Nevada’s patchwork tax system may be headed for overhaul

The day after the Nov. 4 election, the Las Vegas Metro Chamber of Commerce emailed members, saying it’s time to step up and help raise more revenue for education.

The missive signaled that a key player in the coalition that had just spent $5 million to defeat a proposed 2 percent business margin tax for education backs Gov. Brian Sandoval’s call for major tax reform next year — knowing the result will likely be higher taxes for corporations.

The powerful business group pointed out that tax reform and Question 3 aren’t the same thing. Any new business levies would be part of a far-reaching tax package, the chamber said, not a one-off plan said to be so flawed that it would force companies to close and kill thousands of jobs.

Question 3 went down in flames, rejected by 79 percent of Nevada voters.

“While we are pleased with the outcome, we also know that this initiative made it on the ballot because of tremendous public frustration about the quality of K-12 education in our state,” said the email, co-signed by Kristin McMillan, president and CEO of the chamber, and Hugh Anderson, its government affairs committee chair. “Now that the election is over, it’s time for our community to come together to address education in a meaning­ful way, with an eye to both funding as well as reforms that will improve classroom results.”

When lawmakers convene in Carson City early next year, businesses could lose millions of dollars in tax exemptions, or be asked to pay higher property taxes or even see the Republican governor and GOP-led Legislature approve the state’s first corporate profits tax to help pay for rising education costs as well as new Medicaid recipients as part of a broad tax reform package, say insiders familiar with early talks.

And for the first time in years, the business community — including gaming, mining and retailers that have blocked or fought most tax-increase and reform efforts in the past — is eager to back long-overdue tax reform if it is broad-based and doesn’t ding any one industry or group of citizens more than another.

“I think any tax conversation needs to start out very broad-based with a variety of participants at the table,” said Paul Moradkhan, vice president of government affairs for the Las Vegas chamber.

What does business want? Stability and predictability so companies can plan for the future, Moradkhan said, instead of seeing governors and the Legislature approve short-term revenue fixes to patch state budget holes.

“They want something that’s going to last more than two years,” Moradkhan said of business owners.

Sandoval, fresh from a landslide re-election, said he wants the same thing, and to get away from relying mostly on volatile gaming, mining and tourism revenues. He said his top priority is education reform, which almost certainly would involve increased spending as student enrollment grows, including non-English speakers.

“There’s been five studies — more than that. I think we have the information already,” Sandoval said last week when asked if he’ll push for tax reform during the 2015 legislative session. “I’m more than willing to listen to any proposals that anyone may have. I’m not aware of any right now.”

There’s no formal proposal yet, but revenue and tax plans are being bandied about, both in public and behind the scenes. They range from expanding the live entertainment tax to a new sales tax on services such as dry cleaning and manicures, with a commensurate cut in the overall statewide sales tax rate of 6.85 percent.

The governor and the Legislature also could spend more on English Language Learners, all-day kindergarten and STEM (science, technology, engineering and math) education — all programs popular with business groups.

Sandoval said he’ll soon meet leaders of both houses and political parties to see what they want to accomplish in the session that begins in February. There already have been informal talks with incoming Senate Majority Leader Mike Roberson, R-Las Vegas, and outgoing Assembly Speaker Marilyn Kirkpatrick.

For now, Sandoval is building his budget and considering state agency general fund spending requests for the upcoming two-year budget totaling $7.7 billion, or about $1 billion more than the current plan. He’s also waiting for revenue projections from the Economic Forum, due in December.

CONTINUING A COALITION

The Coalition to Defeat the Margin Tax Initiative was led by the chamber, the Nevada Resort Association, the Nevada Mining Association and the Retail Association of Nevada. Each publicly backs both tax and education reform.

“We just think it’s time to act,” said Bryan Wachter, the Retail Association’s director of public and government affairs. “We’re not coming to the table with the idea that we will do this and we won’t do this. There’s no good tax. There are just taxes that are easier than others.”

Jim Wadhams, a longtime lobbyist whose clients include Newmont Mining and the Las Vegas chamber, said he has never seen the business community so united in calling for real tax reform.

“Everybody is saying we’ve got to do something this time,” Wadhams said. “That doesn’t mean it’s going to be easy. But it’s not like other sessions when the business community has said ‘the answer is no.’ ”

In 2003 a popular governor pushed “tax reform” only to see it fail miserably. Critics said the gross receipts tax on business would have resulted in the largest tax hike in Nevada history, about $1 billion, but had nothing to do with reform. Only the gaming industry backed it, and 15 Assembly Republicans stalled it and the courts killed it.

A similar scenario could play out again, making Sandoval’s tax reform job tougher.

Republicans took control of both the state Senate and Assembly in the Nov. 4 election as a GOP wave swamped Democrats. The GOP now has an 11-10 majority in the Senate and a 25-17 seat majority in the Assembly.

But many are conservatives. Some 10 lawmakers have promised not to raise taxes, though they might support “revenue neutral” reforms. The GOP Assembly Caucus also voted in a new conservative leader, Ira Hansen of Sparks, an unknown quantity who may have difficulty controlling his members.

Hansen, however, has twice approved extending a package of taxes that were scheduled to sunset, including a payroll tax known as the “modified business tax.” Those taxes bring in about $800 million per year, and may be extended again.

“With those tax pledge people, it’s not going to make it (tax reform) impossible, but it’s going to make it contentious,” said a lobbyist who spoke on condition of anonymity so as not to upset lawmakers.

On Saturday Assembly Republicans met in Carson City to discuss policy concerns. Afterward, Hansen said his caucus is willing to discuss tax proposals in the upcoming 2015 session, but new revenue will be the last resort after Sandoval’s proposed budget gets a thorough review.

“Nobody is saying no to anything until we see what the governor wants,” he said. “Obviously I have a very conservative group. So taxation is like the very last line of defense. It’s the easy way out. We need to look at all the options in the budget before we just say yes or no to something as big as taxes.”

Kirkpatrick, D-North Las Vegas, said she wants to continue pursuing her agenda from past sessions, looking at needed changes in current tax exemptions. Last session she took aim at the live entertainment tax, which generates more than $130 million a year from both gaming and nongaming businesses that offer live entertainment but exempts a number of major events such as NASCAR races and the Burning Man counterculture event.

Kirkpatrick also wants to look at the commercial property tax cap. A new state Department of Taxation report shows the 8 percent annual limit on property tax increases amounts to a nearly $90 million tax break in fiscal year 2014, up from $66 million in 2013 because of rising property values. Earlier this year she said she would like to tweak the property tax rules to reset commercial property values faster as they rise, potentially bringing in more revenue without lifting the cap.

All told, the state has 243 different tax breaks worth about $2.2 billion per year.

“We need to see who benefits from these tax exemptions,” said Kirkpatrick, who sponsored legislation mandating a tax exemption analysis every two years. “We have to talk about what the policy is we want to set.”

Insiders said conservative Republicans might back tax reform linked to school reforms that have been blocked by union-backed Democrats.

Those reforms include expanding school choice by providing state vouchers for students attending private schools and having more charter and zoom schools to challenge traditional public schools to improve their performance. Teachers also could face more scrutiny such as evaluations based on student test scores and even the end of tenure.

“More money alone will not fix education,” the Las Vegas chamber said in its email. “Additional resources must be aligned with a plan based on policies that have been proven to improve achievement.”

Contact Capital Bureau reporter Sean Whaley at swhaley@reviewjournal.com or 775-687-3900. Follow @seanw801 on Twitter. Contact Laura Myers at lmyers@reviewjournal.com or 702-387-2919. Follow @lmyerslvrj on Twitter.