Lawmakers will hear the teachers' union's margins tax proposal on Tuesday in a hearing that is sure to be full of sound and fury and signify punting.
To the ballot, that is.
But if it's not enough that Speaker Marilyn Kirkpatrick has poured cold water on the idea, during an appearance on "Ralston Reports", the Republicans are primed to rip the idea apart at the joint hearing. For the first time, the Assembly GOP has hired a policy adviser, Omar de la Rosa, who has helped the GOP form some questions that will be vetted Tuesday.
To wit, according to a document I have obtained:
Questions regarding the provisions of the Margin Tax in the IP
1) The tax rate of 2% in IP 1 is double the maximum 1 percent rate in Texas and two and one half times higher than the rate in the proposal discussed by the Legislature in the 2011 Session. Can you give us your reasoning as to why this higher 2% rate was chosen? Do you have any concerns that a margin tax rate of this magnitude will totally eliminate the margin and profitability of those low-margin businesses operating in Nevada?
2) Would an unprofitable business be required to pay the tax under this IP?
3) In the IP, it appears that gross revenues from the gaming industry that are subject to the gross gaming tax are exempt, but gross revenue from the mining industry that is subject to the net proceeds of minerals tax appears to be subject to the tax. Can you tell us why this decision was made?
4) Do I understand this initiative correctly that it provides an exemption from the Margin Tax for all non-profit organizations that are 501 (c) entities? Can you provide a description or list of the entities included under 501 (c) as this seems to be a pretty broad group of entities as I generally recall providing an exemption to 501 (c)(3) entities, which are charitable organizations. Can you tell me what type of organization the Nevada State Education Association is and whether they are exempt from the Margin Tax? How much tax would NSEA pay under the Margin Tax if not exempt? Note: NSEA is organized as a non-profit 501 (c)(5), which are labor, agricultural, and horticultural organizations. Second, the Margin Tax proposal discussed during the 2011 Session only provided an exemption for 501 (c)(3) entities and not all 501 (c) organizations.
5) Is the definition of cost of goods sold comparable to the definition used for federal income tax purposes? If not, can you provide an explanation for the definition included in the IP?
6) Can you provide an explanation for the 70% of total revenue rule provisions for determining taxable margin? How does this rule relate to the cost of goods sold or cost of compensation rules for determining taxable margin. Note: The 70% of total revenue rule to determine taxable margin implies that the margin of the business is 70% of their total revenue.
7) How was the $1,000,000 total revenue exemption amount determined? Can you provide any statistics on how many businesses in Nevada have total revenue less than $1 million? To make sure I understand this tax, if I have $1 million or less in total revenue I don’t have to pay the Margin Tax. However, if I have $1 over the $1 million total revenue threshold, then my full margin is subject to the tax there is no dollar threshold on the taxable margin amount that is exempt from the tax. Is this correct?
Do I understand the provisions of the IP correctly that there is no adjustment for inflation to this $1 million total revenue exemption amount? Was there no consideration given to the fact that inflation may cause a business’s total revenue to increase resulting in entities originally being exempt from the tax becoming subject to the tax?
8) Under the cost of compensation provisions in the IP, it appears that a business cannot claim more than $300,000 in wages and compensation per employee per tax year. Can you explain how the $300,000 amount was determined? Similar to the question regarding the $1 million revenue exemption amount, do I understand the provisions of the IP correctly that there is no adjustment for inflation to this $300,000 amount? So as compensation increases over time, the effect of the $300,000 compensation threshold decreases over time, which may result in increases in the taxable margin subject to tax under the cost of compensation approach to determining taxable margin?
9) Can you explain the difference, if any, between the definition of total revenue in the IP, used to calculate taxable margin, and the definition of total income, used to apportion that part of taxable margin that will be subject to the Nevada Margin Tax?
