The Commerce Tax

May 23, 2016

On July 1, 2016 all entities doing “Commerce” in the state of Nevada will owe the “Commerce Tax” created during the last legislative session.  Commerce is broadly defined to include collecting rent on a residential property, legally even holding a garage sale as well as all gross revenue received for Nevada transactions.  The rates vary by NAICS code which is established with your first filing due August 15, 2016.  The forms, the final rules and all that stuff you need to comply were not officially adopted as of May 20, so this process will be “interesting”.  At this point in time we believe few if any companies will have software in place to easily collect the data needed to calculate the tax due is any.  The first $4million in Nevada sales is exempted for the tax, but NOT FROM THE FILING requirement.

This tax is a Nevada creation which is sort of like taxes on Gross revenue in WA, TX and OH, but differs enough to be its own new set of challenges.  The State estimates that the new tax will bring in about $120 million in new revenue.  The rates vary by NAICS code but sort of average out at about one tenth of one percent (0.1%).  For simplicity sake if we use that number and assume southern Nevada is about 70% of the economy, the Reno are is about 25% and the balance of the state covers the other 5%.  For this tax to achieve its projected state revenue the Reno economy during this first year needs to in the $30 billion of taxable gross revenue of sales in Nevada after the $4 million is removed from all of the small business and personal transactions.  No one knows whether that revenue projection is real or not.  This type of Tax in TX and OH is reasonable new and in both cases under-performed a significant amount in the first year.

If everyone who is required by the law to file actually does file this year, the rough guess is roughly a million returns will arrive in the Carson City office on the Dept of Taxation.  The Department has probably never received that much mail before – nearly a half million in postage and over 60,000 pounds of mail.  It will be interesting if they all get deliver within a couple of days.  They have insisted on having the Social Security number for the owner or responsible person on the tax forms; that requirement is probably unnecessary.  However, that cyber security treasure trove of personal information may wind up sitting in hallways while they figure out what to do with it.

For the manufacturing community, this tax for most is not a huge burden except for the administrative burden.  Most of your products ship to customers outside of Nevada and those transactions are NOT subject to the tax.  Your sales to customer inside Nevada are subject to the tax.  Your material supplies from outside this state are subject to this tax.  How the state will find and inform your suppliers of their tax obligation to Nevada will be through the Secretary of State’s records.  It is likely that many small supplies who have customer here, but no presence here are not in those records.  The rate for the manufacturing NAICS code is .091% of the gross revenue for the entity.  Some companies which act as distributors for many products of the parent corporation will find themselves in the logistics NAICS because that represents the greater portion of their revenue.

There is a petition to repeal the tax which will need more than 55,000 valid signatures before June 21 to go to the ballot.  The signature gathering is a cumbersome process because they must be gathered by county and by congressional district.  In most of northern Nevada the process is reasonably clean, but in Clark county the process is messy because parts of three congressional districts are in Clark county.  Lyon County is the only county in Northern Nevada split between two congressional districts.  A signature in the wrong district throws out the entire petition page out and NOT just the wrong signature.

 

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