Commerce tax outperforms projections
September 21, 2016
Nevada's controversial commerce tax outperformed projections by a substantial margin in its first year.
Taxation Director Deonne Contine said as the state closed its books on the 2016 Fiscal Year Friday, the tax had generated $143,508,593 in revenue for the General Fund. That's more than 17 percent above the $119,826,000 it was projected to raise in year one.
"We're happy the commerce tax performed at least to projections," said Mike Willden, chief of staff to Gov. Brian Sandoval. "It's doing what was expected and a little better."
He pointed out the $23.68 million over projections isn't all gravy because other revenue streams including the casino live entertainment and sales and use taxes are below projections at this point, as is the modified business tax.
Half of the commerce tax paid is deductible from the business tax the following year so the net to the state over the biennium was projected at a bit under $120 million.
Contine said 120,226 business entities filed commerce tax returns by the Aug. 15 deadline, good performance for a first year. According to the Secretary of State's office during the 2015 session, there are about 330,000 businesses in Nevada.
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Only about 5,000 out of the 120,226 businesses who filed their returns for the first year of commerce tax owed the state any money because the tax applies only to businesses with a gross income of more than $4 million a year.
She said another 4,000 businesses have requested the six-month extension available under the law and there's no way at this point to tell how many of them will owe the state money.
Of those who didn't file, Contine said many will be small businesses who don't think they have to because they are well below the $4 million gross income mark.
They have to file, she said, because until they do, the state doesn't know they are under the line.
Contine said her staff is working to sort out how many business entities there actually are in Nevada. She said some have multiple names registered along with DBAs — "Doing Business As" listings.
She said they're working with the Secretary of State's office, Department of Employment, Training and Rehabilitation and the Internal Revenue Service to sort all that out so they can figure out who has paid and who hasn't.
The department also has begun the process of hiring six auditors who will focus on making sure the state gets what it's owed.
At a given point, Contine said Taxation's automated systems will send notices to businesses who didn't file but if they file at that point, they will face no financial penalties as long as they don't owe anything under the commerce tax. However, if they do owe the state, the penalty is 10 percent on top of the amount owed.
How much a business owes is based on which of 26 North American Industry Classification, NAIC, codes the business fits in.
Contine said her staff has handled some 4,900 emails and many more calls to the department asking about the tax and how to figure out whether and how much is owed. She said they expect more payments to come as businesses reach the end of that extension in February but that money will be booked as 2017 revenue.
The commerce tax was part of an omnibus tax package in SB483 that raised a projected total of more than $1 billion to expand education funding and balance Nevada's biennial budget. The tax was the subject of an attempted repeal by ballot initiative that actually won clearance to go on the November ballot. But backers including Controller Ron Knecht gave up on the battle in May saying since the Supreme Court modified the Description of Effect, they would have to circulate a new petition and there just wasn't enough time left to get the minimum 55,234 signatures to qualify it for a vote.