White Paper on Nevada Regressive Taxation
FROM THE OFFICIAL RECORD OF GOV. GUINN'S TAX STUDY TASK FORCE
(Submitted by a Nevada union business representative.)
February 4, 2002
Guy Hobbs, Chairman
Governor's Task Force on Tax Policy in Nevada
c/o Legislative Counsel Bureau
401 S. Carson St.
Carson City, NV 89701-4747
Dear Mr. Hobbs:
Per your memo dated 9 January 2002, here are my comments as to where your task force should concentrate its efforts in reviewing Nevada tax policy. I take the governor and the task force at their collective word that all taxes are on the table.
1. REDUCE REGRESSIVE TAXATION.
A. As you are well aware, the sales tax is the most regressive tax, as its percentage of extraction varies inversely with an individual's disposable income. The Nevada Dept. of Taxation annually compiles a long list of tax exemptions. Those which benefit the most people should be kept, such as the sales tax exemption on groceries. Exemptions which benefit the few, such as the Steve Wynn-lobbied high-priced art tax breaks and the 2001 sales and use tax break for professional auto racing teams should be reviewed for elimination.
B. The current method of taxation under which large businesses may apply for property tax reductions not readily available to the individual homeowner must be reviewed and equalized for fairness.
2. MAKE PROPERTY TAXATION FAIR
A. UTILITY TAXATION. Review the rather arcane laws passed in the 1999 legislative session which changed utility taxation. Experts tell us that these laws will exacerbate the movement of the tax burden onto residences and away from big business. Public utilities pay a lot of property tax. Because of two seemingly innocuous bills passed in 1999, utilities will, over time, avoid a lot of taxation, forcing counties to make up the lost revenue by increasing taxes on other property owners.
B. THE BACK DOOR INCOME TAX. Please review the efficiency of tax increment districts which are administered by municipalities in the name of redevelopment. By redlining the most expensive property in a community and earmarking the incremental ad valorem tax increases to be spent within the redline area, cities and counties are forced to raise taxes on property owners outside the redlined areas to make up the difference.
Taxpayer subsidies help create new jobs. But the costs (e.g., roads, parks, schools, police and fire protection) of all those new people don't get covered if property taxes generated by the new businesses stay downtown to subsidize more development. Homeowners and renters live in dwellings commensurate with their incomes. Property taxes are levied on the value of those residences. The presence of tax increment districts thus acts as a backdoor income tax, forcing non-redline property owners to subsidize the tax loss of, e.g., downtown redevelopment agencies.
RECOMMENDATION: Review the efficiency of all entities enjoying earmarked tax revenue. They often evolve into "earmarked empires" which jealously guard their monetary turf. Regional transportation commissions, airport and convention authorities and redevelopment agencies act like sovereign nations without accountability to the taxpayers.
3. REVIEW AND MAKE GAMING TAXATION FAIR
A. INCREASE THE GROSS GAMING TAX, currently the world's lowest. There is substantial evidence on the record that the gambling industry is not paying its fair share. Please see the Nevada Commission of Economic Development's 1999 study which points at low wage gambling industry jobs as creating the need for more government services and, ipso facto, increased taxes.
The study may be obtained from the commission and is posted at http://www.nevadalabor.com/cop/ncedstudy.html
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B. REDUCE OTHER TAX SUBSIDIES TO THE GAMING INDUSTRY IF POLITICAL PRESSURE CONTINUES TO MAKE A GROSS GAMING TAX INCREASE IMPOSSIBLE.
About one-third of the revenue generated by the gross gaming tax is returned to the industry in the form of corporate welfare subsidies such as downtown redevelopment agencies, convention and visitors authorities, specialized tax abatements such as the fine art subsidy, the lucky bucks casino coupon deduction and a host of others. These tax abatements should be reviewed and reduced or eliminated.
In the alternative, more of the money generated, e.g., by room taxes funding convention authorities, should be redirected to local purposes and away from paying for advertising and marketing which the private sector should handle on its own. This redirection will further reduce the pressure on governments for new tax revenue. It will also conform to the spirit of the original 1955 state law establishing fair and recreation boards.
