Nevada Tax Blog

Montandon: Scrap the Caps

2010-01-30T09:25:00.000-08:00

GOP gubernatorial candidate Mike Montandon is making his views on Nevada property tax reform known-- and so far they all seem quite sensible.

As reported by the North Lake Tahoe Bonanza, Montandon thinks:
(1) it's absurd that Nevada remains the only state that values real property for tax purposes based on depreciated value (which depends primarily on how old your house is) rather than market value;
(2) the "tax caps" enacted a few years ago, which restrict the amount by which a property's tax liability can increase each year to 3 percent for residential properties, were (and remain) a bad idea;
(3) property needs to be valued in a systematic and professional manner. (Right now, as is becoming increasingly clear, different localities are using different standards of valuation.)

Caveats: I'm paraphrasing, and things #1 and things #3 shouldn't be that controversial anyway.
But saying thing #1 amounts to repudiating the big property tax cuts enacted in 1981, and that takes some guts-- even if it's obviously correct.

It's to be expected, maybe, that a guy coming from a local government background (he was mayor of North Las Vegas) will have a critical stance toward state-imposed constraints on local taxing authority, but still. Bottom line is that Montandon is saying precisely the things that ought to be said about Nevada's past, and hopeful future, property tax changes.

Special Session Postponed to Friday

2008-06-22T10:55:00.000-07:00

In the wake of news that Nevada's projected budget deficit will be larger than previously estimated, Governor Jim Gibbons has postponed the start of his special legislative session on the budget deficit from next Monday to Friday. The news isn't good:

[T]he new shortfall figure lawmakers must deal with when they convene on Friday is $250 million, more than a $243 million shortfall projected by state Budget Director Andrew Clinger. And far above the $94 million projected by legislative fiscal analysts.

A Gibbons representative made it clear that with the expanded deficit, all policy options were on the table-- except for half of them:

Josh Hicks, general counsel to Gibbons, said every type of potential budget cut is on the table for the session, from 4 percent cost-of-living raises set to take effect July 1 for state employees and public teachers, to cuts to programs. Tax increases, he said, "are not on the governor's table."

Which reminds me of this exchange from the John Belushi-Dan Ackroyd classic "The Blues Brothers":

Elwood: What kind of music do you usually have here?
Claire: Oh, we got both kinds. We got country and western.

State Treasury: Special Session Not Necessary

2008-06-21T17:46:00.000-07:00

In an interesting development, the Nevada State Treasurer has announced she doesn't think the upcoming special legislative session is necessary:

State Treasurer Kate Marshall joined fellow Democrats Thursday in saying that Gov. Jim Gibbons' proposed special session of the Nevada Legislature is unnecessary.
She sent letters Wednesday to Gibbons and other state leaders,
informing them the state will have enough money in the bank, more than $200 million, to deal with cash flow issues until the Legislature starts opens its 2009 session in February.
Marshall urged Gibbons and other state leaders to meet and go though the general fund budget to see what could be cut. It would be a far less expensive than convening a special session that costs taxpayers about $300,000 a week, said Marshall, of Reno.

Representatives for the Governor's office argue that Marshall is basing her rosy assessment on inaccurately low estimates of the state's likely budget deficit:

Marshall's assessment is out of date because she based her projections on a $60 million shortfall, Gibbons press secretary Ben Kieckhefer said.
This week, state officials said the amount of the shortfall will rise. Legislative fiscal experts put the shortfall at about $100 million, while some lawmakers said Gibbons' experts are saying the shortfall is about $260 million.

There is one sense in which Marshall's position is probably correct: a special session ostensibly devoted to restoring Nevada's fiscal footing is unlikely to be all that productive when a "no new taxes" governor has the last word. If state lawmakers are to honestly take steps to ensure the future of the state's tax system, all options should be on the table.

Tax Hikes on Agenda for Special Session?

2008-06-19T11:13:00.000-07:00

The Reno Gazette Journal reports that tax increases may be on the agenda for next week's special session of the Nevada legislature. Among the candidates, according to Assemblywoman Sheila Leslie, D-Reno, is raising the business payroll tax and hiking the hotel tax, popularly known as the "room tax."

This isn't terribly exciting news because the harsh political realities of the state suggest it doesn't matter what tax hikes the legislature discusses:

Gov. Jim Gibbons has said he would stick to his election-campaign pledge of no new taxes. Democrats are a vote shy of being able to override a veto in the Assembly and are in the minority in the Senate. Lanni’s suggestion to raise the payroll tax from 0.63 percent to 1.23 percent and generate $246 million annually won’t go far in the special session, Senate Majority Leader Bill Raggio, R-Reno, said.“I am aware of it and have also heard from him on that and my indication is that this is not the time to start talking about raising taxes,” Raggio said. “We are in tough times and businesses are hurting and in this special session, it is something that we can’t even consider.”

