Archive for the ‘Nevada’ Category

Happy Nevada Day, Especially If You’re a Performer at a Gentleman’s Club

Friday, October 31st, 2014

Today is Nevada Day! Exactly 150 years ago Nevada was admitted as a state. The Nevada Supreme Court yesterday ruled on a case that may make this day more celebratory for workers at adult entertainment facilities (strip clubs).

Several performers at Sapphire Gentleman’s Club sued the club alleging they were employees and not independent contractors. The district court ruled that they were independent contractors. They appealed to the Nevada Supreme Court.

The Nevada Supreme Court reversed the district court decision. The Court noted that the performers sign a contract, and the Court ruled that even though the contract states they won’t be employees, the actual relationship “is an express contract of hire.”

The Court then ruled that the Fair Labor Standards Act (FLSA) economic realities test should be used to determine who the employer of the performers is. The Court noted that while it might appear that the performers weren’t under the control of the club (they could choose their own schedule, whether to dance or not, etc.), appearances were deceiving.

But by forcing them to make such “choices,” Sapphire is actually able to “heavily monitor [the performers], including dictating their appearance, interactions with customers, work schedules and minute to minute movements when working,” while ostensibly ceding control to them. This reality undermines Sapphire’s characterization of the “choices” it offers performers and the freedom it suggests that these choices allow them; the performers are, for all practical purposes, “not on a pedestal, but in a cage.” [citations omitted]

The Court noted that other economic realities test factors made the performers appear to be employees rather than independent contractors. The Court unanimously reversed the district court decision, and remanded it back to the district court for a trial on damages.

The attorneys representing the performers note that they could be looking at $40 million of back wages. However, Nevada’s minimum wage law allows employees who receive tips (and clearly the performers at these facilities receive tips) to be paid well under the minimum wage, so damages could be far smaller.

The 2015 State Business Tax Climate Index: Not Much Has Changed

Tuesday, October 28th, 2014

I guess I could have called this, “Bring me the usual suspects,” but I’ve been using that phrase over and over. Yet not much has changed, so the usual suspects have good tax climates and the usual suspects have bad tax climates. That’s according to the Tax Foundation and their 2015 State Business Tax Climate Index.

Let’s look at the ten best states for business:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Texas

This list is remarkably similar to last year. The only state dropping out is Washington. The Evergreen state fell from 6th best to 11th; it was hurt by its sales tax ranking (48) and corporate tax ranking (28). While Washington does not have an individual or corporate income tax, it does have a Business & Occupation Tax. That’s a gross receipts tax on business income.

The bottom ten is also mostly unchanged:

41. Iowa
42. Connecticut
43. Wisconsin
44. Ohio
45. Rhode Island
46. Vermont
47. Minnesota
48. California
49. New York
50. New Jersey

Why are states ranked poorly? Here’s what the Tax Foundation says:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Maryland and North Carolina rose out of the bottom ten, while Iowa and Ohio fell into the bottom ten. North Carolina’s improvement was dramatic: from 44th to 16th. Why?

In this year’s edition, North Carolina has improved dramatically from 44th place last year to 16th place this year, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings.

As for why states rank where they do, consider my old home of California. The Bronze Golden State has complex taxes for individuals (it ranks worst in the country), corporations, and also has a complex sales tax system. If the Tax Foundation looked at flow-thru entities, California would rank even worse. In most states a single-member LLC does not have a state tax filing requirement. That’s not the case in California.

Kudos to the Tax Foundation for their annual report. It’s clear that policy makers do read this report. North Carolina saw drastic improvement. There’s improvement forthcoming in New York, with a major corporate tax reform implemented this year which should have a dramatic impact on at least one New York tax in the future.

$1.25 Billion Attracts Tesla to Nevada

Thursday, September 4th, 2014

As you likely heard, Tesla will be building its new “Gigafactory” at a site in Storey County near Reno in northern Nevada. What attracted Tesla to Reno? About $1.25 billion.

Tesla get a 100% sales tax abatement for 20 years (worth $725 million), a 10-year property tax abatement (worth $332 million), $75 million of transferable job credits ($12,500 on the first 6,000 jobs), a 10-year 100% abatement of Nevada’s modified business tax, $8 million of discounts on electricity, and $120 million of transferable tax credits. (The transferable tax credits can be sold by Tesla to other Nevada businesses.) Tesla is required to invest $3.5 billion in manufacturing and real property according to the Reno Gazette Journal.

