Mature businesses benefit from Nevada tax structure more than new ones
February 29, 2012
Nevada ranks at the top of states for its low overall tax liability paid by mature businesses, but only 38th for new firms due in part to a lack of incentives, according to a new comprehensive study by the Tax Foundation.
The first of its kind 50-state apples-to-apples analysis, released today in a report called “Location Matters,” a comparative analysis of state tax costs on business, could provide guidance to Gov. Brian Sandoval and lawmakers as they seek to diversify Nevada’s economy and grow jobs.
The study looked at Las Vegas and Reno.
Nevada continues to lead the nation in unemployment.
The low ranking for Nevada for new firms is due in part to the lack of tax incentives provided to companies seeking to locate here. And despite the lack of a corporate income tax, other taxes and high unemployment insurance rates also contributed to the low ranking, said foundation President Scott Hodge in a telephone conference call announcing the results.
“Not having a corporate income tax is an incentive in and of itself, so that certainly, I think, is one of the most attractive features for Nevada and of course the other states that don’t have a corporate income tax,” he said.
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Hodge said he hopes the study, “provides a real guide for legislators, and governors and other state officials, in reviewing their state in looking to find out how they can make it the most competitive possible and really encouraging tax competition across the states. And out of that we hope that better tax policy comes of it.”
The study compared seven types of firms across the states: a corporate headquarters, a research and development firm, retail store, call center, distribution center, capital-intensive manufacturing and labor-intensive manufacturing. It also compared the states based on mature firms and new firms.
Some of the highlights for Nevada include:
– Nevada ranks third for the mature retail operation, with a total tax burden nearly 40 percent below the national average. Nevada’s lack of a corporate income tax and low property tax burden are the key factors in this top ranking. However, the state does have the sixth-highest unemployment insurance (UI) tax burden for this firm type.
– The same factors of no income taxes and low property taxes are also key in the state’s fourth place ranking for mature distribution centers and eighth-place rank for corporate headquarters. Once again, these operations are also burdened with very high UI taxes.
– Nevada ranks 11th for both mature capital-intensive and labor-intensive manufacturing. However, the state would have ranked higher for these operations if not for the fact that its high sales tax rate applies to manufacturing equipment.
– The state ranks 46th for new capital-intensive manufacturing with a tax burden 92 percent above the national average. Even without the incentives that most states provide new firms, this operation has a low income tax burden. However, this firm is burdened by some of the highest UI taxes, sales taxes and property taxes, especially the property tax on equipment.
The study found that for new firms, Nebraska and Louisiana ranked first for several of the new business categories.
Ray Bacon, executive director of the Nevada Manufacturers Association, said he generally agrees with the information about Nevada contained in the report.
“The (unemployment insurance) might be a little off, but it won’t be as our rates will increase and will stay high for years,” he said.
Nevada has borrowed more than $700 million from the federal government to pay jobless claims during the current economic slowdown.
Implementing Sandoval’s jobs plan, including a call to create 50,000 jobs by the end of 2014, will not be easy, Bacon said.
The study was prepared by the Tax Foundation in collaboration with KPMG LLP, the U.S. audit, tax and advisory firm. Tax Foundation economists designed seven model firms, and KPMG modeling experts calculated each firm’s tax bill in each state. The study accounts for all business taxes: corporate income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts taxes.
Hartley Powell with KPMG said the study should be useful for policy makers in all states because it “not only reviews the state tax obligations in all 50 states, but it shows the combined effect of all the major business taxes on seven specific firm types.”
The firm types are those that are highly sought after by states, he said.
“There are considerable differences of tax obligations across the 50 states, there are considerable differences in tax obligations by firm types within each state, and lastly there are large differences in tax obligations between mature and new firms in each state,” Powell said. “And of course, the bottom line is clear: location does matter.”
The Tax Foundation works to provide taxpayers and lawmakers reliable data and sound analysis on public finances at the federal, state, and local levels of government.