10) Are there any issues or concerns that should be considered for this Margin Tax by coupling to the federal business and personal income tax laws? For example, if Congress enacts legislation in the future that changes the definition of income that results in a lower amount, then the yield for this Margin Tax would also be negatively impacted. Is this not a correct interpretation of how things could unfold for this tax?
11) Under the provisions of the initiative, the modified business tax on nonfinancial businesses is increased to provide the funding for the initial and ongoing costs by the Department of Taxation to implement and administer the Margin Tax. In fact, it appears that the tax rate is initially increased from 2.0% to 2.29%, almost a 15% increase, and then increased from 2.29% to 2.42%, another 5.7% increase in the tax rate. Can you provide your reasoning or justification for why financial businesses were chosen to bear the costs for the Margin Tax? Note: subsection 4 of Section 22 allows a credit against the Margin Tax liability only up to the amount of Margin Tax due with no credit carry forward, if the MBT tax paid was greater than the Margin Tax liability.
12) Can you explain for me the reasoning or justification behind allowing a credit for the modified business taxes paid against the Margin Tax due? Aren’t wages part of the cost of goods sold or cost of compensation that are used to calculate taxable margin, so wages and salaries paid are a deduction used to compute the Margin Tax liability? Isn’t it possible that we have the Department of Taxation bearing the costs of administering and collecting the MBT only to have the tax collections being netted out against the Margin Tax, which seems a little like a zero-sum game or less than zero since Taxation and taxpayers have to continue to administer and pay the tax each quarter?
Questions regarding the distribution and use of the tax proceeds
13) The provisions of the Initiative require the proceeds to be deposited in the Distributive School Account. However, based on the K-12 education funding provisions for the DSA, will the Initiative guarantee additional funding for K-12 education? Note: The Legislature could decide to reduce the General Fund appropriation to the DSA and keep the level of funding the same or limit the amount of growth in K-12 funding due to the receipt of Margin Tax proceeds in the DSA.
14) Can you provide an explanation for how the Margin Tax proceeds deposited in the DSA will be distributed amongst the 17 school districts in Nevada? Will the amount of the Margin Tax distributions amongst the school districts create any issues or problems regarding the funding of the school districts throughout the state?
15) Will proceeds deposited in the DSA and distributed amongst the school districts be considered part of the pool of money that the teacher’s union will be able to use for collective bargaining purposes?
16) If the $800 million estimate for the Margin tax is accurate, then it will generate an amount not much below the $1 billion generated by the 2.6% Local School Support Tax rate or close to the $800 million in revenue generated by the 75 cent property tax rate. Can you provide the reasoning or justification for K-12 education needing an additional $800 million per fiscal year? Can you convince the citizens and businesses of this state that this extraction from the private sector will result in measured and reportable improvements in K-12 education? Basically, can you guarantee a return on this investment?
If the $800 million estimate for the Margin Tax at 2% is accurate, then could you not have provided enough funding at a 1% rate, which would generate around $400 million, and not be as burdensome of Nevada’s businesses?
Questions regarding potential impact of the Margin tax after implementation
17) Can you provide us with any statistics on the number of business that will be subject to the Margin Tax and what the potential impact on them will be if approved and implemented?
18) Do you have any concerns about the potential impact on the state budget during the next downturn or recession in Nevada’s economy after the proceeds from this Margin Tax get incorporated into the budgets of the school districts and teacher’s salaries?
19) I understand that under the constitutional provisions for initiative petitions that if this IP is approved by voters at the 2014 General Election, it cannot be amended by the Legislature for three years. Do you have any concerns that should the IP have language problems regarding implementation or administration or the 2% tax rate proves to be devastating to the business sector, there is no recourse to fix the problems until the three-year period has expired?
20) Can you provide any information on the ability to accurately estimate the yield from the Margin Tax in Texas? Do you have any feeling for the ability to accurately forecast the amount of revenue from this new complicated tax structure in Nevada? If the proceeds from this tax cannot be estimated with any accuracy, then don’t you increase the potential for impacting the state’s General Fund budget through the school funding provisions in the DSA?
