Nevada businesses would be among the five highest-taxed in the nation with passage of the Nevada Margin Tax, according to a report prepared by Applied Analysis. The report reveals the tax would more than double business taxes and subject Silver State businesses to an average effective corporate tax rate of nearly 15%, making it the highest among all Western states, higher even than California.

The actual rate of the Margin Tax would vary significantly from industry to industry, and even from company to company within the same industry, due to the nature of the tax. Since it is based on gross revenue, rather than net income, it could result in certain businesses paying taxes even if they lost money or in others being forced to pay a Margin Tax that exceeded their net income.

[N]early every business analyzed bore significantly higher business tax liability under the proposed margin tax. On average, this differential was approximately 4.5 times the rate currently borne under Nevada’s payroll tax, respecting that this number varied considerably depending on the type and structure of business. With an effective tax rate approaching 15 percent, Nevada’s effective business tax rate would be materially higher than any other Western state, including, without limitation, California.

In an appendix the report uses data from a variety of state and federal agencies to calculate the estimated Margin Tax liability by industrial sector for different entity types. The average corporation engaged in Specialty Trade Contracting, according to the estimate, would pay $7,381 in Margin Tax on a net income of $30,921, an effective tax rate of 23.9%

Currently approximately half the states in the nation have higher business taxes than the Silver State. If passed, the Nevada Margin Tax, Ballot Question #3 in this November’s election and also referred to as The Education Initiative, would result in just three or four states, depending on the metric, having higher business taxes than Nevada, according to Applied Analysis’s calculations.

The proposed margin tax would take Nevada from below the national average in terms of businesses taxes paid per employee, per $1,000 of personal income and per $1 million of gross state product to among the top five states in the country in each of those categories.

Nevada would jump to 4th highest-taxed from 24th and 23rd based upon Business Tax per Employee and Business Taxes per $1,000 Personal Income, respectively. By another measure, Business Taxes per $1 Million of GSP, Applied Analysis estimates the state would climb to 5th highest-taxed from 31st.

Nevada’s Margin Tax is based on the Franchise Tax passed in Texas in 2008 though there are significant differences. Nevada’s 2% rate is between two and four times the rate in Texas, which ranges from 0.5% to 1.0%. Many of the rules regarding types of income subject to the tax and types of expenditures exempt from it vary as well.

Most businesses in the state fall below the $1 million gross revenue threshold to be subject to the tax. However, the majority of workers in the state are employed by companies whose revenues exceed the threshold.