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Nevada’s Question 3: ‘Margin Tax’ or ‘Education Initiative’

Note: This is the final of a three-part series explaining the three ballot questions Nevada voters will decide in the 2014 election. The report for Question 1 is here and Question 2 here. Early voting in the Silver State runs October 18-31 and Election Day is November 4.

One of the most contentious and expensive campaigns in Nevada’s history will be decided over the next three weeks, a race that does not involve any candidates. The issue is Question 3.

The opposing sides on Question 3 cannot even agree on what to call this ballot initiative. Question 3 is termed the “Margin Tax” by opponents and “The Education Initiative” by supporters.

Logo of the Coalition to Defeat the Margin Tax Initiative (via http://stopthemargintax.com/

Logo of the Coalition to Defeat the Margin Tax Initiative (via http://stopthemargintax.com/)


Logo of The Education Initiative PAC (via http://www.theeducationinitiative.com/)

Logo of The Education Initiative PAC (via http://www.theeducationinitiative.com/)

Question 3 would create a 2 percent tax on the gross revenues, minus a limited number of deductions, of businesses with revenues of $1 million or more in Nevada. Nevada currently has no corporate income tax. The money collected from this tax would be deposited in the state’s Distributed Schools Account (DSA), the fund into which Nevada’s General Fund revenues are deposited for distribution to public schools within the state.

The initiative is based upon a similar tax adopted by Texas in 2009, though with a number of differences. Most notably among the differences is that Nevada’s rate is 2 percent while Texas has tiers of rates for different industries ranging from 0.5 percent to 1 percent. Also, Nevada’s tax would apply to all income of companies with over $1 million in revenues while Texas exempts the first $1 million from the tax.

Businesses subject to Question 3’s Margin Tax are allowed certain deductions to reduce the revenues on which the tax is assessed. They may deduct either a flat 30 percent, the total compensation paid to owners and employees (though they may deduct a maximum of $300,000 for any individual employee) or the costs of goods sold as defined in the initiative (a definition that differs from the definition used by the IRS for federal tax purposes).

Those businesses that would pay Question 3’s Margin Tax would be able to reduce their liability by the amount they paid in Modified Business Tax during the year.

Separate businesses having one or more common owners, including businesses unrelated by any other factor than a common owner or partner, would also be required to combine revenues and file a single return under the provisions of Question 3. Out-of-state companies with operations in Nevada would be required to pay the tax based upon the portion of the revenues that occur in Nevada.

Question 3 would cost the state a total of $5.2 million to implement before any funds from the tax were collected. To cover these costs, the Modified Business Tax on financial institutions would be increased on a temporary basis, through July 1, 2016.

Several unions, led by the Nevada State Education Association teachers union, worked to collect signatures to put this initiative on the ballot. However, many private sector unions, including the AFL-CIO, which helped gather signatures, and Culinary Union, have since come out against Question 3. Many business groups in the state are also opposing the initiative.

Question 3 is a complex measure that survived several legal challenges to make it on the ballot. The document on the Secretary of State’s website is 33 pages long, more than twice as long as the other two ballot questions combined.

After a sufficient number of signatures were gathered, the 2013 Legislature was required to take up the measure. Since the Legislature failed to adopt it, state law required that the initiative appear on the 2014 ballot.

[Header image from Shutterstock.com]

Michael Chamberlain

Michael Chamberlain is the Editor of Watchdog Wire - Nevada. Please contact him at Nevada@watchdogwire.com for story ideas or to get involved in citizen journalism in Nevada. Follow Michael on Twitter: @michaelpchamber

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