Policy Documents

Nevada May Consider New Business Taxes

Joseph Henchman –
May 18, 2011

Fewer states have been hit harder by the present recession than Nevada. A boom illustrated most prominently in the tourist and construction industry saw the state's population grow by a third since 2000, but that has now turned to bust. Wagers in the state's casinos have fallen a third from their 2006 peak, tax revenues have dropped sharply, and the state has the highest foreclosure rate (about 1 percent) and the highest unemployment rate (about 13 percent) in the nation.

Many experts believe that Nevada is well positioned for strong growth in the future, and glimpses of economic recovery can be seen now. However, the lengthy period of high growth rates carried over into budgeting assumptions, making it difficult to adjust to the recession's period of revenue stagnation. This has created understandable concern about balancing the state's budget while maintaining necessary services and not undermining recovery and growth. While the state has a relatively good tax structure, its tax burdens and collections are about middle-of-the-pack among the states.

In January 2011, Gov. Brian Sandoval (R) proposed a 2011-13 two-year budget of $16.71 billion in total spending, a $1.44 billion reduction over the previous biennium. The state's General Fund, which represents just over a third of total expenditures, would drop from $6.09 billion to $5.8 billion between the two bienniums. Explaining why he chose spending cuts instead of tax increases, Sandoval said that "Nevada families and businesses have made do with less through three long years of economic downturn, and it is my belief that state government must continue to do the same."

In May, brighter revenue numbers and additional Medicaid funds enabled Sandoval to pledge an additional $440 million, including $270 million for state education. However, members of the majority-Democratic legislature called for $650 million more in spending, financed by higher taxes. (Nevada is one of seven states without a state corporate income tax, and one of only three states with no state-level business activity tax.) Also, a number of temporary tax increases enacted in 2009 are set to expire on June 30, 2011.

Some of these ideas for new or expanded taxes have focused on business, including a corporate income tax, a gross receipts tax similar to Washington's or Ohio's, or a "margin" tax similar to Texas's. Sandoval, however, has pledged not to raise taxes.