Margins tax opponents ramp up the rhetoric

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.

13 Responses to “Margins tax opponents ramp up the rhetoric”

  1. Steve says:

    “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.”

    Those studies are either flawed or incomplete if they do not also make clear multistate corporations spread the costs of all tax burdens throughout their whole corporation resulting in an average price that appears to be unaffected by high tax rates as opposed to low tax rates.
    In effect, (for example) every time we buy a product at a Walmart we pay some California state tax.

  2. Even better: So we already pay some of California’s education taxes, and Arizona’s, and Utah’s, and Oregon’s and Idaho’s. Why should it not be that their residents pay some of our tax? Why should we — by specific policy choice — donate to other states while ours suffers?

  3. Steve says:

    Thought you might take that tack.

    Think about it. All that happens is our prices go up along with theirs because we have the lowest rate. All we do is pay more here and continue to subsidize them.

    I would be less opposed to this thing if the state would balance the per pupil spending across the population…or, as your point makes…why should Clark County pay a premium for for small counties to spend almost four times what we have to spend? Why not average it like those corps do?

    You know, like Skorkowsky identified, in passing, before the business leaders jumped on it.

    There are so many things wrong with this initiative its galling. Worse yet, not only did business leaders fail to offer any ideas,,,democrats refused to make any moves on it either. If memory serves it was actually republicans that wanted to get a handle on it and made proposals shot down by the very union that is pushing this and the democrats that wanted it to go away.

    You may be the only journalist supporting it, but I (and others) think you are playing Don Quixote.

  4. Rich Hoges says:

    I have two kids in school and I’ve lived here for ten years. I am sick of portables, not enough teachers, and my kid having to wear a suitcase sized backpack every morning because there are no lockers. From what I’m reading above, I think it’s pretty clear it’s time for businesses to help pay for schools.

  5. Kye Maxie says:

    It isn’t surprising that these bigger businesses would be doing everything they could to spread lies about what this Initiative would do; they think it is in their best interest to not invest in our community at all! What they need to realize is that Nevada voters aren’t stupid and that if we didn’t support this, it never would’ve ended up on the ballot in the first place.

    It is about time we stop doing NOTHING for our kids! We need to support this. It is not asking too much of these businesses (that are completely fine paying more in other states) to pitch in on our state’s future. I’m absolutely supporting this in November.

  6. Marlo Winrow says:

    I love the “But it’s not perfect—so let’s do nothing” argument going around these days. Obamacare isn’t perfect—so let’s do nothing to fix our broken health care system. Immigration reform isn’t perfect—so let’s do nothing. Whether it’s climate change or Wall St. regulation on a national scale or education on a local scale, this argument is being used consistently to justify the status quo.

    The problem is, when it comes to our schools the status quo has left us with some of the worst schools in the nation. Our graduation rate is one of the lowest in the country; our smartest kids flee the state and our youngest start behind the curve thanks to our state’s refusal to invest in their future and our economy.

    The people put this initiative on the ballot for a reason and if the legislature won’t act, we have to. The status quo works great for huge corporations who happily take Nevadan’s money and don’t pay a thing in taxes. But our kids deserve better, this initiative may not be perfect, but we have to start somewhere, our kids deserve at least that much.

  7. Steve says:

    First step, balance the per pupil spending in the state of Nevada.
    Then we look at possibly finding new sources of revenue.

  8. John says:

    Two problems exist. One & probably the most critical. NV students for the most part are not serious about education. Majority of high school seniors can’t wait to get out of school & find a job. That come from home to a great extent. Parents!
    Second, the money. NV has no lottery, the two highest grossing lotto outlets are on the NV boarders. This means NV money supports CA schools.
    Simple solution, have NV join the PowerBall & MegaMillions. You don ‘t have to reinvent the wheel. Just participate!!! Make NV Casinos the ticket purchasing outlets. People hate paying taxes& we pay a lot less than most. Lotto is painless,don’t ‘to want to play, you don ‘t have to, however we have millions who do & CA reaps the benefit. This is a no brainier.

  9. Angie Sullivan says:

    Millionaires and billionaires need to pay their fair share. The ultra rich have plenty of money. We don’t owe them – they owe us. Corporations have taken advantage of our state. They have lived on Nevada’s corporate welfare system long enough. They try to scare us? We see your profits in your statements – we see the hoarding – we see the gold being drained. It is theft and broken promises and abuse. Giving, serving and worshipping them has left us broken and used up. Enough is enough.

    Our schools are starving. You can blame anyone you choose but when the state continues to fund 51st in the nation . . . the bottom line is financial starvation. You can complain all you want but being selfish and cheap is failing kids. Big money fat cats have to give something back and its time to take it from their evil cold-hearted hands.

  10. Frank Tepper says:

    I think that it comes down to whether we want to educate our children or babysit them. We would like to educate the children however, there isn’t enough money for that. We need to have the workforce that can participate in the new jobs that are coming tomorrow. I support the Margins Tax not because I like paying more tax but it is for the Children of the State of Nevada. Sure it maybe flawed, but doing nothing would be worse.

  11. Gary Brady-Herndon says:

    I am a college professor and new to the state, so I am not comfortable commenting on the topic of Nevada public schools suffering under the burden of underfunded classrooms. I can say that the trend in many community colleges today is a burgeoning budget crisis created by the boom of Developmental Education classes. These courses are required for many students to bring them up to speed before continuing their education if they hope for acceptance by a four year school down the road. The reason for this is obvious. Nationally, K through 12 curriculums are not meeting the educational needs of students who attend publicly funded schools. Businesses that oppose raising taxes to help students receive a quality education that produce successful college graduates are out of touch with reality. An educated workforce is the only way to lift this nation out of the cesspool of educational mediocrity rampant across the nation. Providing funding for a quality public educational system for all children used to be, and should be today, a priority for the public and the businesses that serve them.

  12. Nancy Kuhns says:

    Please keep posting truth. We have to do something to fund education and right now this is what we have. Let’s at least look at it with clear eyes and clear heads.

  13. Joel Berg says:

    Children are our legacy for the future— for our aspirations. Large corporations are doing very well; our kids are hurting. Nevada is last in the nation. Let’s turn this around.