“False dedication to education.” That’s how Matt Griffin describes the Margin Tax.

Griffin, legal counsel for the Coalition to Defeat the Margin Tax Initiative, was featured at Keystone Corporation’s Annual Luncheon earlier this week. He explained how the proposal could have severely devastating economic effects, while not guaranteeing any additional education spending.

The Margin Tax is Question #3 on this November’s ballot and is referred to by its supporters as The Education Initiative. The Nevada Subcontractors Association is a member of the Coalition to Defeat the Margin Tax Initiative.

The effects on the economy could be absolutely devastating. Griffin noted an analysis by Applied Analysis that determined that the tax would result in the loss of 5,800 direct jobs in the private sector. The number of lost jobs in the private sector climbs to nearly 8,900 when the indirect jobs impacts are included.

The analysis also calculated that, when direct and indirect impacts are factored, private sector incomes would be reduced by approximately $413 million annually. Economic activity in the Silver State would decline by $1.1 billion per year.

Griffin also noted that consumer costs would increase, notably in the areas of food, utilities, prescription medications, insurance, child care and medical care.

Utilities are not exempt from the Margin Tax and are guaranteed by law to be profitable. An earlier study by Applied Analysis determined that the Margin Tax liability for a typical utility would exceed its profit, so consumers would likely bear the burden of the tax on utilities in the form of higher rates.

Unlike Texas’s franchise tax, Nevada’s proposed Margin Tax does not exempt insurance companies. Another study by Applied Analysis, this one commissioned by the Nevada Insurance Council, estimated the Margin Tax would force Nevada consumers to pay $60 million in higher insurance premiums annually.

While supporters claim the Margin Tax will generate hundreds of millions of additional dollars in education funding each year, as Griffin pointed out, the initiative does not require that even one additional dollar be spent on education. The money would be earmarked for a fund that is easily raided by lawmakers to fund any expenditure and has been raided in the past.

Griffin stated that proponents of the Margin Tax will likely try to claim that Nevada businesses do not pay their fair share in taxes. However, he cited a study by Ernst & Young that determined Nevada businesses account for 52% of all state and local tax collections, the 12th-highest figure in the nation and well above the national average of 45%.

Griffin cited the earlier Applied Analysis study that determined the Margin Tax would be the equivalent of a nearly 15% corporate income tax, much higher even than California’s 8.8% tax. He claimed some businesses are hesitant to come to the Silver State with the specter of the Margin Tax looming, saying, “we’re going to stay out of Nevada until after November.”

The Margin Tax is a 2% levy on revenues for all companies with over $1 million in gross income. Businesses may deduct some costs, such as cost of goods sold (a category that differs from the federal definition) or 30% of revenue or their total employee compensation from the tax.

It is based upon a franchise tax that Texas passed in 2008. Griffin explained that, though the Margin Tax is “styled the same way as the Texas franchise tax,” there are significant differences that make Nevada’s proposal “nothing similar.”

Some of the differences Griffin noted:

• Texas exempts the first $1 million in income. In Nevada, businesses subject to the tax must pay it on the very first dollar of revenue.
• In Texas doctors can deduct revenue from federal programs, such as Medicare, which often pay reimbursements below cost. In Nevada, such revenue is subject to the tax.
• In Texas, insurance companies are exempt. In Nevada, insurance is treated the same as all other industries.
• Texas has different rates for certain industries, especially some low-margin industries. In Nevada, all businesses subject to the tax pay the same 2% rate. And virtually all for-profit businesses are subject to the tax.

Griffin stated that 70% of the people in the state currently haven’t heard about the Margin Tax. He stressed the importance of educating the public – friends, neighbors, business associates and employees – on the hazards of the Margin Tax.