Lawmakers will hear the teachers' union's margins tax proposal on Tuesday in a hearing that is sure to be full of sound and fury and signify punting.
To the ballot, that is.
But if it's not enough that Speaker Marilyn Kirkpatrick has poured cold water on the idea, during an appearance on "Ralston Reports", the Republicans are primed to rip the idea apart at the joint hearing. For the first time, the Assembly GOP has hired a policy adviser, Omar de la Rosa, who has helped the GOP form some questions that will be vetted Tuesday.
To wit, according to a document I have obtained:
Questions regarding the provisions of the Margin Tax in the IP
1) The tax rate of 2% in IP 1 is double the maximum 1 percent rate in Texas and two and one half times higher than the rate in the proposal discussed by the Legislature in the 2011 Session. Can you give us your reasoning as to why this higher 2% rate was chosen? Do you have any concerns that a margin tax rate of this magnitude will totally eliminate the margin and profitability of those low-margin businesses operating in Nevada?
2) Would an unprofitable business be required to pay the tax under this IP?
3) In the IP, it appears that gross revenues from the gaming industry that are subject to the gross gaming tax are exempt, but gross revenue from the mining industry that is subject to the net proceeds of minerals tax appears to be subject to the tax. Can you tell us why this decision was made?
4) Do I understand this initiative correctly that it provides an exemption from the Margin Tax for all non-profit organizations that are 501 (c) entities? Can you provide a description or list of the entities included under 501 (c) as this seems to be a pretty broad group of entities as I generally recall providing an exemption to 501 (c)(3) entities, which are charitable organizations. Can you tell me what type of organization the Nevada State Education Association is and whether they are exempt from the Margin Tax? How much tax would NSEA pay under the Margin Tax if not exempt? Note: NSEA is organized as a non-profit 501 (c)(5), which are labor, agricultural, and horticultural organizations. Second, the Margin Tax proposal discussed during the 2011 Session only provided an exemption for 501 (c)(3) entities and not all 501 (c) organizations.
5) Is the definition of cost of goods sold comparable to the definition used for federal income tax purposes? If not, can you provide an explanation for the definition included in the IP?
6) Can you provide an explanation for the 70% of total revenue rule provisions for determining taxable margin? How does this rule relate to the cost of goods sold or cost of compensation rules for determining taxable margin. Note: The 70% of total revenue rule to determine taxable margin implies that the margin of the business is 70% of their total revenue.
7) How was the $1,000,000 total revenue exemption amount determined? Can you provide any statistics on how many businesses in Nevada have total revenue less than $1 million? To make sure I understand this tax, if I have $1 million or less in total revenue I don’t have to pay the Margin Tax. However, if I have $1 over the $1 million total revenue threshold, then my full margin is subject to the tax there is no dollar threshold on the taxable margin amount that is exempt from the tax. Is this correct?
Do I understand the provisions of the IP correctly that there is no adjustment for inflation to this $1 million total revenue exemption amount? Was there no consideration given to the fact that inflation may cause a business’s total revenue to increase resulting in entities originally being exempt from the tax becoming subject to the tax?
8) Under the cost of compensation provisions in the IP, it appears that a business cannot claim more than $300,000 in wages and compensation per employee per tax year. Can you explain how the $300,000 amount was determined? Similar to the question regarding the $1 million revenue exemption amount, do I understand the provisions of the IP correctly that there is no adjustment for inflation to this $300,000 amount? So as compensation increases over time, the effect of the $300,000 compensation threshold decreases over time, which may result in increases in the taxable margin subject to tax under the cost of compensation approach to determining taxable margin?
9) Can you explain the difference, if any, between the definition of total revenue in the IP, used to calculate taxable margin, and the definition of total income, used to apportion that part of taxable margin that will be subject to the Nevada Margin Tax?
