Dear Members of the Nevada Legislature:
As the legislative session winds down and you are considering various tax proposals put forward by Governor Sandoval, National Taxpayers Union (NTU) urges all members to oppose AB 464 and SB 483 in their current form. The two bills are aimed at generating approximately $1.1 billion over the next two years to support the Governor’s K-12 education initiative.
Among AB 464’s several provisions is a gross receipts tax. If enacted, the gross receipts tax would raise about $180 million in its first two years. As the non-partisan Tax Foundation wrote about gross receipts taxes in a 2006 paper, “Under a gross receipts tax every item that changes hands between companies is taxed, regardless of whether it is a final product or raw material. As a result, in industries where products move through multiple stages of production—from raw material to manufacturing, distribution, and so on—the value created in early stages of production is taxed repeatedly in subsequent stages.” By artificially raising the price of items that require more steps in the production chain, such a taxation scheme distorts decision-making and creates a barrier to entry for certain manufacturers and producers who are not as vertically integrated as long-established competitors. In addition, compliance and enforcement efforts on gross receipts taxes have proven difficult, which is why numerous states have eliminated them over the last ten years. NTU urges all members of the Nevada Legislature to support the efforts of Assemblyman Derek Anderson to strip AB 464 of this complicated and punitive tax.
Likewise, SB 483 is troublesome for Nevada taxpayers. For starters, the bill would increase the cigarette tax by $1 per pack – from 80 cents to $1.80. It is estimated that this would amount to a $600 million tax hike over the next two years.
There are a host of problems with cigarette tax increases. Cigarette taxes are highly regressive, affecting low-income earners far more than high-income earners. Next, sales of tobacco products are extremely important to certain small businesses; the National Association of Convenience Stores estimates that tobacco sales account for approximately one-third of all sales at convenience stores. Increasing costs on small retailers is not a wise idea in an already fragile Nevada economy.
In addition if Nevada increases its cigarette taxes by the proposed $1 per pack, Utah, Oregon, California, and Idaho would have lower taxes on tobacco. This creates an incentive for black market purchases or for cross-border sales of tobacco products from Nevada’s neighboring states.
Finally, cigarette taxes usually yield far lower revenue than initially projected; as the National Conference of State Legislatures wrote, “cigarette taxes are not a stable source of revenue.” A 2013 study by, NTU’s research arm, National Taxpayers Union Foundation, found that revenue projections were met in only 29 of 101 cases where cigarette and tobacco taxes were increased between 2001 and 2011. That same study concluded that over the same period, tobacco tax increases were followed by other tax hikes nearly 70 percent of the time.
Given that Nevada’s unemployment rate remains consistently above the national average, raising taxes on businesses and consumers is especially unwise. Accordingly, NTU urges all members of the Nevada Legislature to reject AB 464 and SB 483 in their current form.
Sincerely,
Clark PackardPolicy and Government Affairs Manager