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Thursday, Feb. 27, 2020 | 2 a.m.
When Clark County Commissioner Tick Segerblom voted to raise the county’s sales tax by an eighth of a percent in September, he knew he was increasing a regressive tax that disproportionately impacts low-income individuals. But the tax hike was one of the only ways the county could boost funding for education and homelessness, two areas commissioners say are in need of extra cash, according to Segerblom.
“If we could raise the corporate income tax, the mining tax, things like that, that would be great,” he said. “But short of that, the simplest and fastest way to raise money is unfortunately the sales tax.”
The commission-approved tax hike brings the sales tax rate in Clark County to 8.375%, an all-time high in Nevada. In the next two years, it could go up even more; the Clark County Education Association (CCEA) is petitioning to raise a portion of the sales tax, known as the local school support tax, by 1.5% to boost public education funding.
With the Legislature having failed to allocate substantial new revenue to education during the 2019 session, another sales tax hike might be the best, most immediate way to increase funding, said CCEA Executive Director John Vellardita. Those criticizing the union’s attempt to raise the sales tax should recognize that lawmakers have not identified an alternative funding source for schools, he said.
“We haven’t seen any effort, any voice, any activity over the last several [legislative] sessions led by those who criticize it as regressive to change the way it is now,” Vellardita said.
These recent efforts to raise the sales tax appear to be part of a larger, years-long pattern in Nevada. Regressive and unstable due to its dependence on consumers’ volatile spending habits, the sales tax has nonetheless been the largest tax-generated source of revenue in Nevada for years. Between 2019 and 2021, 29.6% of all revenue in the state’s general fund was raised through the sales tax, according to the Department of Taxation’s annual revenue report.
But three trends are creating challenges for the state’s reliance on the sales tax, said Jeremy Aguero of the Nevada-based financial consulting firm Applied Analysis.
One pertains to the types of goods subject to the tax in Nevada. With the state’s sales tax base already one of the narrowest in the country, recently approved sales tax exemptions for food, medical equipment and feminine hygiene products have slimmed that base down even more, Aguero said.
There are ethical questions to consider when taxing those products, since most consider them to be necessities. But taxing them also made sales tax revenue more resilient in times of economic downturn, said Marvin Leavitt, a former state lobbyist and former director of finance for the City of Las Vegas.
“If you have a recession, people still buy food, but they don’t buy other things. So [exemptions] make the tax less stable,” Leavitt said.
Additionally, more Nevadans are spending their income on non-taxable services rather than goods, Aguero said. Unlike many states across the country, services in Nevada—attorneys, electricity, repairs and more—aren’t taxed.
“There have been discussions about trying to apply the sales tax rate to services, but it has never happened,” Leavitt said.
Finally, property taxes—the other major source of revenue for local and state governments historically—haven’t been rising at the same pace as the sales tax. In fact, they can’t by state law.
Amid rapidly increasing property values and taxes in the early 2000s, lawmakers passed two laws in 2005 to ease the burden for taxpayers, Leavitt explained. Under the laws, residential property taxes cannot increase by more than 3% annually, and other property taxes cannot go up by more than 8% annually.
While the measures were beneficial to taxpayers at the time, the benefits have been less apparent since the Great Recession, Leavitt said. During that period, property values plummeted, as did property taxes, but once the economy began to bounce back, property tax revenue could only increase incrementally.
“If a house was valued at $300,000 and the value went down to $200,000, the property taxes would decrease,” Leavitt said. “But then if property values increased, we were limited on how much [taxes] could grow in any one year.”
The limit on property tax growth applies statewide, but fast-growing counties like Clark and Washoe have been affected the most by this, he said.
One of the reasons Nevada has historically relied heavily on sales taxes is because of the state’s high number of visitors. While property taxes are only applied to permanent residents, the more than 40 million people who visit Las Vegas every year contribute to sales tax revenue through in-state purchases, reducing residents’ overall tax burden.
But that point is becoming less compelling when looking at visitation and population trends, Aguero said. Because of Southern Nevada’s ballooning population and declining growth in visitation, the number of visitors per permanent resident is going down. As the state continues to diversify its economy to rely less on hospitality, this trend could become more pronounced, he said.
“If there’s fewer visitors for every man, woman and child, then the subsidy that’s created by visitor activity is spread thin over a growing number of actual, full-time residents,” Aguero said. “That puts stress on the sales tax’s ability to continue to provide services.”
Nonetheless, revenue from the sales tax overall has been on the upswing over the past year or two. Sales tax revenue brought in $1.09 billion to the state in fiscal year 2018, a 4.8% increase from the year prior.
Aguero attributes that high revenue to the taxation of internet sales, approved with a 2018 Supreme Court ruling. A spurt of high-budget construction projects, such as Resorts World and Allegiant Stadium, have also generated substantial revenue because construction materials are subject to the sales tax, Aguero said. The question he posed was whether that trend would sustain itself over the long term, especially if the economy suffers.
As far as Leavitt is concerned, it’s time for lawmakers to examine the state’s tax system, including sales and property taxes. “There are a whole bunch of things, I suppose, that sometime in the future, the Legislature needs to do a lot of work on to see if we have the right mix based on the way the current economy is,” Leavitt said.
But until changes are made, local lawmakers and advocates will continue to push for more revenue for services when needed, even if it’s done through the sales tax. The CCEA hopes to resolve a legal challenge from the Metro Chamber of Commerce to its proposed local school support tax increase and to secure enough signatures from residents to bring its proposal to the Legislature in 2021, Vellardita said.
“In lieu of an alternative, how are we going to fund our schools?” he asked.
This story appeared in Las Vegas Weekly.
