As you may be aware, the 2015 Nevada Legislature and Governor Sandoval created a new gross receipts tax that affects Nevada businesses. The tax has commonly been referred to as the "Commerce Tax" and will impact all Nevada businesses. Although the tax will only be due on gross receipts that exceed $4,000,000, all Nevada businesses will be required to report to the State. This may seem like old news, but as with all things, the devil is in the details. You have the ability to have your voice heard and have the State take your business concerns into account as the details are being created.
The legislation is only the tip of this potentially business-crushing iceberg. Presently the Nevada Tax Commission is drafting regulations in an effort to implement the Commerce Tax. The current draft regulations contain twenty-four pages of additional impediments to your business. The first section is intended to "clarify" the filing requirements of a business entity. The clarification reiterates that, "Each business entity must file an annual return, even if the business entity has no tax liability." Furthermore, the draft regulations further define business activity beyond what the statute requires. For example, entering into Nevada to purchase or place advertising may now subject that business (that may do no other business in Nevada) to the Commerce Tax. Having consumed goods in Nevada may now subject the business consigning the goods to the Commerce Tax.
Performing a contract in Nevada, regardless of whether the business has employees within Nevada, may subject that business to the Commerce Tax. This gives rise to a very troubling possibility. Many business contracts contain forum selection clauses. Essentially, these state that the parties to the contract consent to jurisdiction within Nevada - this may be true even if there are aspects of the contract that are performed outside Nevada. Will a forum selection clause now subject a business to the Nevada Commerce Tax?
Franchisors may now be subjected to the Nevada Commerce tax. Thus, Supercuts (which has its corporate offices in Minnesota) may now, at the corporate level, be subjected to the Commerce Tax when it enters into a franchise agreement to enable a franchisee to open a salon in Nevada. This may have a chilling effect on franchisors to enter into franchise agreements in Nevada. If that is the case, it will impact the accessibility to such businesses as well as the pool of potential employees within Nevada that will not be able to work.
The regulations define conducting training classes, seminars or lectures in Nevada as business subject to the Commerce Tax. The result of this may have an impact on our tourism as well. Generally, trade shows and other conventions provide such classes as a part of their programs. Potentially, the Commerce Tax may affect those businesses which may have no other business activity within the State of Nevada.
The regulations proceed to provide additional requirements and guidance as to how to measure and collect the gross revenue from each of the 26 subcategories of business activity. Failure to follow these additional regulations properly may subject the non-compliant business to greater fines and penalties.
Presently, the Nevada Department of Taxation is soliciting additional information from the public in a Small Business Impact Questionnaire. "Small Business" is defined as a "for-profit business that employs fewer than 150 full or part-time employees." The Department of Taxation seeks to know the following:
- Will a specific proposed regulatory provision have an adverse economic effect upon your business?
- Will the regulations have any beneficial effect upon your business?
- Do you anticipate any indirect adverse effects upon your business?
- Do you anticipate any indirect beneficial effects upon your business?
encourages you to respond to the Department of Taxation (response is required by December 10, 2015). You may have the ability to change some of the adverse effects on your business. Please contact Gordon Law to review the proposed regulations and respond to the Department of Taxation's request.