California Prop 30, Nevada Margins Tax and Our Unique Opportunity

We have a very unique opportunity in Nevada over the next coming months/years. Thus, I want to be very up front that this means there will be some tough decisions but also some very important decisions.

This comes from a couple conversations I have seen on facebook re: margins tax in Nevada and what occurred in California with Prop 30 and Prop 38.

Basically Prop 30 was approved to increase tax on income over $250K, Prop 38 was to increase tax on all. Of course when you ask a voter – do you want tax increased on you or increased on others – the answer is others and that is what happened Prop 38 failed and Prop 30 passed.

This is what Nevada is facing with the petition signing for the next election of the margins tax. The question is do you want tax increased on you as an individual or small business with revenues less than $1 million or on businesses over $1 million in sales. The answer is “others”. The unintended consequences will be far reaching even down into the people who voted to tax the others by them losing their jobs.

Let me over simplify this to illustrate the point – For every million in sales that is $20,000 in new taxes. I have a retail client with $3 million in sales that pays all their employees between $8.25 and $10 an hour. This new tax conservatively will make them pay at least $20,000 a year (but you could see it could make them pay upwards of $60,000 $3M * 2%). This business has a net of between 2 and 5% that it uses to pay back debt on the purchase of the business, and return money to the investors that gave some of the initial cash to get the business running and expand its operations and buy assets. Thus, this tax could effectively make the business not profitable or down to 2% to 3% profitable at the extreme high end of their operations. Thus, this company will have to let go between one and 4 of its employees to have sufficient resources to pay the tax. (8.25 * 2080 = $17,160). This business and its investors are privately held and owned 100% locally. As a side fact, the owner/president of this business only takes less than $50K salary and has no benefits and offers no benefits to its employees because the costs are so high and competition is so tight.

So the question is this – Do we want Nevadans to make the same decision and tax others like California did with Prop 30? Do we want such an open ended initiative like Prop 30 is and like the Margins tax is written that says – we increase this tax and it can be used by the legislature as they please but we will say it is for education but the initiative is open ended, vague, and funds are not sequestered to funding education?

This is our unique opportunity. We can make the tough decisions to 1) change funding allocations and priorities, or 2) we can make the decision to fund education by increasing taxes together or 3), we can all share the burden in some other form.

I believe the opportunity is #1 – make the tough decisions and make Nevada a darling to all those income earners and business owners sitting in California looking at their taxes about to increase at minimum 1% in California and at minimum 3% federally and make Nevada the destination for them to move. The increase of them moving will provide increased property tax receipts and thus increase funding to our education system.

I agree with Paul Kempler – what is our plan? Are we prepared? We have to make the most of this opportunity as Nevadans.

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