Of course, depending on the outcome of the ongoing brouhaha over the size of Nevada's budget deficit, Democrats may ultimately find it easier to override a gubernatorial veto. And it's always possible that Governor Gibbons will back away from his pledge and start evaluating the state's fiscal jam in a non-judgmental way.

But don't hold your breath.

Not the Worst Idea In the Room

2008-06-17T08:01:00.000-07:00

With a special session on Nevada's budgetary woes impending, there's growing interest in tax-based options for closing the state's projected budget gap. A new poll by the Las Vegas Review-Journal finds that one idea from the cherished tradition of "tax somebody" else scores pretty highly: increasing the sales tax on hotel rooms.

Is this going to be the best answer for permanently solving the state's school funding dilemma? It could be part of it. Hiking the rate from the current 10 percent to 13 percent is estimated to bring in at least $75 million a year, which is something.

The most obvious virtue of this plan is that most of the cost would fall on folks who don't live in Nevada. Tourists (and business visitors) will be the primary payers of this tax hike.

A secondary (and slightly more debatable) virtue is that these out-of-staters are probably not going to be dissuaded from visiting Nevada by a higher hotel tax. 13 percent is high, but not outlandish.

However. At a time when Americans are pinching pennies as much as possible, any tax hike that falls most heavily on low-income families could absolutely make Americans a little less likely to splurge on a trip to Vegas. And make no mistake about it-- a higher hotel tax will be felt most keenly by low- and middle-income travelers. High-rollers won't care, but the regular folks who are Vegas' bread and butter may very well factor this into their travel decisions.

One last consideration: as a new report from the Rockefeller Institute reminds us, Nevada now faces more and more competition from other states for gambling dollars. Anything that makes a Vegas trip more costly to, say, an Illinois farmer, makes them that more likely to just hit that state's riverboat gambling sites instead of traveling to Nevada.

So, it's not the worst idea in the room, and worse ones will almost certainly be discussed in next week's special session-- but it's not a cure-all either.

Tax Amnesty: A Good Move for Nevada?

2008-06-04T21:39:00.000-07:00

Here's the latest in Nevada's never-ending search for ways of raising revenue without calling it a tax hike: a "tax amnesty." As the Reno Gazette-Journal explains, it's just what it sounds like: for a bunch of businesses who collectively owe about $69 million in back taxes, the state is prepared to waive prosecution (as well as penalties and interest) for anyone who ponies up now.

A press release from the Governor's office has more:

“Providing a temporary incentive for businesses to balance their ledger with the
state is a proven revenue generator, which is much needed during this difficult
fiscal time,” the Governor said. “All the revenue we collect during this amnesty
minimizes the effect the economic downturn will have on state services.”

So what's wrong with this idea? For starters, it's a short-sighted way of balancing the books. The overdue tax, penalties and interest is a stream of money that will hopefully be paid eventually. But by forgiving penalties and interest, the state is basically saying they need money so bad right now that they're willing to accept partial payment and forgo the remainder. This will help, on the margin, right now, but actually digs the hole deeper in future years.

In addition, from a law-and-order perspective, the state shouldn't have to provide a "temporary incentive" for these companies to pay what they're supposed to pay. Either they can afford to pay their taxes or they can't: and if they can, forgiving penalties and interest hardly seems appropriate.

It's not the dumbest idea in the world. It will certainly raise the state some cash. But it's symptomatic of a larger problem with the state's fiscal policy decision-making: the strategy these guys have chosen for getting through the ongoing fiscal crisis is "whatever it takes to balance the books this year." No thought at all to what's generating the short-term deficits; no thought at all to whether this year's fix will make things better or worse five years down the road.

Put another way, if your solution to every cash shortfall is to look for loose change under your couch cushions, that's a revenue-raising solution that is certainly not going to last you very long.

Ballot Access for Tax Initiatives: How Hard Should It Be?

2007-08-14T13:23:00.000-07:00

Since the rise of the "direct democracy" movement in the early 20th century, the use of ballot initiatives and referenda has spread like wildfire around the nation-- for better or for worse. It's prompted questions (although probably not enough) about what sort of policy issues ought to be decided via direct democracy rather than by elected representatives.

And now, in Nevada, it's prompting interesting and vital questions about whether proponents of a ballot initiative should be able to show a baseline level of statewide support for an proposal before it's put on the ballot. What's prompted this debate, as the Las Vegas Review-Journal's Sean Whalley tells us, is a new law that does just that:

The law requires people to gather a set number of signatures in each of Nevada's 17 counties based on the population of each county to qualify a measure for the ballot. In the last election cycle, all the signatures needed could be collected in just one urban county.

