Nevada Margin Tax for Public Schools Initiative, Question 3 (2014)

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Nevada Question 3
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Type:Indirect initiated state statute
Referred by:Citizens
Topic:Taxes
Status:On the ballot

The Nevada Margin Tax for Public Schools Initiative, Question 3 is on the November 4, 2014 ballot in the state of Nevada as an indirect initiated state statute. The measure, upon voter approval, would institute a two percent margin tax on businesses operating in Nevada. Revenue from the tax would be allocated to public schools, from kindergarten through high school, and kept in the State Distributive School Account.[1]

The two percent taxed margin could be determined using two different methods:[1]

  1. Taxation of 70% of total revenue of the business
  2. Taxation of a business’ total revenue minus compensation to owners and employers or cost related to goods sold. A business would choose whether to subtract compensation or cost of goods, but not both.

The measure would also temporarily increase the two percent modified business tax on financial institutions to 2.29% or 2.42%. Revenue would be used to pay for the administration of the margin tax.

If approved by voters, the margin tax would start to accrue on January 1, 2015.[1]

The initiative was filed by the Nevada AFL-CIO, led by Executive Secretary Treasurer Danny Thompson, and the Nevada State Education Association (NSEA). However, on May 2, 2014, the AFL-CIO passed a resolution to officially oppose the measure. It is still being supported by the Nevada State Education Association.[2]Supporters call the measure The Education Initiative.[3] Opponents call the measure The Margin Tax Initiative.[4]

Background

In 2006, Texas implemented a margin tax, which supporters of the Nevada tax have used as a model in crafting their own. The tax fully went into effect in 2008, after significant resistance from small businesses. Officials anticipated the tax would raise $5.9 billion per year, with some putting that number even higher at approximately $12 billion. However, in reality, 2008 saw only $4.45 billion in revenue from the margin tax; that number fell below $4 billion by 2009.[5]

Support

EducationInitiativeNevada2014.jpg

Supporters call the measure The Education Initiative.[3]The Education Initiative PAC is advocating for the initiative.[6]

The measure was initiated by the Nevada AFL-CIO and the Nevada State Education Association, the state affiliate of the National Education Association, though it is now only supported by the NSEA.[3][2]

Arguments

The Education Initiative PAC provided their fact sheet to argue in support of the initiative:

Nevada is 49th in per pupil spending
- National Journal

Nevada has the lowest corporate taxes in the United States

- Taxpayers Foundation

Education in Nevada has suffered through over $700 million in cuts since 2009

- Associated Press

A study referred to Brian Sandoval's 2011 proposed cuts to k-12 education as "by far the largest in modern history" of Nevada

- Las Vegas Sun

87% of Nevada Businesses would be unaffected by TEI

- Applied Analysis

Research shows that a high-quality education increases the earnings of individuals and the economic health of their communities.

- William Schweke, “Smart Money – Education and Economic Development”

[7]

—The Education Initiative PAC, [8]


An "explanatory video" put out by The Education Initiative PAC.

The Nevada State Education Association argued the following in support of the initiative:[9]

  • "Education is everyone’s responsibility. Businesses benefit from a qualified, educated workforce, yet they do not pay their fair share. At a critical time in Nevada’s economy, it is imperative big businesses invest in K-12 education to ensure our economy turns around and improves."
  • "Funds raised through the Education Initiative will go directly to the Distributive Schools Account—the education budget—in the state’s general fund. This funding can be used to reduce class sizes, more tools and technology, early childhood education, a safe and supportive learning environment, and the ability to attract and retain quality educators."

Campaign contributions

As of June 6, 2014, the Education Initiative PAC has received $1,236,250 in contributions.[10] The following information is accurate as of June 18, 2014.

PAC info:

PAC Amount raised Amount spent
Education Initiative PAC $1,236,250 $677,098
Total $1,236,250 $677,098

Top 3 contributors:

Donor Amount
Nevada State Education Association $1,135,000
National Education Association $100,000
Nevadans For The American Dream $1,000
Committee to Elect Segerblom $250

AFL-CIO opposition

The measure was initiated by the Nevada AFL-CIO and the Nevada State Education Association, the state affiliate of the National Education Association.[3] However, Executive Secretary Treasurer Danny Thompson of the AFL-CIO, despite giving his prior support, criticized the plan, saying he supports a smaller margin tax of .8%. The Nevada AFL-CIO decided to hold a vote in May 2014 as to whether to support the initiative.[11] On May 2, 2014, the AFL-CIO officially voted to oppose the measure.[2] After the resolution opposing the measure was passed, Thompson released the following statement:

The Nevada State AFL-CIO has always supported funding education to the National Average. There is no equivocation on our support for funding our schools so that our children receive a great education. We are a strong voice and advocate at every level of government for more funding for classrooms, teachers, and school buildings. The vote today in opposition to the margins tax initiative is not a vote against education. It is a vote against a flawed initiative that will cost many of our members their jobs and raise the cost of living on Nevadans on a fixed income and on citizens that are still struggling to make ends meet after years of a terrible recession.[7]

—Danny Thompson of Nevada AFL-CIO, [2]

Read the full text of the resolution opposing Question 3 here.

