Jun 15, 2015
From KPMG TaxWatch
Due in no small part to the efforts of Governor Sandoval, Nevada has made a number of changes to its business tax structure. Most of the revenues raised from the tax increases in Senate Bill 483, which was signed into law on June 9, 2015, are earmarked to fulfill the Governor’s pledge to provide additional funds for education. The key component of the proposal is a new “commerce tax” that will be imposed annually on each business entity engaged in business in the state that has more than $4 million of Nevada gross revenues. The commerce tax rate to be applied to Nevada gross revenues varies depending on the taxpayer’s industry. “Business entities” subject to the new commerce tax include, but are not limited to, corporations, pass-through entities, joint ventures, and other persons engaged in business in Nevada. Certain types of entities are specifically excluded from the definition of “business entity,” including, but not limited to, governmental entities, nonprofits exempt from federal tax under IRC Section 501(c), credit unions, certain REITs and REMICs, passive entities (as defined) and persons whose activities in Nevada are limited to owning, maintaining, and managing the person’s intangible investments.
A business entity’s gross revenues will generally be the total amount realized by the business from a variety of activities without any deduction for costs of goods sold or other expenses incurred. However, there are certain exclusions from the definition of “gross revenues” including, but not limited to, certain amounts realized from the sale, disposition or granting of the right to use trademarks and other intellectual property. In addition, in computing its tax base, a business entity is allowed to deduct certain types of receipts. There are over 25 different deductions, including certain deductions for amounts representing the bases of other Nevada taxes, such as premiums taxes, gaming taxes, or taxes on mineral extractions. Other deductions include pass-through revenues, which is defined, in part, to include receipts by a business entity from another member of an affiliated group.
Specific rules apply for situsing receipts to Nevada (i.e., determining which receipts are to be considered Nevada gross revenues). These rules are similar to rules that are applied in other states to determine the state’s sales factor numerator. For example, revenues from sales of tangible personal property will be sitused to Nevada if the property is delivered into the state, gross revenues from sales of real property will be sitused to Nevada if the real property is in Nevada, and gross revenues from sales of services will be attributed to Nevada in the proportion which the purchaser’s benefit from the service is received in Nevada bears to the total benefit of the service received everywhere. Gross revenues not specifically addressed in the statute will be sitused to Nevada if the receipts are from business activities conducted in the state.
After determining a business entity’s total Nevada gross revenues and subtracting $4 million, a specific rate applies based on the taxpayer’s primary business activity. There are 25 specific categories of business activity for which tax rates are established, often defined with reference to NAICS codes. For example, a 0.111 percent rate applies to retailers, 0.136 percent applies to telecommunications companies, and restaurants will use a 0.194 percent rate. For any types of businesses that do not fall within a specified rate category, a 0.128 percent rate applies.
The commerce tax becomes effective on July 1, 2015. A commerce tax return and any commerce tax owed will be due 45 days after the close of the taxable year, which is the period beginning on July 1st and ending on June 30th of the following year. As such, the first commerce tax returns will be due on August 14, 2016, unless an extension is granted. The Department of Taxation can extend the time for payment of the tax up to 30 days for good cause. Taxpayers that are granted an extension will not be penalized for failure to pay tax when due, but will be required to pay interest.
Senate Bill 483 also includes several other tax changes, including repealing a planned reduction of Nevada’s state sales and use tax rate that was scheduled to occur on July 1, 2015, meaning the existing 6.85 percent rate will continue to apply indefinitely. The bill also makes changes to Nevada’s Modified Business Tax, which is currently imposed at a rate of 1.17 percent on the total wages paid by a business, other than a financial institution, that exceed $85,000 each calendar quarter. The Modified Business Tax rate of 1.17 percent was scheduled to drop to 0.63 percent of the total wages paid on July 1, 2015. Senate Bill 483 raises the rate to 1.475 percent effective July 1, 2015 and imposes the tax on the sum of all wages that exceeds $50,000 per calendar quarter. Financial institutions continue to be subject to Modified Business Tax on the sum of all wages paid at a 2.0 percent rate. In addition, Senate Bill 483 extends the 2.0 percent Modified Business Tax to companies required to pay tax on net proceeds from minerals extracted from Nevada. Taxpayers that are subject to the Modified Business Tax on wages will be allowed a credit against the tax equal to 50 percent of the commerce tax paid in the preceding tax year. Taxpayers subject to the net proceeds tax assessed on minerals extracted from Nevada will continue to have to make payments in advance through June 30, 2016. The advance payment requirement had been scheduled to sunset on June 30, 2015.
Other provisions of Senate Bill 483 raise certain fees. One fee that is increased is the annual $200 “Business License Fee,” which is paid to the Secretary of State’s Office at the time a corporation is formed or a corporate license is renewed. The current $200 business license fee is raised to $500 for corporations. Another fee that is raised by $25 are the various fees that are paid to the Secretary of State when filing initial and annual lists of officers and directors.
Please contact Harley Duncan at 202-533-3254 with questions on the Nevada law changes.
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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.