The idea behind such a reform is that urban and rural interests in Nevada are likely to diverge radically in a way that might make it easy for urban taxpayers to gang up on rural taxpayers.

Interestingly, Whalley tells us, this isn't the first time Nevada has tried to implement this sort of rule:

The previous requirement for Nevada petitioners was to collect signatures representing 10 percent of those who voted in the previous general election in 13 of 17 counties.
The 9th U.S. Circuit Court of Appeals overturned that requirement, however, saying it violated the constitutional principal of "one man, one vote" by allowing a small number of voters in a sparsely populated county to preempt the wishes of the majority.

Nevada lawmakers have tried to respond to the Court's concerns this time around by applying separate signature requirements for each of the state's counties, and weighting each of the county-specific requirements by the voting population:

The new formula requires signatures to be collected based on 10 percent of Nevadans who voted in the previous general election multiplied by the percentage of a county's share of the statewide population.
To determine the number of signatures required in Clark County, for example, the 10 percent who voted in the 2006 general election totaled 58,627. Multiplied by Clark County's share of the total state population, which is about 69 percent according to the 2000 census, the number of signatures needed in Clark County is 40,364.
Using the same formula for Lincoln County, the 10 percent of the vote in 2006 would be multiplied by .2 percent, the county's share of the state population, making the signature requirement would be 122.

The result is that any ballot initiative must show some baseline level of support in every county around the state.

If this seems anti-democratic, that's because it is--and that's OK by me. Virtually every governmental institution we've got at the federal or state level is designed to take us a step or two away from direct democracy. Remember all that stuff you learned in high school civics about preventing the "tyranny of the majority"? That's a big part of our republican (small R) form of government.

Of course, it's important to have an avenue for regular voters to take their case directly to the people, but it's also important to make sure that any such effort truly has widespread support. And in an age when ballot initiatives have increasingly become a tool of well-heeled corporate interests, this is absolutely a goal for which voters should have some sympathy. Nevada's latest change to its ballot access rules may not put the ballot back in the hands of the people, as the populist advocates of direct democracy envisioned a century ago, but it will very likely prevent the ballot box from being used as a weapon by one county against another. And it helps ensure that the ballot initiatives that ultimately make it into the polling booth each November will be well-thought-out and defensible.

Does Gibbons' "No New Taxes" Pledge Still Work?

2007-08-05T18:08:00.000-07:00

Around the nation, electorates are growing increasingly skeptical of lawmakers who make unconditional promises never to raise taxes. But, to hear some Democratic activists tell it, rural Nevada is not one of those places:

Longtime Lyon County Democratic Party Chairman Charlie Lawson said without question Gibbons appeals to most rural Nevadans.
"His no-tax stand is his anchor," Lawson, a resident of Stagecoach, said in a phone interview. "Most folks out here will live and die on no taxes. Not just Republicans. Democrats, too."
Democrats can make gains in rural Nevada, he added. But only if they also wander regularly into the hinterlands and emphasize they also oppose taxes -- except when they are needed to resolve a specific problem, such as a lack of roads.
"People will favor some taxes if they get a direct benefit from them," Lawson said. "They have to be informed of the reason for the taxes."

This doesn't mean, of course, that Gibbon's tenuous (to describe it politely) hold on his no-new-taxes pledge flies statewide, either from a political or a policy perspective. Anyone who remembers Gibbon's off-the-cuff ideas for avoiding tax hikes earlier this year probably has a better sense of how quickly such an allegedly "principled" stand can force you to make indefensible policy plans.

And even the "anti-tax" perspective provided here provides a helpful road map for lawmakers seeking to adequately fund public investments-- they just need to be very clear about what they'd like to do with the money. An obvious lesson, perhaps, but one that's worth restating: anti-taxers gain most of their support by pretending that tax revenues don't buy anything-- that taxes are simply poured down a hole in the ground. The more lawmakers can remind the public of all the good stuff their taxes are paying for, the more likely they are to receive public support when they need tax hikes to keep funding these things.

Review-Journal Advocates Property Tax Repeal

2007-08-02T16:14:00.000-07:00

Discussing the latest effort to bankroll an anti-property-tax ballot initiative, the editorial board at the Las Vegas Review-Journal comes up with this doozy:

[W]hy should those who buy real property with after-tax dollars then have to pay additional "rent" to their local governments indefinitely? It's interesting to note how the political class recoiled with horror at that portion of last year's eminent domain initiative that would have declared property rights "fundamental rights." Can we be taxed for exercising a "fundamental right"?

This argument-- that property taxes are simply illegitimate on their face-- isn't one you hear that much anymore, and it's almost shocking to see it in writing. So it's worth taking the opportunity to respond to the R-J's questions.

