Nevada Commerce Tax: Impact on Businesses

It is important that all entities doing business in Nevada, including self-employed individuals, take note of the recently passed Nevada Senate Bill 483 (S.B. 483). This new Nevada legislation included a gross receipts tax, called the Commerce Tax. While the first return and payment of the new gross receipts tax are not due until August 14, 2016, the first taxable year for this new tax runs from July 1, 2015, through June 30, 2016. The tax year is the same for all taxpayers.

S.B. 483 was enacted to:

• Create over $1.4 billion in new taxes over the next two years.

• Increase the corporation annual business fee, expand the payroll tax, raise the cigarette tax, and create a new Commerce Tax on the gross receipts of businesses with at least $4 million in revenue in Nevada.

• The bill also makes temporary payroll tax and sales tax increases permanent.

Rates Vary by Industry

The provisions of S.B. 483, which includes the new Commerce Tax, go into effect on July 1, 2015. Revenue-based business taxes used in Ohio, Texas, and Washington were the inspiration for the Nevada Commerce Tax and are perceived as satisfying the goal of levying a simple, fair, and broad tax on business sourced in Nevada. While broad (the graduated structure will apply to approximately 47,000 businesses), it is also non-neutral, with stated tax rates varying widely by industry.

The annual tax applies to entities that are engaged in business in Nevada and have Nevada-sourced gross revenue that exceeds $4 million in the fiscal year. There are 26 commerce tax rates (ranging from 0.051 percent to 0.331 percent), each consisting of one or more principal industry classifications as delineated under a taxpayer's NAICS classification. Businesses that do not fit into any other category are taxed at the 0.128 percent rate used for Unclassified Businesses.

"Gross revenue" is generally defined as the total amount realized by a business entity from engaging in a business in Nevada, without deduction for the cost of goods sold or other expenses incurred. However, certain exclusions and deductions are allowed. There are sourcing provisions which resemble the general market sourcing rules for services used by other jurisdictions.

Other Changes

S.B. 483 also contains certain changes to Nevada's existing Modified Business Tax (payroll excise tax), most notably a 50 percent credit for taxes paid under the Commerce Tax. Furthermore, it contains an increase to the Business License Fee (BLF). Corporations will be subject to a flat $500 fee while pass-through entities will be subject to a flat $200 fee.

If you have any questions about how Nevada's new Commerce Tax or the other changes contained in S.B. 483 may impact your business, please contact Mike Klaich (775.686.3201), Judy Vorndran (303.459.6736) or your Eide Bailly professional. Visit our State and Local Tax Services page for more information.