A tax initiative designed to fund public school education in Nevada might not achieve its desired result, Carson Valley business people were told Tuesday.
While the tax could raise as much as $800 million for education, nothing in the law would prevent the Nevada Legislature from reducing the amount of money already dedicated to education, opponents said.
At a forum hosted by the Carson Valley Chamber of Commerce, Nevada Taxpayers Association President Carole Vilardo said the margin tax initiative does not contain language preventing the Legislature from supplanting the funding it provides to schools.
Vilardo said that the Legislature dedicates around $1 billion now to the distributive school account.
“Our opposition is not about not supporting education,” she said. “This is a bad tax. It is flawed.”
The initiative imposes a 2 percent tax on any business that makes more than $1 million to be used to fund operation of public schools, according to the Nevada Secretary of State’s website.
The forum featured Vilardo, attorney Joshua Hicks and the Nevada Department of Taxation’s Chris Nielsen, who described some of the challenges the state will have collecting the tax.
Hicks said the tax was based on a Texas law, which was approved along with a decrease in property tax.
He is a member of the law firm that challenged the initiative but did not succeed at the Nevada Supreme Court.
He said the tax would move Nevada from the middle of the pack from a tax perspective to No. 4 in the country.
“That would put us ahead of California, New York, or even Massachusetts,” he said.
Another issue is what Hicks described as a “crystal cliff,” where a business that makes any amount above $1 million is subject to the tax.
“If they make a cent over $1 million in revenue, they have to pay the whole amount,” he said, which could affect a business decision to expand for those right on the cusp.
He said a business that just cracks $1 million could have a $14,000 tax liability.
If approved by voters, Hicks warned that it would take effect on Jan. 1. The Legislature would not be able to modify it for at least three years.
Administering the tax would mean an increase in the number of people the Nevada Department of Taxation would have to hire, Nielsen said. It would mean hiring 60 new staff members, a 30 percent increase in the department’s staff
“This tax is completely different from any of the taxes we collect now,” he said.
The short form for reporting income to the state is 11 pages long, meaning businesses would have to pay additional accounting costs to meet the law.
“The tax will create uncertainty for the revenue stream, but also for your business as well,” he said.
Sen. James Settelmeyer pointed out that even those businesses that don’t make $1 million will have to contribute to the tax.
“Walgreens will be paying 2 percent and so will the trucking company that delivers their goods,” he said.
“The tax rates will be wildly different from one firm to another, and there’s no doubt there will be a pyramiding effect,” he said.