1) The implication of using the phrase 'after-tax dollars' is two-fold: first, that every dollar you spend has already been taxed once, and second, that taxing each dollar of income exactly once is both desirable and attainable. And this is all pretty contestable. In a non-income-tax state, it's hard to see how anyone can comfortably assert that Nevada has already taxed each dollar of income once. And if they're referring to the fact that the federal income tax is already in play, the R-J clearly hasn't thought through the implications of not allowing different levels of government to tax the same dollar. Does the existence of a Nevada state sales tax mean that local governments should not be allowed to tax the same transactions?

2) If you own a home, then your federal, state and local governments are, right now, spending money making sure that no one robs it (or bombs it) and that it won't burn down. Owning a home imposes costs on government that need to be paid. The property tax is based on the (quite reasonable) principle that if the government is protecting your home from all the bad stuff that might otherwise happen to it, you maybe ought to pony up a little bit to defray the costs-- with the condition that if the costs exceed your ability to pay them, you should get some help.

3) Property is created by government. If all governments disappeared tomorrow, the whole concept of "property" would lose its meaning because there'd be no legal system left to enforce it. But government can't exist without taxing something that someone considers their "property." In other words, there simply can't be an absolute right to property. If the right to property is absolute, it's a meaningless and unenforceable right.

I don't know enough about the R-J's editorial board positions to know whether they're really serious about this position, or whether it's a tossed-off one-liner that isn't worth the trouble of rebutting. But rhetoric aside, it's astonishing that anyone would even jokingly assert that property taxes are wrong.

Review-Journal: What, Me Worry (About Clean Elections)?

2007-08-02T15:54:00.000-07:00

Property tax caps are in the news once again in Nevada, with an effort underway to put a clone of California's Proposition 13 on the November 2008 ballot. But populism ain't what it used to be: the signature gathering drive that's getting underway to put the proposed tax cap on the ballot is being financed by, well, one person. A single $200,000 donation (identity unknown) represents, all by itself, about half of the money that is needed to buy enough signatures to get on the fall '08 ballot.

In an August 1 editorial, the Las Vegas Review-Journal's editorial board derisively quotes Democratic Assembly Speaker Barbara Buckley's opposition to this subversion of democracy: "Why do we need to come up with another measure that some out-of-state financier wants to import to Nevada?" Their response:

[Tax cap proponent Sharron] Angle isn't saying where the $200,000 check came from, but blaming "out-of-state ideas" always sounds good. We await Ms. Buckley's renunciation of such out-of-state ideas as seat belt, motorcycle helmet and draconian DUI laws.

This is almost too absurd to waste time on, but: there's a big difference between out-of-state ideas and out-of-state money. Ideas can be debated on a level playing field. When ideas are stupid, they can get shot down. But a suitcase full of fifties can tilt the playing field in favor of even the dumbest idea by giving it a prominent place on a ballot, where it can be described in an oversimplified way designed to fool the electorate. But forget about the ideas v. money distinction-- if it turns out that some fat-cat resident of another state is simply buying a spot on Nevada's November 2008, that's reprehensible on its face, and the folks at the Review-Journal should recognize this for the distortion of democracy that it really is.

Are Nevada Elections for Sale? Sure Looks That Way

2007-07-31T15:25:00.000-07:00

Nevada anti-tax activists are taking another swing at an effort to impose a California-style property tax cap in the Silver State. Their goal is to get a ballot initiative on the November 2008 ballot which would cap property tax rates at 1 percent of a home's value and restrict the annual growth of property taxes to 2 percent a year.

The initiative process has been bad-mouthed for the ease with which rich out-of-staters can bankroll the process, turning what's supposed to be a triumph of the little man into a tool for corporations and the wealthy to get their way. So far, the new Nevada tax cap effort sure makes it seem that the bad-mouthers are right:

[S]upporters are flush with a $200,000 contribution to help ensure a measure qualifies for the November 2008 ballot. The $200,000 from a thus-far anonymous contributor, which is already in the bank gathering interest, will allow the group to hire professional signature gatherers rather than rely solely on volunteers, she said.
But the cost estimate to get the necessary signatures is about $400,000, which is why a serious solicitation effort is now under way to match the $200,000... Two previous efforts to qualify a measure for the ballot failed when an insufficient number of valid signatures of registered voters were collected. The efforts were both done primarily with volunteers.

Could there be any more stark way of displaying the anti-democratic tendencies of the modern ballot initiative than this? One guy--one guy-- is buying a spot on the November 2008 ballot.

