Sandoval swings heavy to win tax fight; gaming on board

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Cathleen Allison / AP

Nevada Gov. Brian Sandoval presents his proposed business license fee plan to lawmakers at the Legislative Building in Carson City on Wednesday, March 18, 2015.

Published Wed, Mar 18, 2015 (3:40 p.m.)

Updated Wed, Mar 18, 2015 (9 p.m.)

It’s not often a Republican governor goes in front of lawmakers to pitch a tax hike. But things are different this year in Nevada.

In an unprecedented, bipartisan gathering of officials, he and three former governors called upon a panel of state lawmakers to pass a tax bill that would raise $438 million for education in the next two years.

The meeting was more than eight hours long. Dozens of supporters from the state's special interest groups spent more than three hours testifying in its favor.

The hearing came 72 days after Sandoval kickstarted the legislative season by delivering a State of the State speech in which he eschewed traditional conservative ideologies and announced an initiative of sweeping reforms funded by a new business license fee, a tax that would levy money from the gross receipts of more than 300,000 businesses in the state.

He used that speech to outline priorities for his last four years in office and pave a foundation to thrust the state’s public school system from the bottom tier. Less than half-way through the session there’s no doubt that Sandoval’s rhetoric has traction in the Legislature.

During his testimony, Sandoval said the hearing was “one of the proudest moments of my life.”

But he is one of at least 10 Republican governors nationwide calling for tax hikes and facing criticism from the far-right.

“It’s not conservative to have bad schools,” Sandoval told media after his testimony. “It’s not conservative to have a 70 percent graduation rate. It’s not conservative to be last in the nation in graduation rates.”

Much of the debate about the bill is about upholding Nevada’s attractive corporate tax climate and addressing whether the $438 million revenue estimate will be accurate.

The hearing saw a wave of lobbyists and bureaucrats testify after the governors. Lawmakers and policy wonks dove into the annals of tax policy. And lawmakers tried to figure out how the law was going to work. The bill will have another hearing on Thursday, and the Senate is likely to vote on the proposal by the end of the month. Here’s what you need to know about Thursday’s tax hearing:

All the talk

No one in the Legislature — lawmaker or lobbyist — will shrug the need to revamp state-funded education. Tesla is coming. A drone industry is blossoming. Many officials and players in state government envision a new-age manufacturing market that stands alongside gaming. Education programs, they say, will buttress a “New Nevada” economy.

But who’s footing the bill is what has people talking. Some businesses have signaled they want to pay but are concerned with how much they will be charged. Gaming, mining and construction are all on board. Gaming will contribute 58 percent to the revenues, Billy Vassiliadis, a lobbyist for the Nevada Resort Association.

Transportation, retail and registered agents are looking for a different plan.

Anti-tax lawmakers worry the everyday taxpayer will wind up paying because businesses will shift costs to consumers.

“With regard to the average Joe and Jane, everybody is going to contribute to this,” Sandoval said. “But what everybody wants is a system that’s fair.”

The bill is touted as broad-based taxation. It will levy the tax by classifying businesses in 30 different categories and basing a rate on their gross receipts. Depending on what they earn, businesses will have to pay between $400 and $2.6 million per year.

"I think the intent of the legislation was to make the rates so low to minimize the impact," said Victoria Carreón, a policy expert at the Guinn Center for Policy Priorities.

"Because the tax is so low, they’re saying it's not of much concern," she said.

Comparatively, one gaming license tax raises more than $650 million while a tax on slots raises more than $30 million per year. In total, gaming is 47 percent of the state’s general fund. Mining pays at least $86 million. A payroll tax generates $494 million.

Fourth time a charm?

Critics of the bill say it resembles the failed gross receipts tax initiatives from 2003, 2011 and the last election.

Sandoval’s lobbying of the bill succeeds the overwhelming defeat in November of ballot question 3, a margin tax that shares similarities to his plan but would have levied more money from taxpayers.

He addressed the differences in his testimony: Low rates and industry specific rates.

The margin tax applied an across-the-board rate for businesses and could have raised nearly $2 billion in the two-year time period, Sandoval said.

“A resort is not the same as a construction company is not the same as a mine,” Sandoval said.

The magic number

It’s $438 million over two years and many question how the state calculated it.

That number is based off an estimate from Jeremy Aguero, a state-hired economist who based the legislation off a Texas model.

“It’s our best estimate,” he said.

Aguero says he’s 75 percent sure the state will receive more money than the current two-year estimate.

Texas experienced a multimillion-dollar budget shortfall because of miscalculations, leaving some to question the accuracy of Aguero’s projections.

There is no data in Nevada, Carreón said. The state’s tax department doesn’t currently collect it. Third party researchers don’t collect it from private business, she said. "That makes me question the accuracy,” Carreón said.

The compromise

Sandoval encouraged lawmakers to vet other proposals and policy platforms.

Lawmakers have divided into factions on the matter. Aiming to kill the bill are the GOP’s no-new-tax advocates along with Republicans and Democrats who’ve sponsored alternative legislation that’s popped up this week. Sen. Michael Roberson, the GOP majority leader championing the governor’s initiative, has led multiple hearings on other options since the session began in February. Few of those alternatives — implementing a broad-based service tax and transforming an entertainment tax — have gained steam, leaving Sandoval’s plan as the current best choice and leading to the overflowing room of lawmakers, lobbyists, bureaucrats who gathered to listen to his testimony on Wednesday.

Sandoval has a coalition of lawmakers and special interest groups willing to stand by his side. He also has the backing of a cohort of former executives who dealt with similar education and funding battles during their time in office: Govs. Bob List, Richard Bryan, Bob Miller.

List, the state’s 24th governor known for his conservative bonafides, said he was embarrassed with the current state of education in Nevada and called upon lawmakers to either support Sandoval’s plan or come up with something better.

“It is your job to step up and show the same kind of courage Gov. Sandoval has showed. This is not about your next election, this is about the future of the next generation of Nevadans.”

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