Opposition

NoOn3Nevada2014.png

Opponents call the measure The Margin Tax Initiative.[4] NO on 3: Coalition to Defeat the Margin Tax Initiative is leading the campaign against the initiative.[4]

Opponents

Officials

Organizations

  • Associated Builders and Contractors, Nevada Chapter[15]
  • Associated General Contractors, Nevada Chapter
  • Associated General Contractors, Las Vegas Chapter
  • Builders Association of Western Nevada (BAWN)
  • Carson Valley Chamber of Commerce
  • Economic Development Authority of Western Nevada (EDAWN)
  • Elko Area Chamber of Commerce
  • The Fallon Chamber of Commerce
  • Financial and Intangible Assets Enterprises (FIAE)
  • Las Vegas Metro Chamber of Commerce
  • National Association of Industrial and Office Properties (NAIOP), Northern and Southern Nevada Chapters
  • National Federation of Independent Business – Nevada
  • Nevada AFL-CIO
  • Nevada Association of Employers
  • Nevada Farm Bureau Federation
  • Nevada Manufacturers Association
  • Nevada Mining Association
  • Nevada Policy Research Institute
  • Nevada Resort Association
  • Nevada Restaurant Association
  • Nevada Taxpayers Association
  • Retail Association of Nevada
  • Southern Nevada Homebuilders Association
  • The Chamber of Reno, Sparks, and Northern Nevada

Individuals

  • Jim Murren, CEO of MGM[12]

Arguments

NO on 3: Coalition to Defeat the Margin Tax Initiative provided their fact sheet to argue against the initiative. The fact sheet included the following points:[16]

  • "Overall, it would dump a massive $750 million increase on the costs of doing business for Nevada employers. That would severely damage our state’s already struggling economy and job market."
  • "Proponents claim that the $1 million gross revenues threshold protects small businesses. But in reality, the Margin Tax Initiative would hurt thousands of small businesses in Nevada that have total annual gross revenues of over $1 million but also have high overhead and very small profit margins – such as family-owned restaurants, medical clinics, daycare centers, repair shops, veterinarians, janitorial services, ranches, and farms."
  • "The Margin Tax Initiative contains 84 sections of complicated legal and technical language that would create a logistical and legal nightmare for businesses to navigate."
  • "In fact, for businesses, the Margin Tax Initiative would make Nevada one of the 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."
  • "Even if the legislature decides that education should get more money through the Margin Tax, the initiative provides no plans or requirements to ensure that its revenues go to the classroom instead of into the hands of bureaucrats."
  • "Nevada’s unemployment rate is still one of the highest in the nation and the Margin Tax Initiative would only make it worse. Large employers like gaming companies, banks, hospitals, and manufacturing companies would be forced to lay off workers, and many small businesses would be forced to downsize or close altogether."
  • "The Margin Tax Initiative would impose a new 2% tax on revenues generated by almost all types of goods and services sold in Nevada, including: food, clothing and other retail store products; gas, electricity and telephone services; prescription medicines sold by pharmacies; and, medical care provided by doctors and hospitals. Ultimately, the providers of these goods and services would pass on some or all of their tax increase to Nevada consumers."

Campaign contributions

As of June 6, 2014, the Coalition to Defeat the Margin Tax Initiative has received $2,259,594 in contributions.[17] The following information is accurate as of June 18, 2014.