While Tesla is a clear winner, and assuming that the economic development forecast comes true (a $100 billion economic impact over 20 years) so are Reno, Storey County, and Nevada, there are definite losers. Some of the Tesla tax breaks will be funded by eliminating other tax breaks:

- Insurance companies headquartered in Nevada will lose a tax break worth $25 million a year;
- The Nevada film credit is being cut from $80 million to $10 million; and
- The Tesla deal includes an express provision allowing Tesla to sell cars directly to consumers, bypassing automobile dealers.

The package, which Jon Ralston reported will be in five separate pieces of legislation, does have to pass the Nevada legislature. Governor Sandoval will be calling a special session of the legislature to start next Wednesday.

In the end, one must ask if the tax hit to Nevada is worth it. Of course, all those jobs are dangling like money to my state’s elected officials. One thing is quite certain: taxes matter, as always.

Former US Attorney Forgets to File

Monday, September 1st, 2014

Back in the 1970s, Lawrence Semenza was the US Attorney for Nevada. In a 2007 article in the Las Vegas Review-Journal, Mr. Semenza commented about how different the job was back then. After Jimmy Carter was elected President, Mr. Semenza was allowed to stay on the job until brothel owner Joe Conforte was sentenced for failure to pay payroll taxes–a case prosecuted directly by Mr. Semenza.

“It was a different era,” Semenza recalled. “U.S. attorneys, even assistant U.S. attorneys, knew they were never going to be there forever.”

One thing, though, hasn’t changed: Failing to file tax returns remains a crime. Mr. Semenza pleaded guilty last week to failing to file his corporate and personal tax returns from 2006 through 2010. He has already agreed to make restitution of $290,000 to the IRS. He’ll be sentenced in December.

Once Again, Bring Me the Usual Suspects: 2014 Small Business Tax Index

Thursday, May 1st, 2014

The Small Business & Entrepreneurship Council recently released their “Small Business Tax Index 2014.” You may remember that last October I wrote about their “Small Business Policy Index 2013.” Congratulations are in order for my home state, the Silver State, for leading the way. Here are the top ten states:

1. Nevada (9.677)
2. South Dakota
3. Texas
4. Wyoming
5. Washington
6. Florida
7. Alabama
8. Ohio
9. Colorado
10. Alaska

Bringing up the rear are these ten states:

41. Connecticut
42. Oregon
43. Vermont
44. Maine
45. New York
46. Iowa
47. Hawaii
48. New Jersey
49. Minnesota
50. California (82.695)

The numbers in parentheses are the total score for all factors. Why is California so far behind Nevada?
- Nevada has no personal income tax; California has the highest personal income tax in the country.

A high personal income tax rate raises the costs of working, saving, investing, and risk taking. Personal income tax rates vary among states, therefore affecting crucial economic decisions and activities. In fact, the personal income tax influences business far more than generally assumed because more than 92 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than corporate income taxes.

- Nevada has no capital gains tax; California has the highest capital gains tax rate in the country. “One of the biggest obstacles that start-ups or expanding businesses face is access to capital. State capital gains taxes, therefore, impact the economy by directly affecting the rate of return on investment and entrepreneurship.”

- Nevada doesn’t tax dividends and interest; California has the top rate on these in the country. “Quite simply, higher tax rates on dividends and interest mean reduced resources and incentives for saving and investment, which in turn, works against entrepreneurship, economic growth and job creation.”

-Nevada doesn’t have a corporate income tax; California does (they rank 41st in this category). The same rankings apply for corporate capital gains taxes.

- California gets a negative for imposing a corporate level tax on S-Corporation, an individual AMT, a corporate AMT, and for having a progressive income tax (Nevada has none of these). California does index tax brackets, so it doesn’t lose a point here.

- On property tax, Nevada ranks 21st and California ranks 28th (they are fairly similar).

- In one category, California ranks significantly above Nevada: sales and gross receipts/excise taxes. California ranks 26th and Nevada ranks 48th.

- California ranks first in one category: unemployment taxes while Nevada is just behind in 6th.

In any case, California ends up at the bottom. Given its ranking at the bottom of the policy index, that’s a daily double that should drive California’s political leaders to make changes…but won’t.

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Toyota Living Up to Their Slogan: They’re Going Places (to Texas from California)

Monday, April 28th, 2014

Toyota’s current slogan is “Let’s go places.” And they are–Toyota is leaving the Bronze Golden State and moving to the Lone Star State. While Toyota isn’t saying anything about why they might move roughly 5,000 employees from Torrance to Dallas, it doesn’t take a genius to know that taxes and regulations are two prime factors.

“The costs of doing business in Southern California are much higher than the costs of doing business in Tennessee,” Nissan Chief Executive Carlos Ghosn said at the time [Nissan announced they were moving their headquarters to Tennessee from Gardena, California]. He cited cheaper real estate and lower business taxes as key reasons for the move.

