LOOKING AT TAX OPTIONS

While that debate continues to rage, another question lingers: When we talk about taxes, what are the options?

It’s not something lawmakers are discussing now, except for increases in hotel room taxes and sin taxes. The Democratic leaders of the Assembly and state Senate say first they want to get a picture of what the state’s needs are, through a transparent process of scheduled committee hearings, before they start to figure out how to meet those needs.

But eventually, that will have to be discussed in detail. It’s a debate Nevada has had many times before, notably in 2003, when the proposal to create a gross receipts tax, backed by then-Gov. Kenny Guinn, led to an acrimonious special session and an $800 million-plus tax hike over the biennium — not on gross receipts of businesses after all, but cobbled together from a bunch of smaller revenue sources.

In anticipation of the next installment in the Silver State’s Great Tax Debate, here’s a brief citizen’s guide to some of the possibilities.

SALES TAX

Pro: Already the No. 1 source of general fund revenue, sales taxes are familiar to Nevadans, and the state already has a framework in place for administering them. Tourists as well as residents pay them.

Con: Economists say sales taxes are regressive, meaning their burden falls disproportionately on the poor, who spend a greater proportion of their income purchasing life’s necessities.

GAMING TAX

Pro: The No. 2 source of general fund revenue, increased taxes on gaming are often popular with the public because they’re perceived as affecting tourists and wealthy corporations.

Con: The gaming industry is in the dumps, with stocks plummeting, bankruptcies looming and tourists staying away. This might be the one time in history that legislators don’t target gaming for their revenue needs.

MINING TAX

Pro: While everything else is down in this economy, gold mining is up, as nervous investors seek shelter from the vicissitudes of the stock market in the security of the precious commodity. Critics, especially the Progressive Leadership Alliance of Nevada, say mining has benefited from statutory loopholes that allow these large multinational companies to deduct so many expenses that they pay far less than the 5 percent minerals tax set out in the Nevada Constitution. PLAN, a liberal advocacy coalition that favors raising taxes, says eliminating some exemptions would put $141 million in the state’s pocket.

Con: The Nevada Mining Association says one industry shouldn’t be singled out for taxation. The industry says all the deductions should be allowed because the constitution mandates a tax on net proceeds, not gross income.

SERVICES TAX

Pro: Currently, retail sales of most goods are taxed, but not services, from landscaping to hairstyling to consulting. Extending the sales tax to services was backed by the Chamber of Commerce in 2003 (but not approved by lawmakers) as a way to take an existing taxation mode and simply expand it. Services are more likely than goods to be purchased disproportionately by the wealthy, who, for example, tend to hire more lawyers and financial advisers.

Con: As with the existing sales tax, exemptions would have to be carved out for activities lawmakers don’t want to increase the cost of, such as health care. And with the halls of the Legislature crawling with lawyer-lobbyists, there’s a built-in lobby against taxing them.

GROSS RECEIPTS TAX

Pro: A tax on businesses’ total revenues would force all the state’s industries to contribute to the general fund. A blue ribbon commission tasked with coming up with a broad-based tax reflective of the state’s economy recommended a 0.25 percent tax on gross receipts over $350,000 as part of a package of reforms in 2003, but it failed to pass. “Broad-based business tax,” the phrase on everyone’s lips in Carson City, is thought to refer to either gross receipts, the modified business tax, or a corporate profits tax. The mining and gaming lobbies both have said they would accept some sort of broad-based tax that doesn’t single out one industry.

Con: Critics say a tax on the gross is unfair to businesses with narrow profit margins, such as grocery stores, while sparing those with relatively lower overhead. Having already defeated gross receipts in 2003, some in Carson City consider it taboo. Conservatives argue that taxes like these make the state a less attractive home for those businesses that have a choice about where they base their operations.

PROPERTY TAX

Pro: Property taxes are less vulnerable than sales taxes to fluctuations in the economy, experts say. Currently they chiefly fund local governments, not the state, but leaders such as state Senate Minority Leader Bill Raggio, R-Reno, have talked about looking at the way funds are allocated between local and state governments and changing the mix.

Con: The rapid inflation of Las Vegas housing prices prompted the Legislature to impose a property tax cap in 2005. Now that prices have crashed, property taxes won’t be bringing in as much money as they used to, and homeowners are likely to complain that they’re strapped. Local governments including Clark County already are fighting proposals for the state to take some of their revenue.

