Nevada’s largest revenue source is losing ground because of a changing economy that has shifted from consumption of goods to consumption of services, an economist told a legislative panel on Thursday.
Jeremy Aguero, principal analyst with Applied Analysis, said about $87 billion in economic activity is untapped because of the shifting dynamic of what people spend money on and how they acquire things.
His testimony came during a hearing on Senate Concurrent Resolution 1, which would authorize an interim study on taxing services in Nevada and set up a technical committee to explore how it would work. Findings and recommendations would be made to the 2015 Legislature.
The Senate Committee on Legislative Operations and Elections took no immediate action on the measure.
Since the 1960s, services have outpaced goods in what Nevadans purchased, Aguero said. Not only that, but the Internet and technology have dramatically changed how tangible goods are obtained.
“We’re spending our money differently,” he said, recalling that as a young boy he would ride his bike to the record store to buy music. “We don’t do that anymore. We download it.”
But downloaded music isn’t taxed, and the same is true for many items purchased online.
Aguero said Nevada’s current sales tax base is about $40 billion. But he says another $87 billion in economic activity isn’t subject to sales tax.
Sales and use taxes account for 36 percent of the state general fund. In taxes distributed to local governments, it’s a whopping 86 percent.
Aguero noted the state’s taxable retail sales have declined 13 percent since 2006.
Nevada’s sales tax of 2 percent was enacted in 1955. Since then, other layers or tiers have been added and the rate varies by counties. Southern Nevada’s Clark County has the highest rate of 8.1 percent.
Aguero said widening the net of things subject to the sales tax would broaden the base and allow for the overall rate to be reduced.
“This bill is not about generating additional revenue,” he said “This is about changing our tax base to make it more stable, make it more predictable.”
Some lawmakers pointed out Nevada has done a number of tax studies over the years and questioned the wisdom of doing another one.
“What will make this any different?” asked Sen. James Settelmeyer, R-Minden. “I’m worried we’re just going to have another study that will sit up on a shelf.”
Sen. Barbara Cegavske, R-Las Vegas, raised similar concerns and suggested that while the state doesn’t impose a sales tax on such things as electricity or cellphone services, consumers do pay other fees on those items.
“So it would be a double tax,” she said.
Cegavske also noted the political perils of making such a big change in the tax structure.
“I’m not in any way, shape or form endorsing this or not endorsing it,” she said. “Anytime this issue is brought up it is used politically.”