June 1, 2009 brought good news and bad news. The bad news was that business was taxed once again to pay for the shortfall in the state budget. The good news was that there wasn’t much more bad news.
Before the session started, legislators knew they would have to come up with around $3 billion to balance expenditures and projected revenues over the next biennium. After extensive lobbying efforts on all sides, the budget was finally balanced by reducing expenditures by $1 billion, adding $781 million in new taxes, and increasing hotel room taxes by $219 million.
The primary impact on businesses was an increase in the modified business tax (payroll tax) from 0.63 percent to 1.17 percent. The payroll tax increase applies to annual payrolls in excess of $250,000. For a worker earning the state average of $40,000, the tax increase will cost a mid-sized business $216 extra per year. That amount doesn’t seem like much, but if you multiply that by a thousand employees, it may cause management to reconsider hiring or retaining employees.
Businesses with less than $250,000 in annual payroll will actually see a slight reduction in their tax rate, from 0.63 percent to 0.5 percent. However, business license fees increased from $100 to $200, a regressive tax that will affect small businesses most of all. Small businesses will also be affected by a 0.35 percent increase in sales tax, which means that everything they buy in Nevada will now cost a little more. With profit margins as tight as they are now, every little bit hurts the average small business. A change in the depreciation schedule for motor vehicles will also cost businesses more, whether they own a fleet of limousines or a single delivery van.
Individually, each of these small tax increases seems relatively harmless. However, the combined effect on the average business in Nevada is like the ancient Chinese torture called “death by a thousand cuts.” The Assembly Republican Caucus estimated that the 2009 tax package will cause 10,000 jobs to either be lost or not created. With unemployment already at 11.3 percent, that’s a frightening prospect.
Speaking of bad news, Gov. Gibbons has said there is a “good chance” he will call a special session of the Legislature before the next regular session begins in February 2011, because the tax increases won’t bring in the revenue that was predicted. If that happens, look for the payroll tax to be bumped up again. Also watch out for those who claim the only solution to our problem is a corporate income tax. Don’t think it can’t happen here.
Despite Gibbons’ obvious failings, he did keep his promise to reject tax increases. On the other hand, lawmakers have already proved that they would rather override the governor’s veto than reduce spending. Nearly all legislators campaigned on a “no increased taxes” platform, and yet they caved in when it came time to approve the budget. So, keep your eyes and ears open, and make sure your legislators know that you’re watching what happens in the interim.
Silencing the voice of the people – update:
Readers’ response from last month’s column on legislators overturning the voice of citizens was overwhelming. As an update to that column, be advised that republican Senators Dennis Nolan of Las Vegas and Dean Rhoads of Tuscarora changed their votes and joined the majority to override the Governor’s veto on the domestic partnership bill. This bill was in direct conflict to the vote of Nevadans as expressed in an earlier petition. Let’s not forget Nolan and Rhoads when the next election cycle comes around.
