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Letter


An Open Letter to Nevada Legislators: The Margins Tax is a Losing Bet!

August 1, 2012
By Lee Schalk


Dear Legislator:

On behalf of the 3,100 Nevada members of the National Taxpayers Union (NTU), I urge you to reject efforts to impose a modified gross receipts or “margins” tax on businesses with at least $1 million in revenue per year. This scheme threatens to hinder small business growth and capital formation and should be opposed by any legislator that believes in quality tax policy.  

While margins tax proponents claim the state needs the funds for education, the fact is that government spending in Nevada ballooned an inflation-adjusted 42 percent from 2000-2010. According to our friends at the Nevada Policy Research Institute (NPRI), education spending per student ($10,449 in 2008-09) is already significantly higher than neighboring Utah and Arizona, where students have higher graduation rates and test scores. Instead of enacting damaging taxes in order to throw more money at Nevada’s public schools, the Legislature should seek to reign in wasteful spending and create an environment with greater school choice and accountability.

Even if high education spending could turn around Nevada’s public schools, the margins tax would still be a dangerous proposal. It would affect small, local, and startup firms due to the low minimum revenue threshold of $1 million. Many liquor stores, gas stations, and “mom-and-pop” retailers regularly have revenues exceeding that level and would be forced to suffer under this tax policy. And since businesses will be taxed on their total revenue and not their total profit, failure will be accelerated for businesses already operating at a loss or on narrow margins, while others will be hesitant to open new stores. This will only worsen Nevada’s current unemployment rate of 11.6 percent.

Despite benefitting from the absence of personal and corporate income taxes, the Silver State’s standing among taxpayers and business owners is tarnished by exceedingly high local tax and regulatory burdens. According to NPRI, Nevada has the ninth-highest local government revenues per capita and is one of only six states that taxes more locally than on the state level. In addition, the Institute for Justice recently concluded that Nevada has the fourth-worst regulatory environment in the country. Lawmakers should seek to improve upon the competitive advantage provided by the lack of income taxes, not fritter it away with another obstacle to entrepreneurship.

The Texas chapter of the National Federation of Independent Businesses says that their state’s margins tax is “crippling the small and mid-sized businesses without bringing in what [revenue legislators] thought.” The policy’s complexity means forcing smaller businesses to cough up more money to hire outside tax experts to navigate compliance. This disadvantage has been a frequent complaint from business owners in Texas, where lawmakers heard more than 100 bills to modify or repeal this burdensome tax in 2009.

Instead of copying the Lone Star State’s failed margins tax policy, the Nevada Legislature should seek to increase accountability and school choice while continuing to foster a pro-growth environment for taxpayers and businesses. Let’s not roll the dice on a damaging margins tax. In today’s economic climate, this is one bet Nevada can’t afford to lose.

Sincerely,

Lee Schalk
State Government Affairs Manager

cc: Governor Brian Sandoval