Las Vegas Sun

August 5, 2015

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STATE BUDGET:

Loophole a threat to Gov. Brian Sandoval’s tax pledge

Governor caught unaware of provision in 2009 agreement that cut taxes for small businesses

MAJORITY AFFECTED

Legislation that raised taxes on big businesses, which Gov. Brian Sandoval hopes to let expire in 2011, also lowered the tax rate for 73 percent of the state’s smallest businesses, which were taxed at 0.5 percent for the first $250,000 in payroll instead of the previous rate of 0.63 percent.

THE COST: $15 MILLION

Unless Sandoval acts, the increased taxes could cost small businesses $15 million over two years. Although it’s a small amount relative to the state’s estimated $2.2 billion deficit, Sandoval has appeared intent on making a principled stand on the issue.
Brian Sandoval

Brian Sandoval

Heidi Gansert

Heidi Gansert

About 70 percent of the state’s businesses would see their payroll taxes increase if Gov. Brian Sandoval keeps his campaign promise to allow a 2009 tax package to expire.

The reason: To sell that legislation two years ago, Democrats included a mix of tax increases for bigger businesses, aimed at bringing in an additional $347 million, with tax cuts for a majority of smaller businesses struggling through a deep recession.

When asked about the issue by the Sun, the Sandoval administration was unaware that a small-business tax increase would accompany expiration of the 2009 legislation.

Chief of Staff Heidi Gansert said the administration was “re-examining the budget” in light of the issue. Yet she remained vague about what the budget will contain.

“We’re doing our best to make sure the budget makes sense,” said Gansert, who was the Republican Assembly minority leader before joining the Sandoval administration.

The budget is not complete, but in its final stages, undergoing proofreading by the budget office before being printed Monday.

Sandoval will unveil his recommended spending plan Jan. 24, when he delivers his State of the State address. He has said only that it will contain “shared sacrifice” in the form of cuts and no tax or fee increases.

He has also promised to undo the tax changes passed in 2009 over a veto from Gov. Jim Gibbons.

Sandoval has vowed that the state will spend no more than $5.3 billion over the next two years, the amount of revenue projected by the state’s official forecasters, the Economic Forum. That estimate assumes the 2009 Legislature’s $1 billion tax increase would expire as lawmakers intended.

The Democratic-controlled Legislature, joined by a majority of Republican state senators, passed the tax increase and overrode Gibbons’ veto. To make the tax increase more palatable to conservatives, Democratic Assembly Speaker Barbara Buckley put a wrinkle in the increased payroll tax: It lowered the tax rate for 73 percent of the state’s smallest businesses. The first $62,500 of payroll a quarter, or $250,000 a year, is taxed at 0.5 percent instead of the previous rate of 0.63 percent. Any payroll over that amount has since July 1, 2009, been taxed at 1.17 percent.

Without passage of legislation to extend changes in the tax rates, the increases and the reductions will return to their previous levels.

Some estimates put the value of the increased taxes on small businesses at $15 million over two years. Although it’s a small amount relative to the state’s estimated $2.2 billion deficit, Sandoval has appeared more interested in making a principled stand than taking a pragmatic approach.

Sandoval won a decisive victory over Gibbons and his Democratic opponent by promising not to raise taxes or fees, saying families and businesses couldn’t afford to pay more in this economy.

Gansert said the office was still gathering numbers on the effect of continuing the lower payroll tax rate for small businesses.

Assemblywoman Debbie Smith, D-Sparks, and incoming chairwoman of the Assembly Ways and Means Committee, first raised the issue to the Sun.

“I guess I am surprised” that the governor’s office didn’t recognize the issue sooner, Smith said. “There are great minds working on this budget.” Smith didn’t repeat criticism Sandoval has received from other Democrats and many large businesses over his inflexibility on raising taxes.

“I’m trying very hard at this point to reserve any of that until I see the budget and those discussions begin,” she said. “I’d prefer if he had an open-minded approach. But we aren’t in the place yet where we are having those discussions.”

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