipts tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 39th instead of 1st.
    • If the state had had a Texas-style margin tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 45th instead of 1st.
  • As the economy improves, Nevada’s tax system is an advantage for future capital investment and job creation. As policymakers consider fiscal options through 2011, they should keep this advantage in mind.

Read the full report here, and download a PDF version here.


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