Nevada lawmakers consider expanding sales tax to include services

Lawmakers discussed a potential sales tax on services Tuesday as they vet ways to fund Gov. Brian Sandoval's budget and improve a tax structure that's been yielding less money as Nevada's economy evolves.

The Senate Committee on Revenue and Economic Development heard presentations from a handful of experts in a meeting that lasted more than three hours, although no specific bills were up for debate. One presenter asked whether lawmakers could or would act on the discussion after years of service tax talk going nowhere.

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"I can assure you, this session we're going to make decisions," said Republican Sen. Michael Roberson, the committee chairman.

Much of the hearing was devoted to a report, authored by the Washington, D.C.-based think tank Tax Foundation, that criticized Nevada's tax structure as narrow, outdated and complex. The study, commissioned by the Las Vegas Metro Chamber of Commerce, recommends extending the sales tax to services, which would make it more broad-based and allow lawmakers to reduce the relatively high sales tax rate.

The state's sales tax rates range from 6.85 percent in some rural counties to 8.1 percent in Clark County, and Nevada has the 13th highest average rate in the country. Expanding the sales tax to services would better align with consumer spending habits, which have shifted away from the purchase of goods and toward services, the organization said.

Sales taxes on goods covered about 80 percent of economic activity in 1970, but capture less than 50 percent of it today, according to foundation policy analyst Jared Walczak.

A services tax would also be less regressive than a sales tax solely on goods, Walczak argued, because wealthy people tend to spend a greater share of their income on services than on goods, while the poor spend proportionally more on goods. He offered the example of house cleaning: the rich pay a maid and don't pay a sales tax, while the poor buy cleaning products and do.

Lawmakers appeared skeptical of the assertion that the service tax was less regressive. Republican Sen. Greg Brower listed services he thought the poor might buy: veterinary care, insurance, funeral services, car repairs.

Democratic Sen. Aaron Ford said his constituents wanted to see businesses pay more taxes rather than the general consumer. He said he was less interested in the tax when the foundation recommended it only be paid by the end consumer, rather than in business-to-business transactions.

Alan Schlottmann, an economics professor at the University of Nevada, Las Vegas, said exemptions would need to be carved out to avoid taxing nondiscretionary services such as medical procedures, but argued that doing so would be a nightmare.

He questioned whether lawmakers could accomplish the complicated task before the legislative session ends in early June.

But Carole Vilardo of the Nevada Taxpayers Association warned lawmakers that Nevada's economy is evolving and the existing tax structure is not keeping up with a trend toward services.

"Sooner or later, something needs to be done," Vilardo said.

The sales tax talk comes on the heels of a discussion Friday about Nevada's live entertainment tax and will be followed by hearings on property, business and other taxes. It comes as Sandoval seeks funds for a major expansion in K-12 education programs, and has proposed revamping the state's business license fee to pay for it.