United States

Nevada: Governor Proposes Expansion of Business License Fee

Feb 09, 2015
From KPMG TaxWatch

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Nevada Governor Brian Sandoval recently released his FY2016 – FY2017 budget, which includes a proposed overhaul of the state’s business license fee. The purpose of the proposed overhaul is to raise revenues to support K-12 educational programs in Nevada. Recall, last year Nevada voters soundly defeated a “margin tax” ballot initiative that would have imposed a 2 percent Texas-style tax on businesses with more than $1 million in annual revenue. If the margin tax had been approved, the revenues were purportedly earmarked for education.

Although the city of Reno and Clark County (in which Las Vegas is situated) impose local business license fees based on revenues for certain industries, most Nevada businesses currently pay a flat $200 state-level business license fee each year. The governor’s proposal would change the flat business license fee to a fee based total revenue, which would generally include all business receipts. Certain types of interest, dividends, and capital gains, wages reported on W-2’s, and gifts would be excluded in determining a taxpayer’s total revenue. Gambling revenues subject to the “percentage fee” on gaming wins would likewise be exempt from the proposed business license fee. The fee, which would be paid on a quarterly basis, would be based on revenue range or band in which the business falls and the rate applicable to the fee payer’s industry.

The proposal anticipates that there will be approximately 30 business activity categories, each with its own rate. The lowest annualized fee under the revised structure would be $400, and the highest fee imposed is estimated to be “more than $4 million” for a taxpayer with gross revenue in excess of $1 billion. Material distributed by the Governor’s office indicates that the rates for each industry are adjusted to reflect the margins for each sector as well as the average cost of goods sold and average labor costs. “Adjusted” rates reflected in the material from the Governor ranged from a low of 0.056 percent for Mining to 0.362 percent for rail transportation.

Governor Sandoval says the tax has the best attributes of a true gross receipts tax, margin tax, and business license fee structure. Interestingly, although the Governor is a Republican and Republicans control both chambers of the legislature, there is already quite a bit of opposition to the Governor’s business license fee proposal. Other tax changes receiving less attention include making certain temporary sales and use tax and payroll tax increases permanent, raising the state’s cigarette tax from 80 cents to $1.20 per pack, and raising payroll taxes on the mining industry. Please stay tuned to TWIST for updates on Governor Sandoval’s plan.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.