Not long before his death, former Reno city councilmember and longtime Reno-Sparks Chamber of Commerce Executive Director Jud Allen wrote in the Reno Gazette-Journal that the tax funding for the current Reno-Sparks Convention Center was sold to the taxpayers in 1960 as a way to pay for local parks and recreation. He noted that the true intent was always to fund gambling industry promotion.
4. REDUCE CORPORATE WELFARE SUBSIDIES. Economic diversification is a laudable goal. However, the tax breaks available in the process need review and revision. The recent granting about $2 million in tax breaks for Starbucks' new Douglas County roasting plant provides an excellent example. The Starbucks case illustrates how both the tax break and open meeting laws need amendment.
I attended the 14 November 2001 Starbucks hearing along with some of my fellow union members. We had some serious questions about Starbucks wages at its proposed new facility.
Lt. Gov. Lorraine Hunt would not allow us to speak to the issue, insisting instead that we reserve our comment for the end of the hearing, long after the Starbucks vote. The open meeting law needs changing to allow public input so that future tax fiascoes will not occur without public input.
While we weren't allowed to speak, Lyon County Commissioner and NCED member Leroy Goodman raised many of the points we wanted to make. He noted that most of the 88 initial Starbucks jobs will pay well below the $15.09 per hour threshold required for state tax breaks. When a few executives and supervisors were removed from the calculation, the employees would average only $12.60 an hour, with some making as little as $9.53. He pointedly criticized the wisdom of a plant employing only 88 people and paying a personnel manager over $100,000 a year.
The whole purpose of the tax break legislation was to create good-paying jobs, not creative accounting. Ironically, the gap between Starbucks managers and workers is so wide that the state tax break could actually dampen hiring. The new plant is supposed to employ 200 when fully functional. But hiring too many new lower-paid workers could bring down the average and blow the tax break. So hiring could actually be diminished because of the public subsidy. THIS REVERSE INCENTIVE MUST BE ELIMINATED.
Goodman took a risk reading pay rates into the public record. Starbucks invoked complete secrecy under state law. We were denied almost all information by state officials. Most of the information we were allowed was faxed a day before the hearing.
Former Nevada Gov. Mike O'Callaghan (D, 1971-1979) termed the Starbucks abatements "overboard with generosity" and called for a legislative review of companies which have received such subsidies. In a recent column in his Henderson/Boulder City News, O'Callaghan wrote "Providian Financial Corp. announced it was closing its call center in Henderson. This action puts about 700 people out of work. This is the same company that the Nevada Economic Development Commission awarded a $116,000 grant to help train 300 employees," O'Callaghan stated.
"I suggest that the Nevada State Legislature call for a study of all the past tax breaks and grant recipients and determine how many are still here, the number of company employees each retains and the salary and benefits now in effect. This information should then be compared to the promises made when seeking state grants and tax breaks," O'Callaghan wrote.
On Nov. 14, 2001, one member of the commission asked for a similar review during the Starbucks hearing. We have asked for a copy of that report when it is prepared and suggest that your task force obtain a copy.
4A. Legislatively require a more equitable distribution of wages at companies such as Starbucks which ask for job creation tax breaks.
4B. Link tax subsidies and construction wages. Lt. Gov. Hunt noted that construction wages are not an issue with her commission. A look at the NCED website provides evidence to the contrary. Total capital investment is one of three major criteria to be considered for granting tax abatements. For full details, go to
The law needs to be changed to mandate area standard wages for tax-subsidized private projects. This is consistent with the spirit of economic development law to foster the creation of good-paying jobs, the benefits of which percolate throughout the local economy and lessen the stresses placed on government by those not making a living wage. Once again, please see the NCED tax study, above, reinforcing that point.
5. OBTAIN EXPANDED FEDERAL PAYMENTS IN LIEU OF TAXES. This modest program was initiated to compensate Nevada for the tax loss of having 87% of her land off the tax rolls and in the hands of the federal government. Not much has been heard about this revenue source in recent years. It should be reviewed and expanded.
Please take these comments as constructive and let me know how I may be of further service.
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