Revenue tax common thread in governor’s tax plan

If anything, Gov. Brian Sandoval’s revised tax package told us more than his original idea.

In its first iteration, Sandoval proposed changing the state’s flat business license fee into a progressive levy, based upon a business’ revenue across a wide spectrum of rates and business categories. Although that bill passed the state Senate 17-4 back in April, it has sat dormant in the Assembly Taxation Committee ever since.

Critics derided the approach as too complex, although it had been specifically designed to counter the main argument against a gross receipts tax, which is that it treats disparate businesses exactly the same without regard to industry-specific problems, leading to unfairness.

But now, Sandoval has proposed a second idea, the Nevada Revenue Plan, which was heard in the Assembly Taxation Committee on Thursday in the form of a long amendment to another tax plan. It essentially abandons the business license fee approach (although it does contain an increase in that fee of between $100 and $300, depending on the type of business). It includes an increase in the payroll tax, an approach favored by businesses that have high revenue but few employees.

Most telling, however, is its third component: A “commerce tax” imposed on annual revenue earned in Nevada of $3.5 million or more.

And that component is perhaps the most important part of Sandoval’s package, and of his future legacy. It would be the first time in state history that Nevada put a tax on business revenue.

Not that it hasn’t been tried. Studies of Nevada’s tax system have recommended it. The state teachers union has tried (twice) in the last 15 years to pass such a tax by initiative. Former Gov. Kenny Guinn tried to pass a gross receipts tax in 2003. The late former Assemblywoman Peggy Pierce, D-Las Vegas, proposed a corporate income tax repeatedly, and state Sen. Pat Spearman, D-North Las Vegas, proposed a gross receipts tax this year. Senate and Assembly Democratic leaders tried to push the idea of a margins tax toward the end of the 2011 session.

All of those ideas have failed.

Sandoval had a choice after his original proposal hit the brick wall of legislative indifference. He could have taken up suggestions to raise the money he needed for his budget with a combination of taxes, including the payroll tax, a business license fee increase, extending a package of once-temporary sunset taxes, an overhaul of the live-entertainment tax, and perhaps some others. He — like Gov. Kenny Guinn before him — could have simply given up on the idea of a revenue tax component.

But he didn’t.

The business community opposes the idea, at least the segments of the business community that actually have enough leadership to voice an opinion, such as the Retail Association of Nevada. Some Republicans oppose it, comparing it (incorrectly) with last year’s proposed margins tax overwhelmingly rejected by voters. Leaving it in the Nevada Revenue Plan means the governor and his supporters in the Legislature will have virtually no margin for error when it comes to vote-counting.

But leaving a revenue tax in the package also signals Sandoval’s commitment to two important things: A willingness to compromise his own ideas and incorporate the ideas of others in order to reach common goals, alongside a concomitant push to enact real change, and not just tinker with the existing mechanics of Nevada’s tax structure. The plan marries the governor’s rhetoric about moving into the future with a tax system that works for a modern economy and the reality of finding ways to fully fund the education programs that will undergird Nevada’s efforts to truly diversify its economy and jobs base.

In fact, it’s not too much to say the work of the 2015 Legislature should be judged in large part on the particular makeup of whatever tax plan emerges from the process. If it contains a revenue component, Nevada will have taken a step toward growing into the future. If it doesn’t, the status quo will have won once again, and we should expect a future very much like our past.

Steve Sebelius is a Las Vegas Review-Journal political columnist who blogs at SlashPolitics.com. Follow him on Twitter (@SteveSebelius) or reach him at 702-387-5276 or ssebelius@reviewjournal.com.