By Thomas Mitchell
When the Nevada State Education Association teachers’ union placed a 2 percent margins tax on businesses on the November 2014 ballot, the union estimated the tax would bring in $800 million a year in additional funding for K-12 education.
Business community leaders say that number is a pipe dream.
“In this law they are saying you get to deduct your direct cost against this income to compute the tax. And it gives you a couple of alternative ways of computing it. If you don’t want to go through the trouble to figure out what your direct cost is, you can elect to use a default of 30 percent,” says Kelly Bullis, who operates a certified public accounting firm in Carson City. “Now for most businesses I know that is really low. That by the way is where I think the teachers made their assumption about how much money they’re going to make. They think everybody has less direct cost than 30 percent, so they’re all going to choose the 30 percent by default. Reality is: I think you’ll see in most businesses their direct cost is 50, 60, 70 percent of their gross income.”
Bullis said the union and its advisers simply don’t understand business. He gave an example of a gasoline station. If gasoline costs $4 a gallon, the direct cost to the station owner is probably $3.95 — “what they paid the refiner for the gas, for the trucking company to put it in their station’s tank and for all the taxes they’ve got to pay, the cost of the pumps, the electricity to pump it. You add all that up, the average gas station owner is only making a few pennies per gallon.”
A service station might sell $3 million in gasoline but would be able to deduct most of that as direct cost of goods sold.
“When you kind of factor that in you start to see where this is just going to be an administrative nightmare for the average business owner and not that much tax,” Bullis said.
Bullis suspects the teachers’ union probably took the total gross business economy that somebody gave them, and took 30 percent off of that and then computed 2 percent of that and said that’s how much they’re going to get.
“These people were walking up and down at the Nevada Day parade last year saying, ‘Sign my petition to help the kids.’ ‘Oh yeah, OK, I’ll do that.’ Nobody was explaining that it’s not helping the kids at all …” Bullis said.
“It wasn’t explained what it would do to businesses losing money but would still have to pay the tax. They didn’t explain that their estimate of $800 million was ridiculously high and wouldn’t raise that much. They didn’t explain how horrible this would be to administer and do to businesses that already are here. They didn’t explain that businesses that are thinking of moving here won’t come if they pass that tax. No, no, ‘Just sign here to help the kids.’ It was so fraudulent and misleading. When they came up to me I got mad. Most of the people who signed this petition, if they knew, probably would not have signed it. It was deceptive the way they did this.”
Ray Bacon, executive direct of the Nevada Manufacturers Association, recalls that when an NSEA expert testified before a legislative committee that the tax would generate about $800 million a year, Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, said accountants had told her the tax would not generate so much money and asked the expert to show her their calculations as to how they arrived at that number.
“The last time I knew, she still had not seen them,” Bacon said, “which means they don’t have a clue. It’s a wild ass guess.”
Carole Vilardo, president of the Nevada Taxpayers Association, said, “One of the things that is kind of frustrating is that very small businesses — and I know because I used to be one, I was a mom and pop without the pop when I had my local sportswear shop — is that you’re so busy running your business, sometimes somebody will mention something like this to you, but you don’t have time to really delve into what it means. And then you forget it. I’m finding there are still business people out there who are not aware of this threat being on the ballot.”Vilardo said her organization is engaged in informing the public about the tax and its ramifications.
A coalition of business associations will be raising money to put on an education campaign. That should start by the end of November.
(Next week: Why there is no guarantee education will get any more money if the margins tax is approved.)
Thomas Mitchell is a longtime Nevada newspaper columnist. You may email him at firstname.lastname@example.org. Read additional musings on his blog at http://4thst8.wordpress.com/.