Last year I wrote about Lawrence Semenza. Mr. Semenza with the US Attorney for Nevada back in the 1970s. He was the youngest US Attorney at that time and has had a long and successful career since as a defense attorney. Unfortunately, he forgot about the law requiring a tax return to be filed; he didn’t file his corporate or individual returns from 2006 to 2010. He pleaded guilty last year, and was sentenced this week to 18 months at ClubFed. He has already made restitution.
Archive for the ‘Nevada’ Category
While I was on vacation, the Small Business & Entrepreneurship Council released its 19th annual “Small Business Policy Index 2014: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship.” (Hat Tip: Joe Kristan) The listing measures the costs, both in taxes and regulations, on small businesses. As noted in the report,
Some elected officials, policymakers and special interests believe that taxes, regulations and other governmental costs can be increased with impunity. Economic reality tells a different story. Ever-mounting burdens placed on entrepreneurs and small businesses by government negatively affect economic opportunity. People go where economic opportunity is, in turn, bringing more opportunity with them. The “Small Business Policy Index” tries to make clear the relative governmental burdens placed on entrepreneurship among the states, so that business owners and their employees, elected officials and citizens in general can better grasp the competitive position of their respective states.
Here’s the listing of the best states:
1. South Dakota
10. North Dakota
And here are the bottom ten:
48. New York
49. New Jersey
In looking at the actual factors, California is near the bottom on most tax and regulation rankings. (interestingly, California had the best score on unemployment tax.) Contrast that with Nevada, which doesn’t have a state personal income tax, doesn’t have a corporate income tax, and doesn’t have the regulatory burden of California. It’s no wonder that Nevada ranks higher than California.
Do you remember 1928? Well, that was the last time Nevada had a Republican governor, a Republican State Assembly, a Republican State Senate, and Republicans holding all major statewide offices. Well, 2015 will see that. As part of the tsunami nationally, any Republican that had a chance of winning won in the Silver State.
Coincidental with that, any measure which had the appearance of increasing taxes lost. The Margins Tax, supported by the Nevada Teachers Unions, was expected to lose by a 60% no vote. It got crushed, as the no vote was 78%. Nevadans don’t like the idea of state income taxes of any sort.
There was no Nevada senator on the ballot, but Democrat Harry Reid can’t be liking the results. He’ll remain Senate Majority Leader for the rest of 2014, but he will soon be Minority Leader. The GOP will likely hold 54 Senate seats come the next Congress.
The Nevada Congressional delegation to the House was split two Democrats, two Republicans. It will now be three Republicans as Democrat Steven Horseford lost his race.
The biggest shock was the State Assembly. No one predicted that the GOP would pick that up. The thoughts were that if this was a ‘wave’ election, Republicans might get to 21 of the 42 seats. The State Assembly will have at least 25 Republicans.
There was no surprise in that Republican Governor Brian Sandoval coasted to reelection. In the primary, “None of the Above” did better than his Democratic opponent. Governor Sandoval is hugely popular here in Nevada, and he is definitely a likely future Senator. Governor Sandoval won over 70% of the vote.
The Nevada legislature only meets every-other-year, so this election will have a big impact on coming policies. Nevada does have major issues: an education system that is poor, tax revenues that do need to grow, and major water issues. In the past, partisan bickering has been at a minimum in Carson City. We’ll see if having the GOP in charge of everything in the next term changes anything.
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.
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:
2. South Dakota
7. New Hampshire
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:
45. Rhode Island
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.
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.
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.
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
Bringing up the rear are these ten states:
45. New York
48. New Jersey
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.
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.
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.