Las Vegas Sun

March 28, 2024

Sandoval to present tax plan before Legislature

Governor Brian Sandoval

Governor Brian Sandoval delivers the keynote address during the Governor’s Conference on Small Business at the Orleans on Friday, November 2, 2012.

CARSON CITY — Gov. Brian Sandoval is gambling with his political legacy Wednesday, hoping to persuade a Republican-dominated Legislature that it should raise business taxes to create a "New Nevada" invested far more in K-12 education.

Sandoval has mustered an army of political heavyweights to testify with him in favor of a restructured business license fee, the capstone of a plan to boost state revenue from $6.6 billion to $7.3 billion every two years. While he enjoys wide popularity, he's taking no chances in his quest to win the two-thirds of legislative votes constitutionally required to pass the plan.

Previous attempts to dramatically change Nevada's tax structure failed — Gov. Kenny Guinn lost an ugly battle to raise taxes in 2003, and voters roundly rejected a 2 percent business margins tax on the 2014 ballot. Sandoval needs to lay out a vision so compelling that even fiscal conservatives feel comfortable voting for taxes.

POLITICAL CONTEXT

Governors rarely testify before the Legislature, much less the full Senate and Assembly. Sandoval spoke at a Senate committee hearing in 2011 to support a bill creating the Governor's Office of Economic Development and testified in 2013 to support an online gambling bill.

Afternoon committee hearings scheduled Wednesday were canceled so all lawmakers could hear Sandoval's testimony on SB252, which would implement the business license fee. The joint meeting was expected to last up to six hours, Senate Majority Leader Michael Roberson warned.

"Every member of the Legislature needs to be invested in this discussion," he said.

Supporting a tax hike is risky for Sandoval. The outcome not only promises to have an outsized effect on the Republican governor's political future, but could determine whether companies decide to invest in the state, Truckee Meadows Community College professor Fred Lokken said.

"The alternative is only bad news for Nevada," he said. "This is one of the highest-stakes sessions Nevada has had in its life as a state."

HOW IT WORKS

Sandoval hopes to change the flat, $200-per-year business license fee to a tiered system with rates ranging from $400 to $4 million a year based on revenue and industry type, and sectors with a higher average profit margin are expected to pay more.

He acknowledged that his plan is a hybrid between a business license fee, the gross receipts tax rejected by the Legislature more than a decade ago and the margins tax, but said it better balances the tax burden among industries.

The restructured business license fee, which is projected to raise $437 million over two years, is part of his effort to implement $1.1 billion in new or extended taxes.

Other elements of the plan include raising the cigarette tax from 80 cents to $1.20 per pack, changing the way slot machines are taxed, and raising the mining industry's payroll tax rate from 1.17 percent to 2 percent.

Sandoval is also asking for a permanent extension of temporary "sunset" taxes set to expire June 30.

PROPONENTS

Nearly 20 business organizations, companies and nonprofits gathered in front of the legislative building Wednesday to voice their support, saying schools are in desperate need.

"This is an historic opportunity to improve our public schools and invest in our children," said Rev. Dr. Marta Poling-Goldenne of Nevadans for the Common Good, a coalition of 37 churches, synagogues and nonprofits.

Notably, the influential Las Vegas Metro Chamber of Commerce hasn't taken a position.

OPPONENTS

Groups against the plan include the prominent conservative fundraising group Keystone Corporation. The organization said it opposes plans to tax business income but will work with Sandoval to vet alternatives to the business license fee.

The Nevada Policy Research Institute, a conservative think tank, pans the idea as the largest tax increase in state history and argues Nevada should live within its means. Conservative advocacy group Americans for Tax Reform declared Sandoval's plan a "full flip-flop" that would hurt the economy.

Others oppose the mechanics of the fee. Representatives of the Nevada Trucking Association say the fee disproportionately hurts smaller companies.

LEGISLATIVE HURDLES

The governor faces the challenge of wooing especially conservative Republicans ushered into office in the "red wave" of the 2014 midterm election, including unpredictable Assembly members.

He also faces bills that clash with the proposed tax. Republican Assemblyman Jim Wheeler is sponsoring AB 323, which would abolish the state business license fee altogether.

While Democrats have expressed cautious support for Sandoval's proposal, Sen. Pat Spearman unveiled a plan this week that goes in a different direction. It would hold the business license fee flat at $200 and abolish the modified business tax that Sandoval plans to keep.

Spearman said she thinks Nevadans deserve to pick between more than just one plan.

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