Nevada Warned away from Adopting a Texas-Style Business Tax
May 18, 2011 | 1138 views | 0 0 comments | 4 4 recommendations | email to a friend | print

Nevada Warned away from Adopting a Texas-Style Business Tax

State’s Business Tax Climate Ranking Faces Big Drop

 

Washington, DC, May 18, 2011—Nevada

lawmakers, hit hard by the Great Recession, are considering new taxes to

close their state’s budget gap, including a tax on business activity in

the state. A new analysis

by the Tax Foundation, however, warns that some of the options

legislators are considering would jeopardize the state’s recovery and

long-term economic future without establishing a stable and reliable

revenue stream for funding state services.
 
Three general types of business taxes are on the table in Nevada: a

corporate income tax similar to California’s, a gross receipts tax

similar to Ohio’s and a “margin” tax similar to Texas. All three would

make the state less competitive and significantly increase compliance

costs, with the Texas-style margin tax bringing with it the most

problems and fewest benefits.
 
“State corporate income taxes are in long-term decline across the

country, and have proven to be volatile sources of revenue,” said Tax

Foundation Vice President of Legal & State Projects Joseph Henchman.

“Gross receipts taxes distort business incentives and are economically

destructive overall. The margin tax is a badly designed hybrid that

combines the problems of both.”
 
If the Nevada legislature did adopt a new tax on businesses –

against the announced intentions of Gov. Brian Sandoval – the state’s

rankings in the Tax Foundation’s annual State Business Tax Climate Index would be poised for a decline. Most recently ranked number one in the country under the Index’s corporate income sub-ranking, Nevada would instead have ranked 32nd with a corporate income tax, 39th with a gross receipts tax and 45th with a margin tax had those options been in place on July 1, 2010, the snapshot date for the most recent Index. The state’s overall ranking would also have dropped under the various scenarios, with the largest drop with the margin tax.
 
As the economy improves, the state is well positioned for capital

investment and job creation. This is an advantage that Nevada should be

careful not to jeopardize. A corporate income tax and, in particular, a

gross receipts tax, would do significant harm to the state’s tax

climate. As Nevada policymakers consider fiscal options through 2011,

they should keep this in mind.
 
Tax Foundation Fiscal Fact No. 270, “Nevada May Consider New Business Taxes” by Joseph Henchman, is available online.
 
The Tax Foundation is a nonpartisan research organization that has

monitored fiscal policy at the federal, state and local levels since

1937.
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