Of course, even if these folks are able to purchase space on the 2008 ballot for their property tax cap initiative, they'll still have to convince the public that it's a good idea. And the good news is that if proponents' rhetoric stays as dumb as it currently is, they'll be facing an uphill battle:

Las Vegas resident Gerry Lock, a self-described escapee from the San Diego area, said he supports the proposal and has donated $100. The Locks benefited from Proposition 13, which took effect in 1978.
"There were people at the time who were being priced out of their homes," Lock said.

So (a) if Prop 13 was so hot, why did this guy have to "escape" from California, and (b) the real question proponents of a prop-13 clone have to answer is, why is a 1% property tax cap the best approach to keeping people from losing their homes?

Voters have come a long way on this issue since the late 1970s, as the failure of Prop 13 clones in other states has shown. If the Nevada anti-tax movement's Daddy Warbucks is able to get his misguided tax cap on the ballot, it will be fun to see if advocates of the Prop 13 clone can come up with some actual principled arguments in favor of their plan.

My money (considerably less than $200K) says they can't.

Gibbons: Read My Lips, Again

2007-05-31T15:37:00.000-07:00

Delicate negotiations over Nevada's budget for the next fiscal year are at a standstill over a tax increase of 0.01 percent:

Gov. Jim Gibbons insists on keeping the state business tax at 0.63 percent rather than letting it rise to 0.65 percent, as it would automatically under current law.
Lawmakers on both sides of the aisle had reached a compromise on the budget that included allowing the tax rate to rise to 0.64 percent for one year, but Gibbons rejected it, Senate Minority Leader Dina Titus, D-Las Vegas, said late Monday.

On one level, the most obvious reaction to this result is "duh." Gibbons has been nothing if not consistent on this point: he doesn't think tax increases of any kind are permissible. So an increase in the payroll tax from 0.63 to 0.64 is just as impossible as, say, introducing a broad-based personal income tax. But this standoff does illustrate just how fundamentally silly the "pledge" approach to fiscal policy is. At the end of the day, what makes a good lawmaker is the ability to evaluate policy choices honestly, one by one. Implicit in Gibbons' unwillingness to accept this tiny tax hike is that once you allow this, the flood gates will open and Nevada will turn into, well, California in terms of tax climate. His oh-so-strict adherence to a simple rule-- no tax increases of any kind-- turns a policy molehill into a mountain and strands budget negotiations over the tiniest tax hike imaginable.

Lawmakers don't always live up to our trust in them, to be sure. But that just means they're about as reliable as any other humans we interact with from day to day. We wouldn't reward our loved ones or co-workers for refusing to rationally consider the choices they face every day-- so why would anyone consider the "no tax pledge" something to be admired, emulated, or rewarded?

Progressive Property Tax Proposal Advances

2007-05-31T14:54:00.000-07:00

The Las Vegas Sun reports that Nevada lawmakers are considering a bill that would expand the state's property tax credit for low-income seniors. The bill, SB 179, was introduced by Sen. Dina Titus. Under current law, seniors with incomes under $26,000 or so (an amount that is indexed annually for inflation) can get a property tax credit of up to $500. Titus' bill would double the maximum credit to $1,000.

Growing uncertainty over the state's fiscal health is prompting Nevada lawmakers to question a variety of tax breaks that are currently being doled out. But most Nevadans would presumably agree that if property tax cuts are necessary and affordable, then low-income seniors should be first in line. And that's exactly who would benefit from passing SB 179.

No Transportation Funding Solution for Nevada This Year?

2007-05-30T13:26:00.000-07:00

Lawmakers are forecasting that Nevada's yawning transportation funding shortfall will not get fixed this year. There are two "plans" out there for raising some money to close the state's multi-billion-dollar funding hole: Governor Jim Gibbon's plan to shift existing tax revenues from other areas to fund transportation, and a Democratic plan that would hike diesel taxes and vehicle registration fees. Gibbons has made it clear that his "no new taxes" pledge prevents him from signing on to the Democratic bill. And the governor's own plan arguably amounts to a shell game, since it would deprive other public investments of revenue they currently are using.

Taking the "no new taxes" pledge is usually politically pretty easy-- but anti-tax attitudes sometimes run into harsh reality. And there are some indications that Gov. Gibbons is on the verge of finding out that support for this position can evaporate pretty fast when new taxes are clearly necessary.

Gibbons Plan: Use Room Tax Revenues for Road Funding

2007-05-27T09:02:00.000-07:00

A front-page article in today's New York Times fills in national readers on the recent travails of Nevada Governor Jim Gibbons. But members of the Las Vegas Convention and Visitors Authority clearly don't need the Times' help in making up their mind about Gibbons. Here's the lede in last week's Review-Journal:

Gov. Jim Gibbons' proposal to use room tax dollars to build highways was called "rude," "irresponsible," "ill- conceived" and "a blatant lie" by Las Vegas Convention and Visitors Authority board members Friday.

