The Business License Fee Proposal in Nevada Is Not Wise
March 31, 2015
Nevada policymakers are currently considering a proposed restructuring of the state's Business License Fee (BLF), converting it from an annual, flat $200-per-business fee into a tiered system of tax liabilities based on business type and business revenue, paid quarterly. The proposal sets charges for 67 separate revenue ranges in each of 27 industry categories, plus a flat fee for foreign filers and non-employer businesses. The proposal projects to raise $438 million in additional revenue over the biennium, primarily to fund Governor Brian Sandoval's (R) proposed expansion of education spending.
The restructured BLF would use the existing structure, although administration would transfer from the Secretary of State to the Department of Revenue. Only companies with employees and situs in Nevada would be subject to the graduated-rate gross receipts structure; non-employers and foreign firms would pay a flat $400.
Many flaws were identified in previous gross receipts tax debates in Nevada:
- Taxation of unprofitable businesses;
- Different business types facing different tax burdens despite the flat rate;
- Pyramiding due to hidden taxation of inputs
- Distortion of the economy by incentivizing vertical integration;
- And lack of trust that the revenue would be widely used.
The industry rates are applied to gross receipts ranges, beginning at $125,001 and increasing in 67 increments of 15 percent up to just over $1.1 billion. Economic analyst Jeremy Aguero stated the increments are designed to minimize "revenue cliffs", but the final proposal creates dozens of revenue cliffs for every industry.
Gross receipts taxes are inherently pyramid, distort business structures and tax unprofitable businesses. Nevada has other tax reform options. The Modified Business Tax is stable, simple, can be broadened by paring back exemptions enacted in the last few years and can be collected immediately.
Source: Joseph Henchman, Liz Malm, Jared Walczak, "The 13 Million Percent Tax: Nevada Considers Complex, Arbitrary BLF Proposal," Tax Foundation, March 26, 2015.
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