CARSON CITY — Republican Gov. Brian Sandoval’s tax proposal that would overhaul the state’s business license fees cleared one major legislative hurdle Tuesday, winning approval in the Senate with a push from Democrats to await an unknown fate in the Assembly.
Senate Bill 252 passed in the upper chamber 17-4, meeting the required two-thirds majority or 14 votes needed to keep it alive.
Four Republicans — the GOP holds an 11-10 majority in the upper house— voted against the bill.
The bill now moves to the Assembly, where passage is anything but assured and Sandoval will have to use all his political prowess to strike a deal. At least 12 conservative GOP Assembly members have pledged to oppose the tax, while other Assembly Republican leaders have proposed their own plan to raise taxes and fund education.
SB252 would change the state’s business license fee from a flat $200 annually to a graduated scale based on industry category and gross receipts. Under the measure, the minimum rate for the smallest businesses would double to $400, while the other extreme would top out at $4 million, though no existing business meets the revenue threshold to pay that amount. Using current figures, the highest taxes, about $2.6 million a year, would be paid by the biggest megaresorts on the Las Vegas Strip.
The tax is the foundation of Sandoval’s $7.3 billion general fund budget proposal that includes $1.1 billion in new or extended taxes to pay for an aggressive education plan. The business license fee would raise about $250 million a year.
“This is an historic day. Today we’re voting to make a historic, targeted investment in the modernization and reform of our K-12 education system,” Senate Majority Leader Michael Roberson said on the floor moments before the vote was taken.
“This is more than the historic investment in education,” said Roberson, R-Henderson. “This is about real tax reform that broadens our tax structure and makes our tax structure fair and equitable.”
Sandoval praised Roberson and Minority Leader Aaron Ford, D-Las Vegas, for their efforts in getting the bill passed.
“The Senate’s actions are proof that investing in Nevada’s public education system and providing students with resources they need are bipartisan priorities that unite us as we continue to build the ‘New Nevada,’” Sandoval said in a statement.
Ford said the vote is important to improving the state’s poor-performing educational system. “We are one step closer to having a sustainable source of revenue that will properly fund our schools and other essential services,” he said.
Critics of the measure oppose basing taxes on gross receipts and argue the dozens of categories and varying rates would make it difficult to comply with and enforce.
Republican Sens. Scott Hammond of Las Vegas, Don Gustavson, Sparks, Pete Goicoechea, Eureka, and James Settelmeyer, Minden, were the only no votes.
Hammond, who is a teacher, said that while he supports education funding he doesn’t believe SB252 “is the right mechanism to get there.”
Gustavson said the bill too closely resembled the margins tax initiative that was rejected by voters in November, adding that businesses would leave the state if it’s enacted.
He also said it would lead to more tax increases down the road.
“Just wait a couple years,” he said. “This is just a foot in the door.”
State Sen. Pat Spearman, D-North Las Vegas, who pitched her own tax plan that died in the Senate Committee on Revenue earlier this month, tried to amend SB252 on the Senate floor Tuesday. Her proposal sought to replace the varied tax rates with a uniform 0.17 percent plus $50 per quarter for businesses with revenues exceeding $100,000 a year.
Spearman based her proposal on an analysis released Monday by the Guinn Center, which said a uniform tax rate would be easier to calculate and enforce.
The amendment failed on a voice vote.
SB252 is unlikely to win final legislative approval in its present form, though its passage keeps the issue of taxes front and center on the legislative agenda.
“It’s by no means the final solution, if you will. What we’re going to be looking to do is continue the conversation,” Ford said.
Some Democrats argued the business license fee in the governor’s bill would be too onerous on small businesses.
In the lower house, Assembly Bill 464 would expand and increase Nevada’s existing modified business tax to raise about $544 million in new revenue to balance Sandoval’s budget. It would raise the rate assessed on payroll to 1.56 percent from the current 1.17 percent. Businesses with less than $200,000 a year in payroll would not pay the tax. Financial institutions would actually see a rate reduction from the 2 percent they pay now.
The business license fee currently at $200 a year for all businesses would rise to $500 for corporations and $300 for non-corporate businesses.
AB464 is sponsored by Assembly Speaker John Hambrick, Majority Leader Paul Anderson and Taxation Chairman Derek Armstrong, all Republicans from Southern Nevada. It is pending in the Ways and Means Committee.
Tax and budget talks will intensify May 1 after the independent Economic Forum meets to project how much money under existing tax structure the state will have to spend over the next two years.
The forum in December forecast $6.3 billion to spend on public education and state programs in the upcoming 2015-17 state budget. The amount was well below the existing $6.7 billion general fund spending approved by the 2013 Legislature for the current biennium.