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1 Joseph Henchman, et al., The 13 Million Percent Tax: Nevada Considers Complex, Arbitrary BLF Proposal 1 (2015)

handle is hein.taxfoundation/mptxnv0001 and id is 1 raw text is: TXS FOUN'.9DTION FISCAL FACT Mar. 2015 No. 459 The 13 Million Percent Tax: Nevada Considers Complex, Arbitrary BLF Proposal By Joseph Henchman, Liz Malm, and Jared Walczak' Vice President, Legal & Economist Policy Analyst State Projects Key Findings Tax reform is long overdue in Nevada, but public finance scholars uniformly agree that gross receipts taxes like those in Texas and Washington are among the most economically destructive forms of generating tax revenue (pg. 9-10). Nevada policymakers are considering a proposal to convert the existing flat $200 Business License Fee into a tiered system of 67 revenue ranges for each of 27 industry categories. Additionally, foreign filers and non-employer businesses would pay a flat fee of $400, bringing the total to 29 categories of filers and 1,811 possible flat-dollar-amount tax liabilities (pg. 3, 7, 11) The proposal is targeted to generate $250 million per year once fully implemented and is projected to raise $438 million over the first biennium. However, these revenue estimates may be inflated by hundreds of millions of dollars (pg. 14-15). While attempting to mitigate the inherent flaws of gross receipts taxes, the designers of the BLF created a complex tax structure that violates the principles of simplicity and neutrality (pg. 12-13). The proposal requires significant additional administration costs and compliance burdens, and a quick implementation invites disaster (pg. 13-14). BLF rates are arbitrarily calculated using Texas data from a single year, despite the high likelihood that such data is not representative of Nevada's economy (pg. 6-8). BLF rates do not correlate with profitability, resulting in punitive taxes for some and taxation of unprofitable firms (pg. 10). The BLF designers incorporated revenue cliffs that result in absurdly high marginal tax rates, reaching over 13 million percent (pg. 8-9). BLF designers concede pyramiding will be a problem, violating the principle of neutrality (pg. 9-10). BLF industry categories were arbitrarily selected and will result in tax arbitrage and economic distortions, as seen in states with similar taxes (pg. 11-13). Texas and Washington, while providing the model for the Nevada BLF proposal, are considering proposals to repeal their analogous taxes (pg. 17). The BLF proposal violates the principle of transparency by mislabeling an obvious tax (pg. 15). The BLF as proposed likely violates the interstate commerce clause and federal law (pg. 16-17)

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