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This election season, the Tax Foundation (Foundation) was closely watching voters in Nevada to see if they would approve the implementation of a margin tax, a member of the gross receipts tax family. The Foundation reported that the initiative was an attempt to raise revenue for public schools, but that voters defeated it “in a landslide.”

 

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Prior to the election, the Foundation feared that Nevada would join the five other states – Delaware, Ohio, Virginia, Washington, and Texas (which has a modified version) – that have what it considers to be an economically damaging tax.


According to the Foundation, “[g]ross receipts taxes are complex business taxes that are imposed at a low rate but on a wide base of transactions (even intermediate goods and services). This results in tax pyramiding as taxes pile up on one another as goods move through the production chain. This is non-neutral, non-transparent, and complicated – the opposite of smart tax policy.”


Further lamenting the nature of the tax, the Foundation quoted Indiana University Professor John Mikesell’s reference to Texas’ modified version:

 

[The Texas margin tax] is…a badly designed business profits tax, like those that emerged in the newly independent states of the former Soviet Union...combin[ing] all the problems of minimum income taxation in general – excess compliance and administrative cost[s], penalization of the unsuccessful business, undesirable incentive impacts, doubtful equity basis – with those of taxation according to gross receipts.


The Tax Foundation noted two interesting features about the vote in Nevada. First, although the AFL-CIO was the group that filed the initiative, it later passed a resolution to officially oppose it, recognizing that it would “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.”


Second, pre-election polling numbers showed that a slight majority, or 51.25 percent, supported the initiative. This turned out to be markedly different from the actual results. The Foundation suggested that this could have been caused by proponents’ misleading branding, referring to the margin tax as the Education Initiative, and that voters did not know it would create a new tax.

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