Wow. So what did Gibbons propose that generated so much spleen from the Visitors Authority folks?

Gibbons proposes redirecting $424 million in revenue from the tax on hotel rooms from the authority to highway construction over the next eight years, an amount that would be combined with diversions of live entertainment tax and vehicle sales tax to secure $2.5 billion in bonds and get started on the state's most urgent road construction needs, which have an estimated cost of $5 billion.

From the board members' perspective, the main problem with this proposal is that the revenue from the hotel-room tax already is being used to help pay for bonds to build a new convention center-- which means that diverting the revenue could endanger the bonds (and the whole convention center project):

Because bonds have already been sold to pay for the renovation, secured by projected future revenue, the authority's lawyers say Gibbons' proposal violates contract provisions in the U.S. and state constitutions.
"The U.S. and Nevada constitution both have clauses that prevent the government or the state Legislature from changing the deal on bondholders," attorney John Swendseid told the board.

Apart from nit-picky questions of violating the US and state constitutions, the real issue here is that Gibbons simply will not tolerate tax increases of any kind. And when tax increases are verboten, the only other way to meet unmet spending needs is to beg, borrow or steal money from somewhere else. One wonders how much more outlandish these proposals will have to get before Nevada policymakers realize the folly of the "no tax pledge."

Green Tax Breaks Have Lawmakers Seeing Red

2007-05-02T19:46:00.000-07:00

It's not always easy to know how expensive a tax break is going to be. This is especially true when the tax break in question is designed to change people's economic behavior. Case in point: a tax cut enacted in 2005 by the Nevada legislature that gives up to a 50 percent property tax abatement, for up to 10 years, for companies that abide by certain "green" energy conservation standards in buildings they own. The bill also granted sales tax breaks for green construction materials. When the bill was passed, its sponsor estimated the annual cost at about $250,000. But the (admittedly gloomy) conventional wisdom today is that the cost can be measured in the hundreds of millions-- which is why Nevada lawmakers are acting fast to scale back the tax break.

Since the property tax in Nevada is a local tax, it's primarily local governments who are seeing their property tax base disappear as a result of the state's green tax breaks. But when locals are unable to adequately fund education using their local tax base, the state must step in to help achieve adequacy. So the projected overruns in the cost of the green breaks are threatening to come back to haunt the state.

For anyone who was paying attention back then, this sounds eerily like Arizona's alternative fuels tax credit fiasco back in 2000, where a tax credit designed to cost about $10 million rapidly ballooned to $200 million before lawmakers pulled the plug. Of course, in Arizona the beneficiaries were individual taxpayers, while the Nevada cuts are limited to businesses.

The lesson in both cases is that tax breaks designed to encourage behavioral changes can be too successful-- and at the same time, not successful at all. For sure, the Nevada break encouraged some companies to go green in their building management practices-- but some others were likely going to do it anyway. And others are likely just going through the motions, acting just as green as they need to in order to satisfy the terms of the tax break.

This isn't to say that using tax policy to achieve environmental policy ends is entirely wrong-headed-- these guys, whose goals are quite noble, think it's terrific-- but the Nevada experience makes it clear that the success of these green tax efforts can be hard to quantify.

Closing the Door on Public Tax Hearings?

2007-03-23T12:01:00.000-07:00

Sunshine is the best disinfectant. But the Nevada Tax Commission appears to think some maladies should be allowed to fester in the dark. That's the take the Review-Journal's Erin Neff has on the news that pending legislation would allow businesses to request a closed hearing on tax appeals.

The bill would still require the Commission to take a public vote at the end of these private hearings, but Neff fears (rightly) that the meaning of the vote would likely be difficult for the public to interpret in the absence of basic facts about the content of the hearing:

[S]imply permitting the commission to vote in public may not necessarily give the public more information. It seems the commission could easily use codes that would make it difficult for the public to understand their actions.Nevada's tax code has nothing on the federal mess, but it still has enough numbers representing different classifications of businesses to send even the most knowledgeable followers of tax policy scrambling for the key.

The rationale given for pulling the shades down on Nevada tax appeals is the same old story we've heard before:

The commission said closed hearings were necessary to protect trade secrets or proprietary information from getting into the hands of competitors.

But Neff has exactly the right response:

Has the agency never seen a Securities and Exchange Commission filing? Everything from a company's taxpayer identification number to every parcel of land it owns and all capital and ongoing expenses seem to be readily available to the public.

For more background on this issue, check out this long report from the Center on Budget and Policy Priorities on the broad topic of corporate tax disclosure. For Nevada-specific information, check out ITEP's policy brief on this topic.

Nevada: A Model for Property Tax Reform?