10) Are there any issues or concerns that should be considered for this Margin Tax by coupling to the federal business and personal income tax laws? For example, if Congress enacts legislation in the future that changes the definition of income that results in a lower amount, then the yield for this Margin Tax would also be negatively impacted. Is this not a correct interpretation of how things could unfold for this tax?
11) Under the provisions of the initiative, the modified business tax on nonfinancial businesses is increased to provide the funding for the initial and ongoing costs by the Department of Taxation to implement and administer the Margin Tax. In fact, it appears that the tax rate is initially increased from 2.0% to 2.29%, almost a 15% increase, and then increased from 2.29% to 2.42%, another 5.7% increase in the tax rate. Can you provide your reasoning or justification for why financial businesses were chosen to bear the costs for the Margin Tax? Note: subsection 4 of Section 22 allows a credit against the Margin Tax liability only up to the amount of Margin Tax due with no credit carry forward, if the MBT tax paid was greater than the Margin Tax liability.
12) Can you explain for me the reasoning or justification behind allowing a credit for the modified business taxes paid against the Margin Tax due? Aren’t wages part of the cost of goods sold or cost of compensation that are used to calculate taxable margin, so wages and salaries paid are a deduction used to compute the Margin Tax liability? Isn’t it possible that we have the Department of Taxation bearing the costs of administering and collecting the MBT only to have the tax collections being netted out against the Margin Tax, which seems a little like a zero-sum game or less than zero since Taxation and taxpayers have to continue to administer and pay the tax each quarter?
Questions regarding the distribution and use of the tax proceeds
13) The provisions of the Initiative require the proceeds to be deposited in the Distributive School Account. However, based on the K-12 education funding provisions for the DSA, will the Initiative guarantee additional funding for K-12 education? Note: The Legislature could decide to reduce the General Fund appropriation to the DSA and keep the level of funding the same or limit the amount of growth in K-12 funding due to the receipt of Margin Tax proceeds in the DSA.
14) Can you provide an explanation for how the Margin Tax proceeds deposited in the DSA will be distributed amongst the 17 school districts in Nevada? Will the amount of the Margin Tax distributions amongst the school districts create any issues or problems regarding the funding of the school districts throughout the state?
15) Will proceeds deposited in the DSA and distributed amongst the school districts be considered part of the pool of money that the teacher’s union will be able to use for collective bargaining purposes?
16) If the $800 million estimate for the Margin tax is accurate, then it will generate an amount not much below the $1 billion generated by the 2.6% Local School Support Tax rate or close to the $800 million in revenue generated by the 75 cent property tax rate. Can you provide the reasoning or justification for K-12 education needing an additional $800 million per fiscal year? Can you convince the citizens and businesses of this state that this extraction from the private sector will result in measured and reportable improvements in K-12 education? Basically, can you guarantee a return on this investment?
If the $800 million estimate for the Margin Tax at 2% is accurate, then could you not have provided enough funding at a 1% rate, which would generate around $400 million, and not be as burdensome of Nevada’s businesses?
Questions regarding potential impact of the Margin tax after implementation
17) Can you provide us with any statistics on the number of business that will be subject to the Margin Tax and what the potential impact on them will be if approved and implemented?
18) Do you have any concerns about the potential impact on the state budget during the next downturn or recession in Nevada’s economy after the proceeds from this Margin Tax get incorporated into the budgets of the school districts and teacher’s salaries?
19) I understand that under the constitutional provisions for initiative petitions that if this IP is approved by voters at the 2014 General Election, it cannot be amended by the Legislature for three years. Do you have any concerns that should the IP have language problems regarding implementation or administration or the 2% tax rate proves to be devastating to the business sector, there is no recourse to fix the problems until the three-year period has expired?
20) Can you provide any information on the ability to accurately estimate the yield from the Margin Tax in Texas? Do you have any feeling for the ability to accurately forecast the amount of revenue from this new complicated tax structure in Nevada? If the proceeds from this tax cannot be estimated with any accuracy, then don’t you increase the potential for impacting the state’s General Fund budget through the school funding provisions in the DSA?
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