Fritz Hitchcock, who owns several Toyota dealerships in Southern California, said Toyota’s decision won’t affect local car sales. But he said it represents an “indictment of California’s business climate.”

California ranks at the bottom of almost every comparison of state business climates and taxes. Texas ranks near the top in both categories. Yet I read that the California legislature is considering even more anti-business legislation. (The link goes to an article on a proposal to tie California corporation tax to the differential in pay between a CEO and the average employee.)

When I moved my business from California to Nevada, taxes and regulations were prime reasons. It’s far easier to uproot a one-person business than it is the marketing arm of Toyota. That said, California is giving business owners plenty of reasons to check out neighboring states. The desert sands of Nevada don’t make the world’s best meteorological climate, but the business climate here is day-and-night better in comparison to California.

Yes, Online Poker Players Must Pay Taxes

Thursday, April 3rd, 2014

The Las Vegas Review Journal has a short article on the fact that online poker players must pay taxes. The article notes that winning players must pay taxes; of course, both winners and losers are supposed to include their winning sessions on their tax returns. There is one minor error in the article: Freeroll winnings of $600 or more should be reported on a Form 1099-MISC rather than a Form W-2G.

Both Brad Polizzano and I are quoted in the article. One point that I made with David Ferrara (the writer of the article) is that proposed legislation legalizing and regulating online poker in other states (than Nevada) explicitly requires reporting wins and losses to state tax agencies.

Bozo Tax Tip #7: Ignoring California

Thursday, April 3rd, 2014

Yesterday I looked at the idea of forming a Nevada Corporation while in California and being able to avoid California taxes. It doesn’t work. Today’s focus is on something that comes up now and then and applies to trusts.

Let’s assume John and Jane, two California residents, form a trust to benefit their children, Ann and Bob. Ann lives in Florida; Bob resides in California. The trust is an irrevocable trust, so it files its own tax return (a Form 1041). The income to the beneficiaries is reported on Schedule K-1s. Ann is surprised and calls her accountant when she receives both a federal K-1 and a California K-1.

The issue is simple: The trust is a California trust, so the income is California-source. California requires that a Schedule K-1 for Form 541 (California’s trust tax return) be included. Yes, Ann must pay California tax on the income. Ann’s CPA called me and asked me why I included the K-1 from California. My response was succinct: I have to and Ann has to pay the tax.

California’s desire to have anyone and everyone pay California tax has led to many trusts relocating to Nevada (which has no state income tax) and other trust-friendly states. California isn’t one of those states. Ann’s parents, John and Jane, could have formed the trust in Nevada but because they didn’t Ann is stuck in the Hotel California. You can check out any time but you can never leave.

Ignoring the California K-1 is a Bozo idea. Instead of just paying tax, you will get the joy of paying tax, penalties, and interest. If your parents are in California and thinking of forming a trust to benefit you, it may be worth your time to talk about Nevada to them. Otherwise, welcome to the Hotel California.

Bozo Tax Tip #8: Nevada Corporations

Wednesday, April 2nd, 2014

A repeat follows, but it’s one again getting a lot of play due to business conditions in California. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.

Now, if you’re planning on moving to Nevada incorporating in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada corporation is, well, bozo.

No Margin for Error

Wednesday, February 26th, 2014

Nevada is known for low taxes. It’s also known for subpar schools and relatively low teacher salaries. The Nevada State Education Association (aka the teachers union) decided that a solution to the problem of subpar schools was a tax on businesses. The NSEA calls it the Education Initiative; opponents call it a fiscal disaster for the state. The initiative will appear on the November ballot and is more commonly known as the Margin Tax.

Interestingly, Jon Ralston, who is probably the leading political commentator here in the Silver State, noted on his blog that both sides (pro and con) paid for a study of its impact. I have a feeling that proponents of the tax aren’t thrilled with what they’re reading. Here are two of the conclusions from the study:

With an effective tax rate approaching 15 percent, Nevada’s effective business tax rate would be materially higher than any other Western state, including, without limitation, California…

The proposed margin tax would take Nevada from below the national average in terms of businesses taxes paid per employee, per $1,000 of personal income and per $1 million of gross state product to among the top five states in the country in each of those categories.

This tax goes into effect at exactly $1 million of gross receipts. It doesn’t take a genius to figure out that this initiative would cause companies to stop growing when their sales neared $1 million.

To date, the only large union in favor of the initiative is the NSEA. I expect that as news of this study spreads that the large casino interests and the unions will either refuse to support the measure or come out against it. While the November election is just over eight months away, this doesn’t look like a good year for Democrats and supporters of new taxes. Given the devastating impact of this proposed new tax, that’s a good thing.