2007-03-20T17:23:00.000-07:00

The Miami Herald's Lisa Arthur thinks she's found the solution to Florida's property tax woes: just do what Nevada did back in 2005. To hear Arthur tell it, Nevada eliminated pretty much every property tax inequity one could think of:

• Issue: Homeowners were about to be taxed out of their houses.
• Solution: Tax bill annual increases were capped at the lesser of 3 percent or the rate of inflation -- no matter how high a home's value climbs.
• Issue: Commercial property owners would shoulder an unfair tax burden without a cap. And as values on their properties and their taxes rose, they would pass the cost to renters.
• Solution: Tax bill increases were capped at 8 percent annually for commercial property, including rental property. If a landlord could prove rents are at or below the fair market value set by the federal government, they get the 3 percent cap.
• Issue: Snowbirds with second homes would get slammed unfairly if they didn't get the same tax breaks as full-time residents.
• Solution: As long as they don't own another home in Nevada, out-of-staters with second homes get the same 3 percent cap as full-time residents. If they rent the home part of the year, the cap goes to 8 percent. If the rent meets the affordability definition, they get the 3 percent cap.
• Issue: Newcomers to the state and first-time home buyers who bought into a hot market with escalating home prices would get hit with much higher tax bills than longtime homeowners in the same neighborhood.
• Solution: In Nevada, the tax break stays with the property. The new home buyer inherits the seller's tax bill no matter how high the value of the property has climbed or what it sells for.

Put this way, Arthur's got a point. Pretty much every property owner in Nevada has protection against large tax hikes (where "large" means more than 3 percent a year). But Arthur is setting the bar pretty low for a successful property tax reform. Her benchmark appears to be that there's a mechanism restricting the growth of everyone's property taxes to something resembling the growth rate of inflation. Such an oversimplified benchmark overlooks two equally compelling (actually, even MORE compelling) objectives of property tax reform:
1) preserving adequate revenues. Capping everyone's property tax growth at 3 percent will make taxpayers happy, but only until they notice their schools don't have new textbooks anymore.
2) targeting property tax breaks to those who need them. Arthur recognizes the universal refrain of people "being taxed out of their homes," and clearly thinks preventing this is a good goal, but says nothing about the fact that simply capping the growth of everyone's property taxes is a remarkably blunt instrument for achieving this goal. If you're a fixed-income Nevada homeowner whose property taxes were unaffordable before 2005, the 2005 reforms don't help you.

Arthur is right in one important respect: if you cap everyone's property taxes, inequities in property taxes between different property owners will be less noticeable, and complaints about higher property taxes will likely diminish. But the part of the story she misses is that this goal comes with a price: a tax system that is more inadequate over the long run, and one that is even more divorced from ability-to-pay considerations than property taxes normally are.

Transportation Funding: Will Counties Be Left Holding the Bag?

2007-03-13T17:13:00.000-07:00

The Reno Gazette-Journal's Jerry Purdy makes the case for a county-level gas tax hike of 5 cents to help resolve Reno's transportation funding woes. The heart of the case? The federal and state lawmakers who should be coming up with transportation funding solutions have simply fallen down on the job-- which means that Reno can either pay its own way to better roads, or watch their transportation grid collapse into rubble.
This is yet another example of the real "trickle-down" theory being practiced by elected officials at the federal and state levels these days: Congress passes the buck on important spending needs to the state level, where lawmakers dodge the bullet yet again by paring back aid to local governments. But locals don't have the same luxury: they either have to hike taxes or stop providing essential services. Purdy's right: it shouldn't have to come to this, but it seems increasingly likely that local tax hikes will be the only way out of Nevada's transportation mess.

Nevadans Are Missing Out on Phone Tax Refund

2007-02-28T13:22:00.000-08:00

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?

2007-02-25T19:42:00.000-08:00

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?

2007-02-19T15:52:00.000-08:00

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?

2007-02-18T15:33:00.000-08:00

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

2007-02-06T14:34:00.000-08:00

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.

Reno: Local Sales Tax Hikes on the Agenda

2007-01-30T14:45:00.000-08:00

Reno city government faces a cash crunch, and elected officials are talking about making another push to increase the city sales tax rate by up to a quarter of a cent. (A quarter cent would push Reno's sales tax rate to 7.625 percent.)

The goal is worthy: city officials want "to hire more police officers and build three new police stations in Reno." But the means is troublesome. Nevada sales and excise taxes are already among the highest in the nation, even though Nevada taxes aren't especially high overall. And there are rumblings that the way in which local sales taxes are allocated between cities and counties isn't all that fair:

Cashell said legislators he declined to name were amenable to changing the complex sales tax formula for distributing revenues in Washoe County to give the cities a bigger share...Cashell said businesses outside the two cities generate only 4 to 5 percent of the sales tax yet the county keeps 60 percent of the local government share.

