Is Nevada Open for E-Business?

Nevada's politicians, like their counterparts across the nation, seek to draw information-technology (IT) firms to their state, as well as foster the creation of native IT enterprises. It's little wonder why such businesses are attractive to legislative careerists -- "dot coms" and other New Economy firms pay their employees well. The American Electronics Association reports that high-tech workers earn an average salary of $53,000, a figure which is 80 percent higher than salaries in other industries. Yet few of these quality jobs exist in Nevada. A recent survey which examined the percentage of technology-related employment for each state ranked Nevada a dismal 45th. Unfortunately, the state's elected officials and bureaucrats are doing very little to fix this problem -- in fact, they're making things worse.

The E-Tax Threat

Nevada Department of Taxation Executive Director Michael A. Pitlock has expressed "significant concerns" that the state is losing revenue due to Nevadans' online purchases. Many tax-hungry government officials -- from every state -- share his view. Some politicians in Washington are promising assistance, in the form of a federal sales tax on electronic commerce. Where does Nevada's chief executive stand on this subject? In an interview with the Las Vegas Review-Journal last year, Nevada Governor Kenny Guinn voiced his worry that the state might not get its "fair share" of e-tax revenue -- as if a federal levy is inevitable. And Assemblyman David Goldwater has drafted a proposal to appoint a "trusted third party" to calculate and collect taxes from online shoppers in Nevada and remit them to the state. Goldwater's proposal is probably designed to circumvent constitutional questions about state laws which compel e-tailers to collect taxes from their customers. The U.S. Supreme Court has ruled that under a legal principle known as "nexus," no state has the power to force businesses beyond its border to collect its sales tax. So big-government enthusiasts have begun to design schemes to wiggle past this ruling, including the aforementioned federal e-tax, which would apply to every online purchase in America. The revenue generated from this levy would then be distributed to each state. By embracing the notion that online sales should be taxed, Nevada's elected officials send a clear signal to e-vendors: We're ready to gouge you.

Can the Spam Law

In 1997, Nevada legislators passed a law intended to stem the flow of unsolicited commercial e-mail (UCE), more commonly known as "spam." The law satisfied neither First Amendment watchdogs nor anti-spam crusaders. The former disagree with any regulation of electronic speech, and as Internet journalist Keith Dawson has noted, the latter characterized Nevada's law as codifying the "right to spam." Since the law was stuffed with giant loopholes, spammers continue to target Nevadans. But the civil-libertarian criticism has taken on more and more significance, in light of a number of recent judicial decisions. Citing the commerce clause of the U.S. Constitution, judges have started to invalidate state attempts to regulate electronic commerce. The most recent decision was handed down in Washington, which also passed an anti-spam law in 1997. In the 2001 legislative session, Silver State legislators should seriously consider repealing Nevada's unworkable spam law.

Tax and Subsidize

It's clear that Nevada politicians don't grasp the constitutional issues surrounding e-taxes and anti-spam statutes, but their ignorance of how IT firms are incubated is disturbing as well. Many Nevada public officials -- elected and unelected -- are currently working to repeal the state constitution's prohibition against the use of tax dollars for direct investment in private businesses. Nevadans have already defeated two attempts to repeal the "anti-donation" clause, but the issue will go to voters again in 2000. Why? Because proponents of the repeal believe the state's private sector does not provide enough venture capital to IT start-ups in Nevada. They want taxpayers to pick up the slack. The thought that bureaucrats may soon scour the garages of Nevada in search of the next Steve Jobs should cause any taxpayer alarm. As Douglas County Center for Economic Development Executive Director Fred Jones has observed, "The high-tech industries that have sprung up in 'Silicon Valley' California and in the Boston area were not the result of government actions. … Both of these geographical high-tech areas primarily developed out of the academic environments existing at Stanford University, M.I.T. and Harvard University (note that these are private universities) and supported by the personal lives, energies and fortunes of a few risk takers." T.J. Rodgers, the CEO of Cyprus Semiconductor, agrees that IT firms don't want subsidies -- they want to be left alone. "[A]s a general rule," he wrote in a Cato Institute study, "Silicon Valley CEOs like smaller government and lower taxes and are willing to forgo subsidies to achieve those goals. The popular impression that CEOs cling strongly to their corporate welfare is completely inaccurate."

The Education Thing

Yet perhaps the biggest barrier to e-commerce in Nevada is the Silver State's broken system of government education. While IT executives may not have reached common ground on every issue facing their industry, there's widespread agreement that good e-workers are hard to come by. High-tech firms need educated employees -- an unavoidable reality which has driven many to recruit abroad. American schools, it seems, cannot provide them with enough qualified workers. A recent analysis by the Information Technology Association of America concluded that "the economy transforms itself a lot faster than the educational and training system does." The organization reports that IT employers will need roughly 1.6 million new workers by January, but 850,000 of those positions aren't likely to be filled. (Small e-businesses have the greatest need for workers -- 70 percent of the overall demand expected.) But the Nevada political establishment is adamantly opposed to any meaningful education reform, especially the enactment of a voucher program which would free students from poorly performing schools. This intransigence is a sign that at least for now, IT firms won't find many capable workers in the Silver State.

Conclusion

There are many reasons why e-businesses should find Nevada an attractive place to set up shop. The state's proximity to Silicon Valley, mild weather, vast recreational opportunities, and lack of personal and corporate income taxes surely tempt many in the IT industry. But Nevada's politicians continue to transmit negative messages to New Economy executives. Statements by elected officials in support of Internet taxes have certainly caught the eye of the industry, which is becoming more politically savvy. Legislators' jump-the-gun attitude on spam doubtless made many e-tailers wary that Nevada politicians are willing to go far beyond merely taxing electronic transactions in the state. The willingness of Silver State officials to embrace subsidization of IT firms does not fit with the anti-government attitude of many electronic entrepreneurs. And Nevada's mediocre government schools and resistance to true education reform mean few high-tech firms see the state as a way to solve their chronic worker-shortage problem. Nevada would indeed benefit if IT enterprises relocated to the state, or were created here from the start. This development is unlikely to occur while state officials promote misguided measures which repel e-businesses.

D. Dowd Muska is a research analyst with the Nevada Policy Research Institute.

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Tag: Taxes