Nevadans Are Missing Out on Phone Tax Refund

Early indications from 2006 tax filings is that almost a third of Nevadans are failing to apply for a phone tax refund that could cut their income taxes by up to $60. The Las Vegas Review-Journal reports:

The IRS conducted a survey over a three-week period indicating that 31.6 percent, or 79,000 of the 248,000 tax returns already filed by Nevadans, did not request a credit for federal telephone taxes. IRS spokesman Raphael Tulino said the 79,000 who failed to seek a credit, in effect, walked away from $2.3 million in credits or cash.

There are two important lessons here.

First, and most important, is that an effective outreach program is key in getting people to apply for tax breaks. This is a vital thing for Nevada lawmakers to know as they confront questions of tax fairness in the future, because even the best-targeted tax break for low-income families can't do its job unless people know about.

Second, it's easy for a tiny sapling like the phone tax refund to get lost among the tall trees of the Internal Revenue Code. There are an awful lot of tax breaks for special groups in the Code (for which we should blame Congress and the Administration, not the IRS), and a temporary credit that caps out at $60 for most people will hardly be written in neon lights for most of us.

The article doesn't say whether low-income families are disproportionately likely to be part of the 30 percent of Nevadans who are missing the boat on this, but it seems intuitively likely that this is true. And this is a tax fairness problem that both state and federal officials should be deeply concerned with.

Is Nevada's Tax System Putting the Screws to Banks?

Lobbyists for the banking industry are arguing that one feature of Nevada's 2003 tax hikes on businesses-- which imposes a higher payroll tax rate on banks than on other companies--unfairly singles out the banking industry and should be repealed.

A line of bankers and banking lobbyists decried that they must pay the 2 percent tax on their payrolls, while other businesses pay a 0.65 percent payroll tax rate. That rate temporarily was reduced to 0.63 percent in 2005, but will return to the 0.65 percent rate unless legislators make changes this year. Gov. Jim Gibbons has proposed making the rate 0.62 percent for nonbanking businesses.

There could be a good rationale for taxing banks at a higher rate than other forms of business. But what's interesting is that we're not really hearing any such rationale from defenders of the higher rate-- unless you count "we need the money" as a good rationale:

Jane Gilbert, a lobbyist for the Progressive Leadership Alliance of Nevada... contended that the $44 million the tax produces could be used for human services and education. Nevada State Education Association Executive Director Terry Hickman echoed Gilbert's comments. Hickman mentioned that a legislative-commissioned study found the state needs to spend $1 billion more on education. "It is time to invest in public education, not to take away resources," he said.

And that's fine. Adequacy is a terrific thing, and you can make a strong case that Nevada is not adequately funding plenty of important services. But the salient question here is why imposing a higher tax rate on banks makes any sense from a tax policy perspective. And no one seems to be offering a sensible explanation of this.
Anyone?

Locals Paying the Price for Gibbons' No-Tax Pledge?

For better or for worse, the tone of this year's legislative debate over Nevada taxes has been dominated by Governor Jim Gibbons' pledge not to hike state taxes. The Reno Gazette Journal cites one frustrated local official:

"We see the needs. We need more police on the street for public safety. The school district needs money to build schools. But both will have a tough road because this is a no-new-taxes session."

Gov. Gibbons has staked out a clear (arguably too clear) position on this issue:

The first-term Republican governor has vowed to veto any tax increases, although
he took time to meet with delegations from the school district and the cities to hear their cases.
He also said he would not stand in the way of new taxes if Nevadans show that they supported new taxes to pay for better roads and highways. City officials can only hope Gibbons takes the same approach if Reno and Sparks citizens approve the sales tax increase with a vote.
"As I explained to both parties, I am opposed to any fee or tax increases on a state
level," Gibbons said. "I told them that I would work with them to assist in other ways to find a means by which they can meet those needs, but I cannot support increasing taxes on homeowners from a state level."

This isn't, of course, the most politically difficult position in the world to take. At least some voters around the nation are still suckered in by candidates who pledge to conduct fiscal policy with one hand tied behind their back. And Gibbons knows full well that locals governments' hand will be forced. They'll have to come up with the money somehow, and however they do it, he'll be able to brag that he had no part in that tax hike.

But when voters are confronted with the choice to either hike taxes on sales or real estate transactions, as Washoe County is currently considering, or cut essential services, they should remember that they've been given this lovely choice as a direct consequence of state leaders' unwillingness to look tax issues squarely in the face.

Nevada As Offshore Tax Haven?

California policymakers are seeking to close the state's yawning "tax gap"-- the difference between the taxes that are supposed to be paid to the state and the taxes that actually get collected in a timely way-- and have Nevada's murky tax laws squarely in their sights. As the Review-Journal reports, a recent IRS report suggests that California officials are probably right to suspect Nevada-related tax avoidance scams:

When the Internal Revenue Service in November announced its upcoming mass audits of suspected tax dodgers, the federal agency singled out the Silver State --and Delaware and Wyoming -- as being especially susceptible to fraud abuse. Those same three states rival offshore financial centers when it comes to offering company registrations with "cloaking features," such as minimal information requirements and limited oversight, according to a year-old federal government report on money laundering.

California policymakers are asking all the right questions, and are (correctly) pursuing not just the companies and individuals who are stashing their money in tax havens like Nevada, but the unethical tax advisors who concoct the schemes that make this possible. Nevada policymakers should do their part and take a hard look at the privacy measures that currently make Nevada look like the Cayman Islands to a tax-averse corporation.

79% of Businesses Rate Nevada Tax Climate Good or Better

From the "Where You Stand Depends on Where You Sit" Department:

The Las Vegas Review Journal reports that in a survey of Nevada small businesses, the vast majority think the tax system is just fine, thank you:

Overall, 30 percent of respondents rated the Silver State's tax climate as excellent, while 49 percent rated it as good.

But that doesn't mean they're short of things to bellyache about:

A plurality of companies -- 37 percent -- said taxes will be the most important issue the Nevada Legislature will address in its 2007 session.

Two specific issues are mentioned in the article. First, there's the question of whether the tax hikes enacted in 2003 should be scaled back or even repealed:

A pending budget surplus of nearly $500 million has convinced some business owners that taxes imposed in 2003 -- a 0.65 percent tax on payroll and a doubling of the real property transfer tax from 0.25 percent to 0.5 percent of assessed value, for example -- are unnecessary today.

Second, it turns out that the property tax caps imposed by the legislature in 2005 aren't making business all that happy:

Chavez also said small-business owners were hoping for relief on property taxes. When state lawmakers capped annual property-tax increases on residential properties at 3 percent in 2005, they put a ceiling of 8 percent on commercial land and buildings.

Which just reiterates what we've said before: restrictive tax caps on residential property should be thought of not just as a tax cut, but as a tax shift. Someone else is gonna pick up the slack.

The interesting thing is that by comparison to most other states, Nevada is hardly a fiscal basket case. The list of grievances businesses have with the Nevada tax system is really quite short. So maybe the lesson here is that given an opportunity to complain publicly about taxes, pretty much anyone will.