On June 10, 2015, Governor Sandoval signed S.B. 483, a package of tax changes which includes $1.1 billion in new and extended taxes over the biennium, which will affect many businesses and individuals. The tax package includes a higher cigarette tax, an increase in the corporation annual business license fee, a change in the Governmental Service Tax, an increase in the Modified Business Tax (MBT) and a new Commerce Tax on the gross receipts of businesses with an excess of $4 million in revenues. The provisions of S.B. 483 go into effect on July 1, 2015.
Cigarette Tax. The sales tax on cigarettes, which is currently set at 80 cents per pack, will increase to $1.80 per pack under the new tax package.
Business License Fee. Currently Nevada businesses pay a business license fee of $200 annually. The business license fee, which was scheduled to sunset in 2016 to $100, will increase to a flat $500 for corporations organized under Chapters 78 (Private Corporations), 78A (Close Corporations), 78B, (Benefit Corporations), and 80 (Foreign Corporations) of the Nevada Revised Statues (NRS). For other Nevada businesses the business license fee will remain at $200 annually. In addition the annual filing fees for all business will increase by $25 per year from $125 to $150.
Governmental Service Tax. This tax package will continue diverting 100% of the Governmental Services Tax revenue from the State Highway Fund to the State General Fund. However, beginning on July 1, 2016, 50% of the Governmental Services Tax revenue will be diverted to the State Highway Fund and 50% to the State General Fund. On July 1, 2017, 100% of the Governmental Services Tax revenue will flow to the State Highway Fund.
Modified Business Tax. The Modified Business Tax (MBT) is currently charged to businesses other than financial institutions in the amount of 1.17% of wages paid above $85,000 per quarter. Financial institutions currently pay a higher rate at 2% with no wage threshold. The MBT rate was scheduled to decline to .63% for nonfinancial institutions beginning July 1, 2015. With the new tax package, the MBT will increase from 1.17% to 1.475% for nonfinancial institutions, effective July 1, 2015. In addition, the wage threshold will drop from $85,000 per quarter to $50,000 per quarter.
A tax credit may be available on the Modified Business Tax form for businesses that also pay the new Commerce Tax. The Commerce Tax will be discussed in greater detail below, but in general, this tax will affect certain businesses with annual Nevada gross receipts greater than $4 million. The credit will allow businesses to use 50% of the Commerce Tax paid in a tax year as a credit against the Modified Business Tax paid quarterly after the Commerce Tax has been paid. The tax credit may be rolled forward for 4 quarters, but may not be used in excess of the Modified Business Tax liability in any quarter. Also, the credit is non-refundable and any unused credit after 4 quarters will be lost. For example, assume Company ABC pays $20,000 in Commerce tax for the fiscal year 2016 (July 1, 2015 to June 30, 2016). Beginning in the third quarter of 2016, Company ABC will have a $10,000 tax credit it can apply towards it Modified Business Tax liability. Assuming Company ABC owes $2,000 per quarter in Modified Business Tax, for the 3rd quarter 2016, 4th quarter 2016, 1st quarter 2017 and 2nd quarter 2017, ABC will be able to use $2,000 per quarter from the $10,000 tax credit but lose $2,000 of their total credit.
Commerce Tax. The Commerce Tax is levied on business entities with gross revenues generated in Nevada, in excess of $4 million per taxable year less certain exclusions and deductions (see attached Appendix for complete list of exclusions and deductions). A business entity is defined to include a corporation, partnership, proprietorship, limited-liability company, business association, joint venture, limited-liability partnership, business trust, professional association, joint stock company, holding company and any other person engaged in business. Certain government entities, nonprofits, credit unions, grantor trusts, estates, real estate investment trusts (REITs), entities that meet the definition of a “passive entity” under Nevada law, and qualifying entities whose Nevada activities are limited to owning, maintaining, and managing certain intangibles would be excluded from the Commerce Tax. Also, sectors that already pay a Nevada gross receipts tax (gaming, mining and insurance) could exclude from the Commerce Tax any revenue subject to those taxes.
Eligible Nevada gross revenue will be taxed from 0.051% to 0.331% depending on a business’s North American Industry Classification System (NAICS) code. The following table details the tax rate for each NAICS code:
|Business Category||NAICS Code||Tax Rate|
|Waste Management Services||562||0.261&|
|Publishing, Software, Data Processing||511,512,515 & 518||0.253%|
|Real Estate, Rental and Leasing||53||0.250%|
|Arts, Entertainment, and Recreation||71||0.240%|
|Food Services (includes restaurants)||722||0.194%|
|Administrative and Support Services||561||0.154%|
|Utilities and Telecommunications||22 & 517||0.136%|
|Other Transportation||483, 485, 486, 487, 488, 491 & 492||0.129%|
|Warehousing and Storage||493||0.128%|
|Retail Trade||44 & 45||0.111%|
|Finance and insurance||52||0.111%|
|Manufacturing||31, 32 & 33||0.091%|
|Agriculture, Forestry, Fishing and Hunting||11||0.063%|
|Mining, Quarrying, Oil and Gas||21||0.051%|
Businesses which do not fit into any other category are taxed at the 0.128% rate for unclassified businesses. Also, if a business entity has more than one NAICS code, the NAICS code associated with the largest share of Nevada revenue will dictate the tax rate.
The tax is computed by calculating a businesses’ apportioned Nevada gross revenue less certain exclusions and deductions, subtracting $4,000,000 and multiplying that amount by the rate based on the business’s NAICS code. Businesses must use the same accounting method (cash, accrual, etc.) used on their federal income tax return to calculate their gross revenue. The taxable year is a 12 month period from July 1 to June 30 and any Commerce Tax will be due on or before the 45th day following the end of the taxable year. However, businesses may request a 30 day extension to pay the tax. No penalty is assessed for the payment during the 30 day extension but interest will be imposed.
We would like to thank Ferrari Public Affairs who assisted us in gathering the information listed above. If you have any additional questions concerning the items discussed above or would like to review your exposure to the above tax changes please give us a call.
Appendix – Exclusions and Deductions to Commerce Tax