The Margin Tax: Myth or Reality

Question 3, otherwise known as the Margin Tax Initiative, will be on Nevada’s November 4 statewide ballot. The proposal would impose a new state tax on Nevada businesses with more than $1 million in annual gross revenues, regardless of how much, if any, of their revenues are actual profits. With so much
conversation about the Margin Tax Initiative, it’s difficult to tell what the reality of the tax would mean for employers and employees in Nevada. Here are some of the facts – and myths – about Question 3.

MYTH: A “BIG BUSINESS” TAX

Promoters of this measure portray it as a minor tax on “big businesses” and want voters to believe all the tax revenue would go to education. In reality, the initiative would impose a major new tax burden on both large employers and thousands of small businesses throughout the state.

Imposing this proposed tax on top of the state’s existing Modified Business Tax would create the equivalent of an almost 15 percent state corporate income tax – nearly twice as high as the corporate income tax rate in California. Overall, the Margin Tax Initiative would dump a massive $750 million increase on the costs of doing business for Nevada employers, making Nevada one of the five highest taxed states in which to operate. This would severely damage our state’s struggling economy, cause the loss of thousands of existing jobs and make it nearly impossible to attract new businesses and jobs to Nevada.

REALITY: A FLAWED, UNFAIR TAX FORMULA

The initiative’s new tax on gross revenues would be especially damaging to employers that have high overhead and slim profit margins, such as restaurants, small retailers, grocery stores, farmers and ranchers (among many others) and those already on the brink of closing. It would only allow businesses to deduct some of their actual costs from the revenues subject to the tax. For example, they could deduct their cost of goods or their payroll costs, but not both.

Another flaw in the measure is that it would create a “fiscal cliff.” A business making one penny less than $1 million in gross revenues
would pay no tax. A business that grossed one penny more than $1 million would pay the 2 percent margin tax based on the entire million, even if none of it were profit.

MYTH: MONEY COLLECTED WOULD GO TOWARDS FUNDING EDUCATION

There is no guarantee of more money for education with the Margin Tax. Under the state constitution, the Legislature would have complete authority to divert funds from this new tax to things other than education. Moreover, the initiative contains no guidelines on how any funds going to education would be spent. It would essentially hand a blank check to politicians and bureaucrats to spend however they wanted, without requiring any oversight, reviews or accountability.

REALITY: HIGHER CONSUMER COSTS FOR ALL

Increased costs imposed on businesses providing goods and services in Nevada would ultimately be passed on to consumers. This would force Nevadans to pay higher prices for everything from food, clothing, gas, water and electricity to housing, insurance and healthcare – hurting those who can least afford it.

Call the Metro Chamber Government Affairs team at 702.641.5822 for more information on how you can join the fight to defeat the Margin Tax Initiative.