Nevada's tax structure worst in nation, study finds

As the 2003 state Legislature convened Monday and faced up to the task of resolving a huge revenue shortage, a 50-state study rated Nevada's tax system the worst in the nation.

The study by Governing magazine said Nevada's "regressive and dysfunctional" tax system trailed every other state's in its revenue generation, fairness to taxpayers and system management.

"There's clearly a need for change. And there's clearly a need for change no matter what the economy does," said Katherine Barrett, project manager for the magazine's study, "The Way We Tax."

The findings appear to bolster Republican Gov. Kenny Guinn's argument that state spending already is as lean as possible and a $1 billion tax increase is needed for the coming two-year budget cycle.

"(Guinn's) goal all along has been to address our cyclical funding problems," Guinn press secretary Greg Bortolin said. "And what he's proposed with this budget is to broaden it so that we're not so drastically affected by the economy and world events."

Assemblyman Bob Beers, R-Las Vegas, has been critical of the governor's tax proposal and said the Legislature needs to examine additional spending cuts before increasing taxes.

"One thing that you can say right now is that the governor is proposing an increase in services that is well in excess of the growth of population and inflation," Beers said.

Bortolin disagreed.

"I think what this (report) also says is that Nevada doesn't have a spending problem and we've made tough decisions," he said.

Barrett said spreading the tax base is the essential component to any sound tax policy.

"The basic idea is that you want the broadest tax base so that you can have the lowest rates possible and so that no one segment of the community is unduly burdened," Barrett said.

The study determines Nevada's reliance on gambling and sales taxes, its constitutional ban on income tax and low business taxes are the root source of the state's problem.

"The sales tax base is narrowly drawn and riddled with exemptions, covering virtually no services in a state where the economy is almost entirely service-based," the study reads.

"The emphasis on consumption taxes hits lower-income residents hardest," it said.

The governor's proposal addresses some of the study's criticism, specifically widening the tax base. Guinn recommended increasing property taxes, establishing a gross receipts tax for businesses, imposing an amusement tax and increasing cigarette and liquor taxes.

Guinn hopes to raise $1 billion to fill a $700 million budget gap and to add revenue for new or enhanced state programs.

"In good economic times it's easy to mask the problems, but it would be a mistake, even if the economy turns around, to wait for a downturn again to do something," Barrett said.

The study did not stop at criticizing the state's ability to generate revenue and the fairness of its system.

"Unlike other state revenue departments in which increased automation has helped cope with understaffing, Nevada has shortchanged its tax department in this area also," the report reads.

Legislative approval of the governor's tax proposal is no sure thing. Tax increases need a two-thirds majority for passage.