CARSON CITY, Nev. — Jun 2, 2015, 4:06 AM ET
By MICHELLE RINDELS Associated Press
Nevada's Republican governor, Brian Sandoval, secured an unlikely victory when the conservative state Legislature approved a huge tax increase at his urging as part of a plan to boost education spending.
The $1.1 billion package raises taxes on businesses and cigarettes, and it makes permanent a $500 million bundle of temporary payroll and sales taxes.
Sandoval's win on Monday came on the last day of the legislative session, and the proposal's fate had been in doubt until late Sunday when several skeptical Republicans in the state Assembly pledged support.
The plan had faced vocal resistance for months, led by anti-tax conservatives emboldened by election victories in November that increased their majorities in both chambers.
Many critics noted that Nevada voters had overwhelmingly rejected a similar business tax plan and said the lawmakers shouldn't go against their wishes.
Sen. Don Gustavson said legislators "should be ashamed of themselves to force through the largest tax increase in Nevada's history that includes the type of tax that voters did not support."
"And you wonder why our constituents distrust politicians?" he added.
Gustavson and Sens. Pete Goicoechea and James Settelmeyer, all rural Republicans, were the only opposition in the Senate, which passed the tax plan 18-3 Monday.
That vote came after the Assembly passed the plan 30-10 Sunday night after heavy-hitting business groups lined up behind it.
The tax increase will allow Sandoval to pump millions of dollars into programs for poor students and children learning English. The state has lagged behind others for years in education rankings and on school funding, but it has consistently rejected efforts to raise revenue.
Republican Sen. Scott Hammond had been among the skeptics, but he said his concerns about accountability had been eased, in part by the passage of his bill allowing students to use public funds at private schools.
"I can assure you that there have been significant reforms. We have one of the best, if not the best, school choice reform programs now in the nation," Hammond said. "For that reason, I can support this."
Elements of the plan include:
— A hike in the business license fee. The fee for corporations would rise from the existing $200 a year to $500, while the fee for the rest of the business entities would remain at $200.
— A hike in the payroll tax. Sandoval's plan raises the state's existing modified business tax from 1.17 percent to 1.475 percent of wages beyond the first $200,000 a company pays out each year and sets the rate at 2 percent of those wages for the mining industry and financial institutions. Companies would still get to deduct health care premiums for employees from the calculation.
— A "Commerce Tax" on gross revenue. Industry-specific tax rates will apply to businesses with more than $4 million in Nevada revenue each year. Businesses can count 50 percent of their commerce tax bill as a credit against their modified business tax bill — a provision that's intended as a perk to those who employ people. The commerce tax aims to capture more money from capital-intensive businesses such as mines and those that do business in Nevada but aren't based here.
— A flexible payroll tax rate. The plan allows the state to lower the modified business tax rate if revenues from the new commerce tax and MBT rate bring in more revenue than projected.
— An extension of "sunset taxes." More than $500 million of the plan comes from making a set of expiring payroll and sales taxes permanent.
— Cigarette taxes. The bill raises a tax on cigarette packs by $1, which is expected to generate about $100 million over two years.
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