Barring any last-minute surprises, the revenue-enhancing sales tax on services is dead.
The debate is now over the whether to raise taxes by extending the sunsetting taxes. Those tax increases would include a sales-tax increase and a doubling of both the business license fee and the modified business tax.
While Republicans look increasingly unlikely to give in on raising taxes, it’s worth remembering the impact raising these taxes would have on the economy.
For example, the current modified business tax hurts small business and hampers job creation.
Doubling the price of business licenses in 2009 had a negative impact on the number of businesses licensed in Nevada.
In fact, recent data from the Secretary of State’s office shows that the total number of incorporations filed in Nevada has fallen by 31,760 since the higher licensing fees took effect. This exodus of filers means a loss of direct revenue to the state through the annual $200 business license fee. But it also translates into an untold sum of lost economic activity generated by affluent nonresident business owners who had previously visited the state to hold annual meetings and spend generously on gaming, lodging and retail. The loss of these visits contributes to the state’s worsening unemployment figures and prevents the state from collecting gaming, sales and room-tax revenues that would otherwise exist.
Lawmakers in the Silver State must realize that not only can taxes distort the economic incentive structure, but that Nevada must compete in a global marketplace to attract investment. States that offer lower-priced and more convenient incorporation filings have a strong advantage in luring nonresident firms to incorporate in their state.
Registered agents in Wyoming, for instance, have developed a website specifically touting the advantages of filing in Wyoming over Nevada. According to the website, “Wyoming charges about 40 percent less than Nevada when setting up any company. There are also no ‘hidden fees’ to be paid to the state for filing officer lists.” The website also boasts faster processing times and the fact that business licenses are not required in Wyoming.
By increasing the costs of purchases, the sales tax makes goods more expensive. As is shown by a basic understanding of the law of supply and demand, this would decrease supply — and the number of people producing those products.
As legislators debate whether or not to raise these taxes, it’s important to remember that — at a time when Nevada’s actual jobless rate is 23.7 percent — each of these tax increases would kill jobs.