For second consecutive year, statewide revenue growth easily exceeds Commerce Tax revenues

Why, exactly, do we need the Commerce Tax?

Several weeks ago, in response to reports that Attorney General Adam Laxalt would support repealing the destructive and distortive Commerce Tax if elected governor, outgoing Gov. Brian Sandoval made the following demand:

“Anyone supporting a repeal of the Commerce Tax must explain to Nevada’s children, families and businesses which education initiatives will be cut if it is eliminated.”

Well, perhaps now is a good time for the governor to decide how he prefers to have his crow prepared.

Last year, statewide tax revenue totaled $6.3 billion — a $393 million increase from the previous year. Of that $6.3 billion, the Commerce Tax yielded only $198 million:

In other words, even if the Commerce Tax never existed, statewide revenues would have still increased 3.3 percent year over year — nearly $200 million in added revenue.

This means that — contrary to the governor’s fearmongering — there will be no need for cuts to education, or anything else for that matter, if Nevadans vote to repeal the Commerce Tax next year.

In fact, far from explaining what “cuts” should be made, lawmakers would actually be free to continue expanding education spending well into the foreseeable future, as a result of the projected continued growth from the state’s existing revenue sources.

Moreover, because those currently paying the Commerce Tax receive a 50 percent tax credit towards their modified business tax (MBT) liability, the amount of revenue lost from a repeal would be similarly muted.

Thus, it is likely that repeal would reduce total state revenues by only $100 million or so — due to the boost in MBT revenues that would result from the elimination of the 50 percent tax credit included as part of the Commerce Tax legislation.

Ultimately, state revenue for the 2017 fiscal year — and thus the capacity to spend on education — would have seen a significant increase, and is projected to continue to increase, with or without the disruptive gross receipts tax.

This fact, in conjunction with its distortive and inefficient structure, is just one more reason for Nevadans to say goodbye to the Commerce Tax.

Daniel Honchariw is a policy analyst at the Nevada Policy Research Institute.