Why not a corporate income tax for Nevada?

CARSON CITY -- There are plenty of compelling reasons for Nevada to adopt a corporate income tax, not least of which is this: The state needs the money!

So why does it seem a corporate income tax will never happen? Although the idea was vetted in a two-hour hearing before the Assembly Taxation Committee Tuesday, it's probably no closer to passing than it was when it was first recommended nearly 40 years ago.

This time around, Assemblywoman Peggy Pierce is proposing a 4.5 percent tax on taxable business income greater than $500,000. Her Assembly Bill 336 is one of a series of tax bills she's introduced.

Most of the arguments against the corporate income tax fail. Consider:

Argument 1: Businesses don't pay the tax, consumers do, and prices will rise as a result. The facts don't bear this out, however. A comprehensive study conducted in 2002 in support of the gross receipts tax proposal found the prices of a market basket of goods was not appreciably higher in states such as California, Utah or Arizona, which impose corporate income taxes. A more recent survey presented by progressive supporters of the bill found the same thing.

If prices are passed on to the consumer, where's Nevada's no-tax price break? And why are citizens of tax-heavy states in some cases paying less for the same items than Nevadans? Could it be that prices are set by a variety of factors, only one of which is taxes?

Argument 2: Businesses will be driven out of business by the tax. Pierce included a generous exemption for small business in her bill -- more than the exemptions in the ill-fated 2003 gross receipts tax, in fact. Her intent was to target larger businesses, many of which are headquartered out of state and send profits back to corporate headquarters elsewhere.

Again, other states with corporate income taxes still have Wal-Marts, Targets, Costcos, car dealerships, furniture stores and office-supply outfits. And while one might be able to argue that a state such as California or Texas have larger customer bases than Nevada, even states with similar populations (Utah, New Mexico, Kansas) haven't seen an exodus of business despite their tax policies.

Argument 3: Higher taxes will undercut efforts to lure businesses to Nevada. This canard just won't go away, despite the fact that it's manifestly false. Nevada has had lower taxes than all its neighbors for years, and is one of just three states with no corporate income tax at all. If this argument were true, Nevada would be teeming with a diversity of business instead of being the unemployment capital of the country. The simple fact is, a corporate income tax hasn't hurt the business development of other states, and the lack of a corporate income tax has not helped Nevada attract new business in any significant way. Those who argue otherwise have a pronounced ability to ignore reality.

There are some valid arguments against this particular bill, technical and legal ones pointed out by Nevada Taxpayers Association President Carole Vilardo at Tuesday's hearing. Pierce says she's asked Vilardo to meet with lawyers to fix those things. The core concept of the bill remains intact: Asking businesses to pay their fair share of Nevada's tax burden, the way casinos on the Strip already do.

"I don't have any idea how this is going to end," Pierce said. There are plenty of good reasons for her bill to pass, and precious few valid arguments against it. But, this being the Nevada Legislature, the status quo has the advantage -- all evidence to the contrary -- and a good idea struggles.

Steve Sebelius is a Review-Journal political columnist, and author of the blog SlashPolitics.com. His column appears Sunday, Tuesday, Wednesday and Friday. Reach him at 387-5276 or at SSebelius@reviewjournal.com.