Nevada Tax Changes
December 29, 2015

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
Rail Transportation 482 0.331%
Educational Services 61 0.281%
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%
Truck Transportation 484 0.202%
Accommodation 721 0.200%
Food Services (includes restaurants) 722 0.194%
Health Services 62 0.190%
Professional Services 54 0.181%
Administrative and Support Services 561 0.154%
Other Services 81 0.142%
Management Companies 55 0.137%
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%
Wholesale Trade 42 0.101%
Manufacturing 31, 32 & 33 0.091%
Construction 23 0.083%
Agriculture, Forestry, Fishing and Hunting 11 0.063%
Air Transportation 481 0.058%
Mining, Quarrying, Oil and Gas 21 0.051%
Unclassified 0.128%

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

  • Interest and dividend revenue (other than interest on credit sales) received upon federal or Nevada bonds or securities
  • Revenue from the sale, exchange, disposition or other grant of the rights to use trademarks, copyrights, trade names, patents or other intellectual property
  • Transfers within an affiliated gross of businesses
  • Returns and refunds to customers
  • Bad debts expenses for the purposes of federal income taxation
  • Wages, payroll taxes, benefit payments and workers’ compensation payments received by an employee leasing company
  • Certain payments (e.g., from Medicaid and Medicare) received by a health care provider or health care institution
  • Revenue used to determine the net proceeds of minerals tax
  • Revenue used to determine the insurance premium tax
  • Revenue used to determine the gaming license fee
  • Revenue received by a business entity that is required by law or fiduciary duty to distribute to another person or governmental entity
  • Reimbursement for advances made by a business entity on behalf of a customer or client
  • Certain revenue received from a business entity that is mandated by contract or subcontract to be distributed to another person or entity (including sales commissions)