A look at three ways the Legislature can handle the margins tax petition

By David McGrath Schwartz

Friday, Feb. 1, 2013 | 2 a.m.

The Education Initiative, upheld unanimously by the Nevada Supreme Court on Thursday, has thrust the tax debate front and center less than a week before the 2013 legislative session begins.

The Supreme Court decision doesn’t end the fight. Instead, it requires lawmakers to engage in it.

It’s the beginning of a long, potentially contentious, tax debate that could dominate a good portion of the 120-day session.

The 2 percent “margins tax,” on businesses' gross income over $1 million, after some deductions, will be thrust into lawmakers' laps. The tax would raise an estimated $800 million to $850 million a year, a massive amount for a state where Gov. Brian Sandoval proposed a $6.5 billion two-year general fund budget.

Here are the three ways the Legislature can deal with the tax initiative.

• Pass the tax

  The Legislature, under the state’s constitution, has 40 days to pass the tax.

  But vote counters and legislative veterans all privately agree that it won’t happen.

  It takes a two-thirds supermajority to raise a tax in Nevada. And even Democrats, who control both chambers and proposed a similar tax in 2011, have balked at the initiative, privately expressing concerns about technical language and the 2 percent rate.

  When Democratic leadership proposed a margins tax in 2011, it was for 0.8 percent on business gross income over $1 million. It was coupled with lowering the state’s modified business tax, which is based on payroll, and expanding the sales tax on services.

  But even if the teachers union and liberals in Nevada could rally support among Democrats, they would have a hard time picking up Republican votes.

  Senate Minority Leader Michael Roberson, R-Las Vegas, said in a statement: “I am proud to live and work in a state that has — throughout our long history — rejected imposing income-based taxes on our citizens. ... For that reason, I strongly oppose this income tax proposal.”

• Do nothing

  When it comes to the Legislature, this often is what lawmakers do best — nothing.

  If that is the case, the Education Initiative will go on the ballot in November 2014.

  That means a long, potentially expensive campaign for and against that have to be paid by someone.

  The teachers unions and liberals are committed to this tax. Other state labor unions could support it, too.

  But they don’t have the same deep pockets or cachet with voters as some of Nevada’s biggest private-sector players.

  But if this goes on the ballot, it would be fiercely opposed by business groups. Expect television ads, mailers and campaigns.

  “We’ll be talking about a seven-figure campaign to fight this,” said Paul Enos, spokesman for the Committee to Protect Nevada Jobs, which fought the initiative in court.

  Traditional business allies for a broad-based tax, such as gaming and mining, have refused to sign on to the tax. Lobbyists close to the industry say the tax rate is too high.

• Pass an alternative

  Although lawmakers have 40 days to enact this tax, they have the full 120 days to pass an alternative, competing measure that would go on the ballot. Then, whichever tax question got more votes — assuming one would get more than 50 percent — would become law.

  This is where the Legislature could get interesting.

  Some companies and industries already are talking about the possibility of forming a broader coalition to pass a more moderate tax increase, or something that is revenue-neutral, according to lobbyists speaking on the condition of anonymity. With legislation, an alternative could be triggered to reduce or eliminate the state’s modified business tax on payroll. Some businesses have loathed the tax since it was passed in 2003.

  Or the alternative could be something that is revenue-neutral — raising one tax but lowering another so that the state’s tax base is more stable or grows in the future.

  Lynn Warne, president of the Nevada State Education Association, said a revenue-neutral alternative is a nonstarter.

  But, she said, her group is willing to listen to alternatives.

  “We’ve always said we’re willing to sit at the table, work for solutions for Nevada kids and schools,” she said. “Over 100,000 voters sent a clear mandate to the Legislature. Corporations in this state should be paying their fair share. Anything short of that is not representing the will of the people, we believe.”

  She said she’s looking to get more people on board for funding an initiative.

  “I think it’s time we work on broadening the coalition,” she said. “Whether it’s gaming, mining or businesses that come to the table and openly support what we’re doing, we think it’s time they do.”

  Asked whether she would accept a lower amount, Warne declined to say.

  “You’re asking me to bargain against myself,” she said.