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Nevada Legislature Passes New Revenue Plan


6/24/15

Synopsis

On May 31, 2015, the Nevada Legislature approved Senate Bill 483, a package of tax changes collectively referred to as the Nevada Revenue Plan. The $7.4 billion biennial budget measure is expected to generate $1.1 billion in new and extended taxes, primarily through a new gross-receipts tax called the “Commerce Tax.”

Issue

Major provisions of Nevada’s tax and revenue plan include: (1) a new Commerce Tax on the gross receipts of Nevada businesses that have annual revenue of $4 million or more; (2) increases to the annual corporation business fee; (3) expansion of the payroll tax; (4) increases in the cigarette tax; and, (5) changes to the Live Entertainment Tax.

The legislation, which goes into effect on July 1, 2015, was signed into law by Governor Brian Sandoval on June 10th.

Commerce Tax

The new “Commerce Tax” is imposed on each “business entity” engaged in a business in Nevada whose Nevada gross income in a taxable year exceeds $4,000,000. For purposes of the Commerce Tax, the term “business entity” is defined to include a “corporation, partnership, proprietorship, limited-liability company, business association, joint venture, limited-liability partnership, business trust, professional association, joint stock company, holding company and any other person engaged in business.” A “business entity” includes natural persons required to file a Form 1040 Schedule C (Profit or Loss from Business), Schedule E (Supplemental Income and Loss) or a Schedule F (Profit or Loss from Farming). Real estate investment trusts and passive entities are excluded from the business entity definition.  

The rate of tax depends on the industry/business category in which the business entity is “primarily engaged.” The new Commerce Tax creates 26 business categories, consisting of one or more industry classifications as delineated by the North American Industry Classification System (NAICS). Each business category has its own gross receipts tax rate, with tax rates ranging from 0.051 percent to 0.331 percent.  Where a business entity is engaged in more than one business category, a business entity is deemed primarily engaged in the business category in which the highest percentage of its Nevada gross revenue is generated. Once a business entity initially designates a business category on a Commerce Tax report, it may not change its business category without the Department of Taxation’s authorization.


 

The Commerce Tax is computed by multiplying a taxpayer’s Nevada gross revenue by the rate applicable to the taxpayer’s specific business category. The term “gross revenue” is defined as the total amount realized by a business entity from engaging in business in Nevada, without deduction for the cost of goods sold or other expenses incurred. However, in computing the Commerce Tax due, various exclusions and deductions from gross revenue are allowed, including deductions for interest income, distributions from pass-through entities and corporate dividends.
 
Commerce Tax reports are due on or before the 45th day immediately following the end of the taxable year. A taxable year is defined as the 12-month period beginning on July 1 and ending on June 30 of the following year. A 30-day extension may be granted for good cause upon written application. During the extension period, interest is imposed but penalties are not assessed.
 
Additional tax changes encompassed in the Nevada Revenue Plan include:

  • Business License Fee
    Under current law, all Nevada businesses pay a business license fee (BLF) of $200 annually. Pursuant to the new legislation, the BLF will increase to $500 for corporations but remains a flat $200 for pass-through entities.
     
  • Payroll Tax
    The Modified Business Tax (MBT) is currently imposed at a rate of 1.17 percent on wages paid above the exemption level of $85,000 per quarter. The exemption level will be reduced to $50,000 and the MBT will be increased to 1.475 percent for most businesses. Mining and financial institutions would pay a 2 percent rate.
     
  • Cigarette Tax
    The cigarette tax increases by 125 percent. The current tax is $.80 cents per pack and will increase to $1.80 per pack.
     
  • Live Entertainment Tax
    The Live Entertainment Tax (LET) applies to admission, food and beverage, and merchandise at venues where there is an admission charge and live entertainment is provided. There are numerous exemptions to the LET. NASCAR remains exempt from the LET as long as it holds two races per year in Nevada.
     

What Does CohnReznick Think?
As has been the case in states that have enacted new gross receipts taxes, most notably Texas and Ohio, the initial implementation of such taxes has been a bit challenging, both for the taxing authorities and taxpayers. Typically, implementation of significant new taxes requires extensive interpretations and guidance from the revenue authorities responsible for administering such taxes. CohnReznick expects the new Nevada Commerce Tax to go through a similar period of extensive interpretation by the Nevada Department of Revenue. Accordingly, taxpayers having Nevada customers should monitor Nevada’s implementation of the new Commerce Tax to ensure effective compliance with the new law.

Contact
For more information, please contact Eddie Delgado, Principal, State and Local Tax Practice, at eddie.delgado@cohnreznick.com or 310-843-8246.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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