Details of The New Nevada Commerce Tax - By Kelly J. Bullis, CPA
Updated: Feb 13
Well, as Nevadans, we are collectively now stuck with a new tax. It’s name? Commerce Tax. (A Clever disguise for the recently defeated Gross Margin Tax?) Up until a few days ago, it was believed that this wouldn’t pass. I have yet to see any real media explanation of the details, so, after reading the text of the bill enough times (SB483), while my head is still spinning, I will attempt to give you a little more of the picture. Warning! This bill is not pretty. It contains many of the onerous provisions of the Gross Margins Tax that was defeated by over 75% of the voters last fall. In fact, to save space, as I go through this, I will give you my estimated percentage of how close this is to the Gross Margin tax (GMT).
1st, the Annual Business License and Filing Fees with the Secretary of State was increased by $325 a year for Corporations and $25 for LLCs. This applies to every business regardless of size. (Somebody please explain why suddenly it is bad to be a corporation compared to an LLC in Nevada.)
Also, the Modified Business Tax rates were increased by 26%, but affected businesses can now deduct 50% of their new Commerce Tax from that. (99% GMT … in the GMT, you deducted 100% of the Modified Business Tax from it, this just continues the “combined business tax” concept of GMT)
The new Commerce Tax is to be administered by the Nevada Department of Taxation. The effective date to begin tracking Gross Revenue subject to this tax is July 1, 2015. The first tax return to file will be for fiscal year: June 30th 2016. (98% GMT)
Every business must file this new Commerce Tax return. No exceptions no matter how large or small your Gross Income. The due date of the tax return and to pay the tax is 45 days after June 30th 2016. There is a 30 day extension provision. (This was one of the dumbest provisions of the GMT and they left it in!!!!!) To put this into perspective, to file a Federal business tax return, corporations have 75 days before their first due date and an extra 180 days if extended. Good luck to businesses to be able to file their new Nevada Commerce Tax Return when statistics from the IRS show that most businesses need way more than 75 days to close their books and prepare their Federal Tax returns! (99% GMT)
The process of computing the “Gross Income” subject to this tax will require keeping a 2nd set of accounting records in order to properly compute “Gross Income” (as defined in this law, which is not necessarily the same as “Gross Income” for Federal Tax purposes) derived in Nevada (for most businesses, they have multi-state income), and then to deduct allowable “reductions” from that Gross Income (and there is LONG list of what those are). (99.9% GMT)
Once you have arrived at the “Nevada Gross Revenue” for Nevada Taxable purposes, you then subtract $4 million. If the result is zero or a negative number, stop. Your Commerce Tax is zero (for now). If you have any amount left over, then you go to the next step and use a percentage based upon various industry classifications. This is designed to approximate the impact of Cost of Goods Sold by industry. (99.9% GMT)
Example: The tax rate for Mining is .051%. The tax rate for Waste Management is .261%. The tax rate for Software Development is .253%. The applicable rates go all over the map. From .051% up to .331%. There is nothing in the law to prohibit future Legislatures from playing with these percentages any way they wish. Does anybody really believe that future Legislatures will not raise these rates…a lot? (This is way worse than the GMT!)
I see a high risk of political contribution extortion in this, let me explain. Fred is running for Assembly. Fred (and others from his political party) goes to businesses in an industry classification that is currently high, let’s say Software (anybody else thinking of Microsoft/Apple?) and asks for election campaign contributions in return for a promise to try and get that tax rate down (or not raise it as much as others) for that specific industry. If Fred (and his political party) didn’t get a lot of contributions from a certain industry, they may attempt to punish them by raising their rate, then using that to extort contributions from them in the next election cycle. Do I sound sarcastic? You bet. It’s a dirty secret about politics that disgusts me and this just opened up a whole new “Pandora’s Box” level of potential corruption that divides and conquers individual business groups.
By the way, do you also see where the legislature can go after smaller businesses in the future? Simple, they just lower the threshold for when the tax applies. Currently, it’s $4 million. They could lower it all the way to $1 million or even down to zero if they wish at some future date. (100% GMT)
So, there you have it folks. Welcome to the same old Nevada. Where our politicians continue to ignore the voters and believe in the fantasy that throwing more money at education will miraculously solve it’s gross failures? And now they have just raised the bar…A LOT… for what the education lobby will expect as a minimum from now on. (Budgeting by nature is a one way street.) Our politicians didn’t even address one of the real number one threats to Nevada Education Quality. Common Core. (Google that if you don’t know how bad it is.) The other obvious problem with education spending? Education Administration Costs are soaring! Why didn’t the Legislature at least impose a percentage limitation on Administration Costs?? What is that old definition of insanity?
Good luck to the NNDA and NBC in trying to attract new businesses to relocate to Nevada. This new Commerce Tax just made Wyoming, Idaho, Utah, Arizona, and Texas look like much more of an attractive alternative location. (100% GMT)
Did you hear? Prov 10:9 “He who walks with integrity walks securely, but he who perverts his ways will become known.”