Proposed margin tax may cripple many of the state’s businesses
July 22, 2014
Fallon's businessmen and women learned Thursday at the monthly Fallon Chamber of Commerce luncheon that the Education Initiative — aka the Margin Tax — will be a major tax burden on businesses.
Nicole Willis-Grimes, director of public affairs at The Ferraro Group, presented the business owners with the fine details of the tax.
Willis-Grimes said the Margin Tax Initiative, question three on Nevada's November statewide ballot, would impose a new state tax on Nevada businesses.
"Businesses with more than $1 million in annual gross revenues would be subject to a new 2 percent margin tax," Willis-Grimes said, "regardless of how much of the revenues are actual profits."
“The new tax on gross revenues would be especially damaging to employers that have high overhead and slim profit margins. Such as farmers, ranchers, grocery stores, retailers and other small retailers and to those that are already on the brink of closing. Businesses would only be allowed to deduct some of their actual costs from the revenues subject to the tax. The new margin tax would dump a $750 million increase on the costs of doing business for Nevada employers, making Nevada one of the five highest taxed states in which to operate.”
Willis-Grimes said the margin tax is portrayed as a minor tax on big businesses and that the tax revenue would go toward education. She said in reality, the initiative would impose a major new tax burden on both large employers and smaller businesses throughout the state.
Imposing the initiative's tax on top of the state's existing Modified Business Tax would create an almost 15 percent state corporate income tax, which is nearly twice as high as the corporate income tax rate in California, Willis-Grimes said.
"The new tax on gross revenues would be especially damaging to employers that have high overhead and slim profit margins such as farmers, ranchers, grocery stores, retailers and other small retailers and to those that are already on the brink of closing," she said. "Businesses would only be allowed to deduct some of their actual costs from the revenues subject to the tax."
Willis-Grimes said the flaw exposes a fiscal cliff. She said a business making one penny less than $1 million in gross revenues would pay no taxes, but a business making one penny more than $1 million would pay the 2 percent margin tax based on the entire million, even if none of it was profit.
"The new margin tax would dump a $750 million increase on the costs of doing business for Nevada employers, making Nevada one of the five highest taxed states in which to operate," Willis-Grimes said.
Willis-Grimes said there have been several notions that the tax would benefit education.
"There is no guarantee that the tax would be used for funding education," Willis-Grimes said. "The legislature would have complete authority to divert funds from this new tax to things other than education. The initiative contains no guidelines on how any funds going to education would be spent."
Willis-Grimes said if the new margin tax were showing any flaws, the legislature would not be able to resolve them until 2019.
Willis-Grimes opened up the floor for questions to local businessmen and women after she was finished with her presentation.
One resident asked Willis-Grimes who devised the Margin Tax Initiative?
"The proponents of the margin tax has been driven by the Teachers Union, so the Nevada Education Association," Willis-Grimes said. "Initially, the Teachers Union and AFL-CIO (American Federation of Labor and Congress of Industrial Organizations). The details of the tax proposal changed, and AFL-CIO stepped down. They didn't like the direction it was going. In May AFL-CIO voted and has taken a position to oppose the margin tax."
Another resident asked what the odds of the tax passing?
Willis-Grimes said a friend of hers believes the issue could be made into a bumper sticker.
"Saying we need to do something for our education in this state, you can't argue with that," Willis-Grimes said. "When they were gathering signatures for the petition, 'sign this if you agree we need better education in Nevada' … people aren't going to say no to that. It's critical to continue to get the message out, getting the facts out and getting the details out about this. So people are informed about this matter and to make sure people go to the polls with all of the knowledge and facts."