It’s clear Nevada’s business community is in full-fledged panic mode over The Education Initiative, the proposed 2 percent margin tax that will appear on the November ballot. On Sunday, we saw an op-ed in the Review-Journal by the respected tax expert Carole Vilardo and today we read the lamentations of a guy who owns a couple of sandwich-shop franchises in Reno in the Las Vegas Sun.
It’s getting real up in here!
Vilardo — president of the Nevada Taxpayers Association and an unquestioned authority of Nevada’s tax system — made several points in her piece:
- The tax is not on profits, which means an unprofitable business might still have to pay the tax.
- The $1 million exemption isn’t a true “exemption,” as the term is commonly used. If you break the $1 million mark by just $1, you owe taxes on the entire $1,000,001.
- Even small businesses may go over the $1 million mark, especially franchise owners, independent gas stations, small retail stores and the like.
- The language of The Education Initiative doesn’t use the word “education.”
- There’s no accountability for how the money is spent once it is deposited in the state’s schools account.
- The tax would push Nevada’s business tax from among the lowest in the nation (there is no tax on revenue now, although there is a tax on payroll) to among the highest in the nation.
- The Legislature could not make any changes to the measure by law for three years.
- There could be unforeseen consequences.
“To protect jobs, continue on the road to economic recovery and see success with our economic diversification and development efforts, it is important to vote no on this deeply flawed measure,” Vilardo sums.
Wow, that sounds pretty bad. But let’s take a look at a couple of counter-points, shall we?
- The board of directors of the Nevada Taxpayers Association is made up of business owners and executives whose industries have already declared their opposition to the tax, so it’s not surprising that Vilardo would take a stance in opposition to the tax.
- According to figures calculated by research expert Jeremy Aguero of Applied Analysis, fully 87 percent of businesses in Nevada will pay nothing under the tax. (The remaining 13 percent, however, account for the majority of employment and economic activity in the state.)
- According to a Western Washington University study, spending on the cost of goods sold can add up to 70 percent for convenience stores. Businesses are allowed to deduct their costs of labor, costs of good sold or take a standard 30 percent deduction. But a 70 percent deduction can reduce a convenience store’s liability considerably.
- Nevada already features a tax on gross revenue that’s even higher than the 2 percent margin tax — it’s the gross gaming tax, and the top tier is currently set at 6.75 percent. That doesn’t seem to have chased many Nevada casinos away, even as gambling has spread to other states (where the licenses are fewer and the tax rates are even higher).
- The missing word — “education” — doesn’t mean a thing. The Education Initiative specifies how the margin tax will be created and specifies that its proceeds are to be deposited into the state’s Distributive Schools Account. We’re supposed to believe the business groups that oppose the tax would support it if only it said “education” more? Please.
- The Nevada State Education Association — the state teachers union, which circulated the petitions to qualify The Education Initiative for the ballot — would undoubtedly have preferred stronger language as to how the money could be spent. But attacks on all initiatives by opponents under the state’s initiative “single-subject rule” could have doomed the entire enterprise if that kind of language had been included in the measure. As it was, business groups fought hard in Carson City to keep The Education Initiative off the ballot.
- The same thing goes for language that would have prevented the Legislature from taking any of the money raised by The Education Initiative out once it’s deposited in the state schools account, or — more likely — reducing the amount of state commitment to education that it normally would have approved. Such language would undoubtedly have been stricken (at best) or killed the initiative outright (at worst).
- It’s true no changes can be made in a voter-approved statutory initiative for three years. But it’s also true that in order for The Education Initiative to pass, backers had to find thousands of valid voter signatures, navigate an extremely complex legal process, and obtain the majority of votes at a general election. The three-year rule exists in law to prevent the Legislature from steamrolling the will of the people in the very next session by changing a voter-approved measure.
- And finally, The Education Initiative — with all its flaws — is on the ballot primarily because business interests in Nevada have consistently killed any attempt to enact a business tax of any kind in Carson City. While they cheerfully point out the flaws of the current proposal, the fact remains, they had chance after chance over decades to suggest a better idea in Carson City. Instead, they simply shot down all proposals. The result? A frustrated union that wrote a well-intentioned-if-flawed measure. The result was foreseeable (that’s how we got legal medical marijuana and outlawed smoking in restaurants and grocery stores, for example).
Then there’s Tim Wulf, a former vice chairman of the Washoe County Republican Party who backed Mitt Romney over President Barack Obama in 2012. Wulf — who holds a bachelors degree in economics and a masters in education, and once taught economics as a faulty member at Parkland College in Champaign, Ill. — told the Sun he’d either have to raise his sandwich prices or lay off employees in order to compensate for the impact of the tax on his business.
“What we know is that business, to survive, will have creative responses, and none of those responses will be good for payroll or will be good for pricing,” Wulf told the Sun. “There will be higher prices and fewer jobs.”
Then again, there are Jimmy John’s franchise operations in nearly every state in America, including seven of the 10 states identified by the Tax Foundation as having the worst business climates in the country. Since 98 percent of Jimmy John’s stores are franchise-owned, obviously owners in places such as California, Texas, New York and New Jersey have found a way to keep selling sandwiches notwithstanding business taxes.
It’s not to say the tax won’t have an effect; obviously, every levy has an affect on business, and some businesses will consider layoffs or increased prices as a response. (Studies conducted in 2003 and 2011, however, found that prices on the same goods in neighboring states with business taxes were roughly equal to those of Nevada.)
The fact remains that the perfect tax — the one that burdens no one while raising plenty of money to accomplish all the state’s duties — doesn’t exist. There are flaws with every conceivable tax, including the margin tax. It’s just that political circumstance has left us debating the margin tax.