Extras on Excise: Margin Tax Referendum Pits Business Against Education in Nevada

When the nation goes to the polls on Nov. 4, in addition to voting for Congressional representatives, state legislators, and others, Nevada voters will be asked to vote yea or nay to a 2 percent margin tax on Nevada businesses.

The question that will appear on state ballots is: Shall the Nevada Revised Statutes be amended to create a 2 percent tax to be imposed on a margin of the gross revenue of entities doing business in Nevada whose total revenue for any taxable year exceeds $1 million, with the proceeds of the tax going to the State Distributive School Account to be apportioned among Nevada’s school districts and charter schools?

Under the proposal, the margin tax will apply to Nevada businesses with total revenue exceeding $1 million, but passive entities, tax exempt organizations, government entities and credit unions will be exempted. An entity’s taxable margin will be the lesser of:

a) 70 percent of the entity’s total revenue; or  

b) the entity’s total revenue minus either cost of goods sold or the amount of compensation paid to its owners and employees.

The margin tax would be imposed only on the percentage of the taxable margin that corresponds to the percentage of business the entity does in Nevada. Accordingly, a business with a taxable margin of $1.4 million whose Nevada business percentage is 30 percent, would pay margin tax on 30 percent of its taxable margin, or $420,000. In this scenario, the margin tax due would be $8,400, prior to the application of any modified business tax (MBT) credit.

Proceeds from the tax are to be deposited in the Distributive School Account (DSA) in Nevada’s general fund. The DSA provides the primary source of public education funding for Nevada’s 17 county school districts and its charter schools.

Both the Nevada State Education Association (NSEA) and the Nevada State AFL-CIO are sponsors of the margin tax initiative. These organizations expect that, if approved, the tax proceeds will yield substantial funding for the state’s K-12 public schools. They expect that the funding will be used to reduce class sizes, acquire more tools and technology, promote a safe and supportive learning environment and attract and retain quality educators.

Proponents of the initiative further contend that businesses in Nevada do not pay their fair share yet they benefit from a qualified, educated workforce. Nevada does not have a corporate income tax nor does it impose a gross receipts tax on businesses. However, the state does have the MBT, which is based on a business’s quarterly payroll receipts. The MBT rate is 1.17 percent.   

Opponents of the proposed measure counter that the margin tax is unfair because even companies with no profits would be subject to the tax. They also say that there are no guarantees that any tax proceeds would be spent on education, and that politicians would be getting a blank check. NRS §387.045 stipulates that “no portion of the public school funds or of the money specially appropriated for the purpose of public schools shall be devoted to any other object or purpose,” but theoretically, legislators could decide to decrease other money allocated to education based on the margin tax proceeds.

Opponents also say that a margin tax would be a burden to the businesses that provide most of the jobs in the state, such as major employers and thousands of small businesses, including restaurants, grocery stores and other local retailers, and they anticipate a doomsday scenario of thousands of lost jobs and businesses shunning the state.

Both business and public education are critical components of a successful economy. Nevada must decide how big of a burden is too big for businesses in the state to bear.

 By: Jequetta Byrd