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LAS VEGAS -- Special interest groups are already lining up on different sides of the debate over whether the state should adopt a new gross receipts business tax proposed by the Governor's Task Force on Tax Policy in Nevada.
On one side is the gaming industry, Culinary Union Local 226 and the Nevada State Education Association, which support broad-based business taxes, arguing that everyone should pay their fair share. On the other side are Las Vegas Chamber of Commerce and industry associations that say the proposal would cut into their single-digit profit margins, according to the Las Vegas Sun.
Of all the new and increased state taxes recommended by the task force, the proposed gross receipts tax would raise the most revenue, but also looms as the most controversial.
It would require all businesses in Nevada that sell more than $350,000 in goods and services annually to pay a one-quarter of 1 percent levy on their revenue from those sales. They would also be allowed to subtract from the tax a credit of $100 per employee. A company that grossed $1 million and had 10 employees would pay a $1,625 tax, minus $1,000 in employee credits for a total payment of $625 under the proposal.
This differs greatly from 46 states that charge a corporate income tax. That tax is on net profits and is generally in the 6 percent to 10 percent range. Only three other Western states -- Washington, New Mexico and Hawaii -- charge a gross receipts tax, with Washington coming closest to Nevada's proposed version.
The task force recommendations, which included increased property and "sin" taxes as well as a new 6.5 percent entertainment tax, would raise only $335 million next fiscal year. The state task force estimated that a gross receipts tax would raise $227 million in the fiscal year running July 2004 through June 2005. The money would be used to help rescue a general fund budget that the task force projected would have a $379 million deficit in July 2004 if current programs are maintained without increasing taxes.
Opponents say the tax can place an unfair burden on particular industries. Nevada Beer Wholesalers Association President Bill Gialketsis said a gross receipts tax, coupled with a proposed 88 percent increase in beer taxes, could force beer price increases locally. "If the governor says we've got to stabilize the revenue base, we want to be good corporate citizens and step up," Gialketsis said. "But we don't think we should get taxed on the beer end and on the business end both. We don't think we should pay twice."
The National Association of Convenience Stores (NACS) is also unhappy about the proposed gross receipts tax that would be applied to Nevada's 853 convenience stores. Spokesman Jeff Lenard estimated that the tax would reduce a typical convenience store's profits considerably.
Convenience stores that sell gasoline averaged $2.7 million in annual gross receipts nationally last year, but had pre-tax profits of only $28,000, a profit margin of slightly more than 1 percent, he said. The gross receipts tax for a store with that gross income would be $5,875, minus $100 per employee per year. "That would definitely be a considerable hit, and you're talking about an industry that is already highly taxed when it comes to motor fuel, beer and cigarettes," Lenard told The Sun.