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Margin tax could mean the death of long-time Las Vegas construction firm

LAS VEGAS — After 16 years, a Las Vegas-based construction company that weathered the Great Recession could be forced to close and layoff its roughly 70 hard-working employees.

Only recently, Renee Newman and her husband had reason to hope that their construction company — which Newman asked not be named publicly for fear of retaliation — could break even and maybe even turn a small profit this year.

Since the economic downturn of 2008 and the accompanying construction-industry crisis, the couple has taken every cost-saving measure possible, from reducing their own pay, to cutting employee salaries, to layoffs. For the past three years, the company has been in the red and Newman’s family has filled the gaps with their own savings.

Despite artificially low project bids due to the high number of construction companies desperate for work, the first few months on 2014 have been more promising than those months in years past, Newman said. The company is doing about one-quarter of the business it was doing in 2008, but that is still more work than it has done in recent years.

What the owners of this family-owned company learned about the margin tax on this fall’s ballot, however, has dashed their hopes for the future. If voters this November decide to approve the margin tax, the construction company will face a 2 percent tax on gross revenue minus certain deductions — meaning it would be forced to pay the tax even if the firm merely breaks even, or worse, if it suffers another year of loss.

Any business that brings in revenue of more than $1 million — or just $2,739.73 per day — would be forced to pay the tax based on every dollar that simply comes through its register, and not on the actual profit it ends the year with.

“The outcome of the margin tax is critical,” Newman said. “For one thing, if you’re not making a profit, there’s no way you can afford to pay a two percent tax on your revenue. If we had to pay the margin tax last year, we would have closed.”

For this construction company, a closure would translate to a loss of 65 to 70 jobs, all of which belong to people with children, Newman noted.

“We’ve had to lay off a lot of really good employees,” she said, reflecting on some of the positions lost during the construction crush that took the company from a staff of 65 down to about 35. Since then, new hires brought the number of employees back up.

Newman said she doesn’t want to spend too much time thinking about “what ifs” and a possible closure, but said that will be on the table if voters approve the tax.

It’s the realization that the margin tax would mean layoffs throughout the state that led the AFL-CIO — which helped the Nevada State Education Association get the measure on the ballot — to reverse field and decide to not support the tax. One study projects nearly 9,000 private-sector jobs and $413 million in labor income will be lost if the margin tax passes.

Since construction jobs have been few and far between in recent years, said Newman, it’s difficult to project the company’s revenue for this year, and thus to estimate its possible tax burden. But, she said, any hit for any business that’s just breaking even or taking a loss is too great a hit.

“The margin tax is a game changer,” she said, while mentioning other ways to cut in the event of its passage, including selling off equipment and laying off some workers.

“My husband and I have been in business in Nevada our whole lives, and this is the worst (business climate) we’ve seen.”

Newman said the couple has closed several companies over the years due to increased regulations and taxes on businesses, and her fear is the same fate will come to the construction company.

On top of being pummeled by the financial crisis, the existing firm has faced numerous government-inflicted challenges, including mounting employee health care costs resulting from passage of the Affordable Care Act, increased unemployment insurance costs, rising gas prices and a recent gas tax hike, increased business license fees and a hike to water-hookup charges.

For many family-owned, small businesses with small profit margins — including grocery and convenience stores and mom-and-pop restaurants — the margin tax would be the last straw.

“It’s going to be a detriment to being in business,” she said of the proposed tax. “It’s a deterrent. It will penalize employers.”

Chantal Lovell is deputy communications director at the Nevada Policy Research Institute. You can reach her at Chantal@nevadajournal.com. For more visit http://npri.org.

Nevada Policy Research Institute

The Nevada Policy Research Institute is a free-market think tank that seeks private solutions to public challenges facing Nevada, the West and the nation. The Institute's primary areas of focus are education and fiscal policy, with the goal of advancing free-market principles in both. NPRI has offices in Las Vegas, but scholars and writers from all over Nevada and the nation contribute to our mission. Twitter: @NevadaPolicyRI

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