Gov. Brian Sandoval said it. The Chamber of Commerce is saying it. Democrats are saying it. Republicans are saying it.
Saying what? The tax system in Nevada needs reform.
Why now? My mentor, Reuben Zubrow, did a study in 1960 which the Nevada Legislature used to build a tax system that was simple, stable and synchronized with the budget. For two decades, it funded our state effectively on three legs: property, sales and gross gaming revenue taxes. It was designed to collect lots of taxes from folks who live outside Nevada.
Starting in the 1970s, however, things changed in two ways.
First, in 1978, California passed Proposition 13, which limited property taxes. Afraid of a similar tax revolt coming to Nevada, the Legislature passed reforms in 1979 and 1981 that significantly cut property taxes and raised sales taxes. The result of this tax shift was a general fund largely dependent on two legs — sales and gross gaming taxes, with reduced property taxes shifted to schools, counties and cities.
In 1988, a study by Price Waterhouse outlined the consequences of the shift. Sales taxes are less stable than property taxes, and Nevada’s sales tax is unusual in that its base is narrow because of numerous exemptions. The result: Our sales tax requires the state to grow for revenue to stay constant.
General fund revenue, therefore, tends to fall behind growth in population and incomes. That’s a structural problem. Taxes are out of sync with spending, even if you have no new spending.
The second change was in the gaming industry.
When Zubrow designed the system, the Las Vegas economy centered on casinos; gaming dominated. Over several decades, however, the model has shifted to entertainment companies with casinos attached. Gaming dollars per tourist continue to drop, weakening the gaming tax leg of our system.
To the two not-so-strong revenue legs, the Legislature added over the years a cobbled-together third leg, a disjointed assortment of increased fees and specialized taxes, including the modified business tax, live entertainment tax and real property transfer tax.
What legislators haven’t done is analyze who we are and decide what we want to be as a state. Only then can we determine the best tax system.
Zubrow told us the system must be changed as the state changes, but we’ve failed to listen and act for 55 years. Now seems to be the time.