Legal "big guns" give OK to proposed business tax
September 19, 2002
In a move designed to head off any legal challenge of its business tax, the Governor’s Task Force on Tax Policy Wednesday called in the legal big guns.
Former attorney general, governor and U.S. Sen. Richard Bryan, former attorney general Brian McKay and Richard Morgan, head of UNLV’s Boyd School of Law, told the task force there is no constitutional or other legal prohibition against the proposed tax on gross receipts of Nevada businesses.
Bryan said he was hired by the Nevada Resort Association to review the legal issues involved and called in McKay and Morgan to help with the analysis. He said Nevada’s constitution is clear: It prohibits an income tax levied on the wages or income of natural persons, but specifically states a tax can be levied on business.
“The constitution does not distinguish between net or gross taxes,” he said. “So it is our conclusion that the legislature has the power to impose a tax — net or gross — on the income of a business.”
“I think the legislature clearly has the power to levy a gross receipts tax,” McKay said.
They said the teachers union tax initiative two years ago was thrown out by the Nevada Supreme court because it included a requirement that the legislature fund public education at a particular level — at least 50 percent of the general fund budget. But Bryan said even that opinion concluded that, without the requirement, there was nothing to stop the Legislature from passing the business tax proposed by teachers at that time.
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Morgan said he agrees. And he added that arguments by “sole proprietors” and small business partners that all their business income is actually personal income won’t escape a business tax either.
“Sole proprietors may regard their business income as their personal income but they shouldn’t,” he said.
Morgan also advised the task force the legislature could, if desired, exclude nonprofit operations from any business tax.
The opinion was designed to clear the way for a business tax, which the state’s businessmen have strongly opposed throughout the task force’s deliberations. Although many smaller Nevada businesses pay no state tax and, in many counties don’t even pay licensing, they have complained that any tax imposed on them could drive some out of business and others out of the state.
The task force will consider the idea of recommending the governor and legislature enact a quarter-percent tax on gross receipts of Nevada businesses at its next meeting in October.