Total campaign cash Campaign Finance Ballotpedia.png
as of June 18, 2014
Category:Ballot measure endorsements Support: $1,001,250
Circle thumbs down.png Opposition: $2,259,594

PAC info:

PAC Amount raised Amount spent
Coalition to Defeat the Margin Tax Initiative $2,259,594 $519,919
Total $2,259,594 $519,919

Top 10 contributors:

Donor Amount
Nevada Resort Association $571,000
Las Vegas Metro Chamber of Commerce $487,000
Nevada Mining Association, Inc. $225,000
Retail Association of Nevada $175,000
RAN Services $105,00
Farmers Group, Inc. $100,000
Nevada Franchise Auto Dealers Association $87,331
Southern NV Franchised New Car & Truck Dealers Association $25,000
Fletcher Jones Toyoto Scion $20,000
AutoNation Buick GMC $20,000

Polls

See also: Polls, 2014 ballot measures
Nevada Question 3 (2014)
Poll Support OpposeUndecidedMargin of ErrorSample Size
Public Opinion Strategies
2/16/2013 - 2/18/2013
58%39%3%+/-4.4500
Harstad Strategic Research
9/18/2013 - 9/24/2013
61%34%5%+/-3.4819
AVERAGES 59.5% 36.5% 4% +/-3.9 659.5
Note: The polls above may not reflect all polls that have been conducted in this race. Those displayed are a random sampling chosen by Ballotpedia staff. If you would like to nominate another poll for inclusion in the table, send an email to editor@ballotpedia.org


Reports and analyses

Neutral

Applied Analysis

Applied Analysis was hired by the Coalition to Defeat the Margin Tax to analyze Nevada Ballot Question #3. However, both opponents and supporters have cited the study as supporting their position.[18][19] Applied Analysis stated their neutrality, saying, “Applied Analysis offers no opinion as to the policy merits of the proposed margin tax. Our task was not to determine whether the levy is “good” or “bad” or whether it is “needed” from a revenue sufficiency standpoint; rather, our sole focus is to estimate the approximate yield of the proposed margin tax and to evaluate its expected incidence on various sectors of the economy as well as various types of businesses.” The following is an excerpt from their findings summary:

Estimated Yield. The Initiative, if approved, is expected to generate between $650 million and $750 million annually in net new business tax receipts. This would bring Nevada’s total business tax liability – inclusive of the existing Modified Business (payroll) Tax and the proposed margin tax – to between $950 million and $1.1 billion annually.
Comparability to Texas Franchise Tax. The proposed margin tax is commonly compared to the Texas Franchise (margin) Tax; however, there are some important differences between what currently exists in Texas and what is being proposed in Nevada. Perhaps most notable is a substantially higher tax rate. At 2.0 percent, the Nevada margin tax will be two times that imposed on business generally in Texas...
Effective Tax Rate. ... With an effective tax rate approaching 15 percent, Nevada’s effective business tax rate would be materially higher than any other Western state, including, without limitation, California....
Businesses Subject to the Tax. A majority of businesses in Nevada would not pay the margin tax as imposed by the Initiative. This is due to the fact that a majority of Nevada businesses report less than $1 million in gross revenue and are specifically excluded from the margin tax by the Initiative. Those businesses that employ the majority of Nevada’s workers and who account for the majority of the state’s economic activity, however, would bear significant increased liability/
Relative Tax Burden. The proposed margin tax distributes Nevada’s business tax burden throughout the state’s economy more efficiently than the existing Modified Business Tax. That said, it will have some pyramiding effects (where a tax is paid on a tax) and some businesses will continue to have tax liability even when reported negative profit margins...
Competitiveness and Potential Impacts on Economic Development. The proposed margin tax would take Nevada from below the national average in terms of businesses taxes paid per employee, per $1,000 of personal income and per $1 million of gross state product to among the top five states in the country in each of those categories...

[7]

—Applied Analysis, [20]

Nevada Policy Research Institute

Geoffrey Lawrence, deputy director of policy at the Nevada Policy Research Institute (NPRI), authored a comprehensive study of the proposed Nevada margin tax. In it, he took a closer look at how the Texas tax disproportionally affects certain industries within the state:[21]

Texas margin tax graph.png

The study further examined the proposed margins tax in Nevada and the role it would play within the broad spectrum of tax reform. NPRI came to the conclusion that the tax would do the following:

  • Penalize small businesses.
  • Penalize struggling businesses and exacerbate the instance of firm closure or bankruptcy.
  • Tax certain sectors of the economy more heavily than others.
  • Thwart economic diversification.
  • Cause a higher effective tax rate against more complex goods.
  • Violate the confidentiality of federal business tax filings.
  • Reduce the demand for labor.[7]

—Geoffrey Lawrence of NPRI, [21]

The Executive Summary of the report went on to say, "A business margin tax in Texas — after which the unions' proposal is modeled — has been widely recognized as a tax-policy failure. In 2009 alone, Texas lawmakers heard more than 100 bills proposing to modify or repeal the tax. Nevada should look to import successful policies from other states — not failing ones."[21]

Tax Foundation

Basing their information on a study by Billy Hamilton entitled, "Cosmetic Surgery for the Texas Margin Tax," an article compiled by the Tax Foundation stated:

Far from solving the problems of the previous corporate franchise tax, the margin tax seems to have only aggravated them. The tax was designed to reach businesses not reached by the corporate income tax, including partnerships, unprofitable businesses, and small businesses. As the tax was enacted, however, legislators expanded exclusions in the face of arguments that hefty tax compliance costs on small businesses were disproportionate.[7]

—Tax Foundation, [5]

Path to the ballot

See also: Laws governing the initiative process in Nevada

Proponents of the measure were required to collect and submit 72,324 valid signatures by November 13, 2012. According to Lynn Warne of the Nevada State Education Association, 150,000 signatures were collected.[22] Since the measure was submitted as an indirect initiated state statute, it was first sent to the state legislature. The legislature had the opportunity to either approve the measure, thus keeping the initiative off the ballot, or ignore or defeat the measure, thus putting the initiative on the ballot. Voting down an initiative would have given the legislature the ability to offer a competing measure alongside the initiative.

In the legislature

The Nevada Legislature did not take action on the initiative within the forty-day limit, as prescribed by the Nevada Constitution. The constitution allows the governor or legislature to place a competing measure on the ballot, meaning that constituents would vote on two alternative measures and whichever one received the largest majority would be approved. However, the constitution appears to require that to place an alternative on the ballot, the legislature must first vote down the indirect initiative. Republicans in support of a competing measure said that no action was equivalent to a de facto rejection. However, the Nevada State Education Association claimed the opposite, that no action was not de facto rejection. Rick Combs, Director of the Legislative Counsel Bureau, said, “We don’t believe it’s an issue that has been decided before.”[23]

The Nevada Secretary of State, in communication with the attorney general, determined that no action by the legislature did not equate to de facto rejection. Therefore, an alternative competing measure could not appear on the ballot.[24]

See also

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External links

Information

Support

Opposition

References

  1. 1.0 1.1 1.2 Nevada Secretary of State, "The Education Initiative," accessed May 1, 2014
  2. 2.0 2.1 2.2 2.3 Las Vegas Review Journal, "Nevada AFL-CIO opposes proposed margins tax to fund public schools," May 2, 2014
  3. 3.0 3.1 3.2 3.3 Las Vegas Review-Journal, "Tax plan has miles to go before it's passed," June 8, 2012
  4. 4.0 4.1 4.2 NO on 3: Coalition to Defeat the Margin Tax Initiative
  5. 5.0 5.1 Tax Foundation, "Nevada May Consider New Business Taxes," May 18, 2011
  6. The Education Initiative
  7. 7.0 7.1 7.2 7.3 7.4 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
  8. The Education Initiative, "Facts," accessed May 1, 2014
  9. Nevada State Education Association, "The Education Initiative," accessed May 1, 2014
  10. Nevada Secretary of State Campaign Finance Disclosure, "The Education Initiative PAC," accessed June 18, 2014
  11. Las Vegas Review-Journal, "Business margins tax on Nevada ballot could pit union against union," January 25, 2014
  12. 12.0 12.1 RGJ, "'The Education Initiative' will be tough to beat by Nevada businesses, top politicians," March 25, 2014
  13. RGJ, "‘Game on’ in battle over Nevada margins tax vote," April 26, 2014
  14. Las Vegas Review-Journal, "Democratic lieutenant governor candidate Flores opposes proposed margins tax," April 27, 2014
  15. NO on 3: Coalition to Defeat the Margin Tax Initiative, "Who We Are," accessed May 1, 2014
  16. NO on 3: Coalition to Defeat the Margin Tax Initiative, "Information about the Margin Tax Initiative," accessed May 1, 2014
  17. Nevada Secretary of State Campaign Finance Disclosure, "Coalition to Defeat the Margin Tax Initiative," accessed June 6, 2014
  18. News 3, "Huge Jackson Commentary," May 1, 2014
  19. Las Vegas Sun, "How many jobs would be lost if Nevada margin tax passes? It depends," April 9, 2014
  20. Applied Analysis, "The Fiscal and Economic Impacts of Nevada Question #3," February 2014
  21. 21.0 21.1 21.2 Nevada Policy Research Institute, "Facts and fiction about the unions tax initiative," June 27, 2012
  22. RGJ, "At bat Tuesday at the Nevada Legislature: Hearing on that 'dreaded' margins tax," February 28, 2013
  23. Las Vegas Sun, “OK, voters, margins tax ball is now in your court,” March 15, 2013
  24. Las Vegas Sun, “Teachers’ business-tax measure catches break on 2014 ballot,” April 2, 2013