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NFIB Joins Fight to Stop the Margin Tax

Date: April 14, 2014

Members asked to help defeat ballot initiative

NFIB recently asked if you support the question that will be on the 2014 ballot to create a new margin tax on all Nevada businesses that generate gross revenues over $1 million.

More than 95 percent of you said “No!”  You also said that NFIB/Nevada should fight this tax. 

We are committed to defeating the margins tax, which is officially called the Education Initiative and will be Question 3 on your ballot in November.  We have joined the statewide business coalition that is fighting it, and I urge to you join as well at www.StopTheMarginTax.com

We’d like to hear how the tax will affect you. 

We need to educate the media and the public about how this tax will impact small business, and having real examples will help us tell the story. 

The tax allows for three ways to calculate deductions, yet even a business that operates at a loss would have to pay the tax.  

How to calculate the Margin Tax 

You can visit the Nevada Manufacturers Association website and use its form to calculate the tax’s impact on your business. The form is a best guess, because there are still uncertainties in the tax due to its complexity.  

Or, you can do a rough, cocktail napkin estimate with this formula: 

Gross receipts (include interest, dividends, royalties, rents received, etc.) minus one of the following three deductions:
  • 30 percent of the total revenue, or
  • The cost of goods sold, or
  • The amount of compensation, up to $300,000 per employee
Take the apportioned taxable margins and multiply it by 2 percent. Then, deduct other taxes you pay, such as the modified business tax. The balance is the “margin” tax you would owe.  

Many small businesses will be surprised to find that once they calculate total revenue pursuant to the initiative, their revenue will total more than $1 million because of the add-on provisions which include such things as dividends, rents, royalties, sale of non-capital goods, etc.

Background

The Nevada State Education Association (NSEA) -- the teachers’ union -- secured around 150,000 signatures in 2013 to put the margin tax question on the 2014 ballot. 

The tax will create a new 2 percent tax on all Nevada businesses that have gross revenues over $1 million annually. If you make under $1 million you are exempt from the tax. But if you make one penny over $1,000,000, all your revenues are subject to the tax.

The tax is expected to raise $650 million to $800 million a year and is to be deposited into the state’s school account, but there is no guarantee that the state Legislature will not reduce existing education funding to compensate for the increase from the tax, thus not guaranteeing that the funds for education will increase. 

According to Jeremy Aguero of Applied Analysis, the top economic analysis firm in the state, the margin tax will kill 5,800 direct private sector jobs with an estimated reduction in labor income of $273 million annually. When indirect and induced impacts are factored in, private sector job losses increase to 8,860 and incomes fall by approximately $413 million annually. 

The only other state that has a margin tax is Texas. Yet the Nevada rate would be four times higher than the Texas margin tax for retail and manufacturing businesses and two times higher than the Texas rate for all other businesses. The tax is also very complicated for business owners to calculate, and would require the creation of an IRS for the state, which will be costly to administer. 

Along with NFIB, opponents to this initiative include:
  • the Las Vegas and Northern Nevada chambers of commerce
  • Nevada Taxpayer’s Association
  • Nevada Resorts association (gaming)
  • Nevada Mining Association
  • Retail Association of Nevada
  • Nevada Truckers
  • Nevada manufacturers, among others. 
Unions, including the AFL-CIO, which originally supported a smaller tax on net margins, are not supporting this initiative.

Please consider joining the Coalition to Stop the Margin Tax. NFIB will be providing more information in the next few months on why we need to defeat the Education Initiative. 

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This tax is not based on the ability to pay. As a result many small businesses will find their profits wiped out. For any businesses hurt by this economy that have been struggling to keep their doors open, this tax may prove to be the proverbial straw that broke the camel’s back.

-- Nevada Taxpayers Association

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