MODIFIED BUSINESS TAX

Pro: Created in the 2003 tax battle, this 0.63 percent payroll tax is the state’s only general tax on businesses. Doubling it to 1.26 percent, which PLAN estimates would generate $279 million, wouldn’t create a new tax structure and would hit industries equally. The idea was floated by former MGM Mirage CEO Terry Lanni and is supported by influential voices in the business community.

Con: The Progressive Leadership Alliance of Nevada calls the modified business tax “unfair” because it’s based on how much a business pays its employees, not how much money the business makes.

CORPORATE PROFITS TAX

Pro: Taxing only the profits businesses earn would mean those that aren’t making money — a lot of them these days — don’t pay taxes. The mining and gaming industries have said they would accept a broad-based business tax of some sort; 47 states have a profits tax. A tiered tax of 5 percent on businesses with profits between $50,000 and $100,000, and 7 percent on those that net over $100,000, would bring in $194 million, according to PLAN.

Con: Allowing businesses to deduct expenses from revenues can lead to hijinks as clever accountants find ways to conceal income, some analysts say.

CLOSING TAX LOOPHOLES

Pro: Assembly Speaker Barbara Buckley, D-Las Vegas, has paid a lot of attention to eliminating some exemptions and abatements that have been chiseled into state tax law. Some of them may no longer make sense, she says, or may not be doing what they were originally intended to do, such as economic development tax incentives that are being exploited as loopholes with no benefit to the tax base. According to Buckley’s “Nevada 2020” presentation, sales tax abatements totaled nearly $96 million between 1998 and 2007. Taxing comped meals handed out by casinos would generate an estimated $140 million.

Con: Although “closing loopholes” has a friendlier ring than “new taxes,” every exemption has an interest group behind it, ready to fight its removal. And it’s not likely this sort of nibbling-at-the-edges strategy would make a major dent in the revenue picture.

STATE LOTTERY

Pro: Lawmakers have been trying and failing for decades to create a state lottery, which would require a change in the Nevada Constitution. They say it would be an easy way to raise money for education and bring back to Nevada money that residents currently spend on lotteries in other states. By one rough estimate, a lottery would raise $50 million a year.

Con: Gaming companies have argued that the state shouldn’t be competing with the private gambling industry, and Gov. Jim Gibbons has opposed a lottery in the past. Lotteries in other states have a mixed track record as a funding source.

Sin taxes

Pro: Raising taxes on cigarettes and liquor is a favorite tactic of lawmakers, because it shifts the burden to people who choose to engage in behaviors society disapproves of, punishing them at the same time as it discourages their habits. Two bills in the Assembly would raise the state tax on a pack of cigarettes from $0.80 to $1.80 and on a gallon of liquor from $3.66 to $7.87. Wine and beer taxes also would more than double. Proceeds from the taxes would go toward health care and addiction programs and to fund DNA testing.

Con: Sin taxes are considered regressive, because the poor spend a disproportionate amount of their income on alcohol and tobacco. The cigarette and liquor industries claim that rather than bringing more revenue to the state, tax increases would prompt consumers to do their shopping in neighboring states with lower sin taxes.

PERSONAL INCOME TAX

Pro: Taxing individuals’ incomes on a sliding scale the way the federal government does is viewed as the best way to make everybody contribute to government in an equitable fashion.

Con: Changing Nevada’s cherished tradition as one of seven states without a personal income tax probably is a political nonstarter. It also would require changing the state constitution, so it couldn’t be implemented for several years at the least.

UNEARNED INCOME TAX

Pro: The Progressive Leadership Alliance of Nevada would like to see a 3 percent tax on capital gains, interest and dividends for people making more than $200,000 per year, which the group says would bring in $380 million per year. This is a way of taxing the rich, which can be either a pro or a con, depending on your point of view.

Con: This would require amending the state constitution, which would take several years, and it currently is not the subject of much discussion.

HOTEL ROOM TAX

Pro: The teachers union and some gaming companies made a deal last year to put an increase of up to 3 percentage points in the tax on hotel rooms in Clark and Washoe counties on the November ballot as an advisory question, and majorities of voters in both counties approved it. The Legislature passed the increase, and it became law last week without the governor’s signature. It is expected to add about $233 million to the next biennial budget.

Con: Gaming and tourism were in better shape when this was proposed than they are now, and many fear this increase will exacerbate the industry’s problems. Hiking the room tax continues the state’s habit of leaning heavily on the casino industry for revenue instead of diversifying the tax base.

Contact reporter Molly Ball at mball@reviewjournal.com or 702-387-2919.