And, of course, the sales tax proposal would make things even worse from a tax fairness perspective. Adequate funding for police protection is pretty fundamental, but so is the goal of not taxing poor families further into poverty. And there's no quicker way to do the latter than further sales tax increases.

Gibbons Transportation Plan: "Pretty Doggone Close?"

2007-01-29T16:37:00.000-08:00

When you're a newly elected governor hemmed in by a no-new-taxes pledge, you'll try just about anything to meet funding needs without violating your ill-conceived promise. Thus Nevada Governor Jim Gibbons, who won't stand for a gas tax hike to close the state's $3.8 billion transportation funding shortfall, but has said he think the state can get "pretty doggone close" to closing this shortfall by.... selling off water rights beneath Nevada state highways.

In a national context, this is an unremarkable assertion-- more of the same "selling the house in order to buy the groceries" schemes anti-tax leaders are using to get through the current fiscal year without breaking their promises. But as it turns out, this idea would fill only the tiniest fraction of the $3.8 billion hole: about $120 million at today's prices.

Looking for loose change under the cushions of your couch can be a productive thing to do-- but it's no substitute for long-term planning. And as Governor Gibbons is finding out, sometimes it's not enough even in the short run.

Transportation Funding Shortfall: $3.8 Billion

2007-01-21T13:15:00.000-08:00

Incoming Nevada Governor Jim Gibbons has made it clear that he's not interesting in raising taxes-- but the Associated Press reports (sorry, no link) that new estimates from state transportation officials are prompting tough questions about whether this is a tenable stance:

Nevada transportation officials presented state lawmakers with a list of road-building projects they want to start by 2015 but added Thursday that they're are $3.8 billion short of the funds needed for the work.

Gibbons won't accept a gas tax hike to close this funding gap, and his current budget proposal would even reduce funding for transportation needs:

The Nevada Department of Transportation, which gets no money from the state's general fund, made a budget request to spend $1.4 billion in gas taxes, fees and federal funds over the next two years, a nearly 4 percent reduction from its
current budget.

The question of the year may be whether Gibbons' alternative ideas for funding transportation-- primarily, engaging in public-private partnerships-- will be a workable and politically acceptable means of shoring up the state's transportation infrastructure. Stay tuned...

Congressional Brinksmanship Makes Life More Complicated for Nevadans

2007-01-11T14:12:00.000-08:00

As a result of last-minute bargaining by Congressional tax writers, Nevadans who itemize their federal income taxes will get another chance to write off their sales taxes this year. A temporary deduction, which originally was in effect only for 2004 and 2005, now will apply to 2006 tax year as well. This tax break is designed for states, like Nevada, that don't levy a personal income tax.

But the difficulty is that Congress took a bit too long to agree on this special tax break. Turns out the IRS has (sensibly) already finalized its tax forms for year, and now needs to revamp its online forms to make it easier for Nevadans to claim the tax break. So IRS officials are encouraging those seeking to claim the credit to wait until February 3 to file.

We've written elsewhere about how silly it is for Congress to keep extending these "temporary" tax breaks, year after year, at the last minute in a way that makes it hard for taxpayers to know what's happening. But it's worth reiterating that even as Congress continues to underfund the IRS' enforcement capabilities, it's throwing a late-breaking curve ball to tax administrators just as the ink is drying on this year's tax forms. Political brinkmanship has costs-- and in the tax world, those costs manifest themselves in more-complicated tax forms and higher costs of administration.

Testing Gibbons' No-New-Tax Pledge

2007-01-05T21:26:00.000-08:00

Nevada families have only just embarked on a great (or possibly horrendous) experiment: life under a "no new taxes" governor. Incoming Governor Jim Gibbons has made it clear he won't accept tax hikes. But already Gibbons faces a challenge:

Senate Majority Leader Bill Raggio, R-Reno, is carrying a bill in 2007 to allow Washoe County to impose the same real estate transfer tax for schools as in Clark County.Smaller counties were given other taxes to build schools, leaving Washoe as the only school district in the state without any extra tax help, Superintendent Paul Dugan said.

Critics of the "no new tax" pledge (including yours truly) frequently point out that the pledge is a triumph of politics over policy: it's not about what's right from a policy perspective, it's about what you think sells with voters. When your stance is "no tax hikes of any kind," that gives you no latitude at all to deal with tax inequities such as the regional unfairness Senator Raggio's plan would fix. Good policymakers start with all their options on the table. Leaving fully half of the fiscal policy options in the closet will make it substantially harder for Gibbons and the state legislature to enacted needed tax reforms in 2007 and 2008.