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From Governing’s
Most of the money that does not come from gaming comes from other sales and use taxes, and these have been hit hard not only by recession but by limitations on taxing Internet sales. Meanwhile, Nevada’s fast-growing population requires high expenditures for schools and other social services that the existing structure will not support. No surprise, then, that there is a hole in the 2004 general fund budget of about 15 percent, according to conservative estimates. The deficit could go as high as 18.5 percent.
The Nevada Constitution forbids a personal income tax, and the only business tax currently levied is a $100 per person annual head tax on employees. Many local jurisdictions are up against a very low property tax cap that was put in place in 1981. Cigarette and liquor taxes haven’t increased in nearly two decades. The sales tax base is narrowly drawn and riddled with exemptions, covering virtually no services in a state where the economy is almost entirely service-based. All of this combines to create a regressive and dysfunctional tax system. The emphasis on consumption taxes hits lower-income residents hardest. Although Nevada has excellent opportunities to shift much of its tax burden to out-of-state tourists, it hasn’t really taken advantage of this simple expedient. At the close of the last legislative session in 2001, a Governor’s Task Force on Tax Policy was established to come up with solutions to the state’s structural tax problems. Last November, the task force recommended an increase in the property tax, a gross receipts tax on businesses with more than $350,000 of gross income, increases in cigarette and liquor taxes and a 6.5 percent tax on amusements. The task force also suggested looking at broadening the sales tax base and creating a state lottery at a later date. As soon as these recommendations were made, critics began gunning them down. There is a deeply rooted anti-tax ethos in the state, and whether these sensible suggestions will prevail in this year’s legislative session is anybody’s guess. The last tax structure study, commissioned by the legislature in the late 1980s, was largely ignored. Any effort to reform the system is further complicated by Nevada’s political procedures. The legislature meets only in odd-numbered years, with sessions now limited to 120 days, and so it is difficult for leaders to deal with any problems — let alone ones as sensitive as tax issues — in a holistic fashion. It’s not uncommon for 1,800 bills to be introduced in a legislative session, for 1,100 to be heard and 700 passed. “You can seldom go into an entire statute and take a look at all the ramifications and accomplish what you need to do and how you need to do it in a limited-time legislative session,” says Carole Vilardo, president of the Nevada Taxpayers Association. State law requires that at least two-thirds of each house of the legislature approve new taxes or tax increases. This means only eight of 21 senators need to vote against a tax proposal to kill it. What’s more, Nevada is a state that uses ballot initiatives. Once voters weigh in on any tax proposition, the issue must be brought back to them for final resolution to take place. This means, for example, that the state sales tax, passed by a popular vote in 1956, could be revised only by another popular vote, so it is no coincidence that the tax has remained largely unchanged for the past 47 years. Local sales tax codes, on the other hand, can be changed fairly easily, leading to a complex system in which there are many different rates. Nevada hasn’t been much better at administering the tax law than it was in creating it. The state has interpreted its laws to mean that it can only do random audits; in other words, even if the state knows that particular kinds of businesses are rife with violations of sales tax law, it isn’t allowed to gain the obvious efficiencies available by selecting out those businesses to audit. Budget cuts and staff shortages have curtailed the number of random audits as well. The revenue department currently has a vacancy rate of about 10 percent. Unlike other state revenue departments in which increased automation has helped cope with understaffing, Nevada has shortchanged its tax department in this area also. The state’s excise taxes are all run off of separate stand-alone technology. For its sales and use and business taxes, the department is currently operating with 1980s technology, implemented in 1995. There is no electronic filing of returns. “We’re not collecting revenue we’re allowed to collect, because the computer software programs will not accommodate the changes that need to be made,” says Vilardo. “The technology is terrible. It’s disgraceful.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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evada has long been aware that there’s something out of whack in its tax system. “If you look in the dictionary under structural deficit,” the state’s director of administration mused a couple of years ago, “I guess the state seal of Nevada ought to be right there by the definition.” One reason is that the state is heavily dependent on tax revenue from its casinos and slot machines, and these receipts have been declining on a per-capita and per-visitor basis since the mid-1990s.