On June 10, 2015, Governor Sandoval signed SB 483 instituting a new “commerce tax” (effective July 1, 2015). The tax is applicable to each “business entity” engaged in business in Nevada with Nevada-sitused gross revenue exceeding $4,000,000 in a taxable year. If a business entity’s Nevada gross revenue exceeds $4,000,000, the excess is subject to tax at various rates that depend upon the industry in which the business entity is “primarily engaged.” In addition to the commerce tax, the bill also among other items:
- Amends the Nevada payroll-based tax on financial institutions and the payroll-based business tax
- Increases the annual state business license fee applicable to certain corporations organized under Nevada law and foreign corporations authorized to transact business in Nevada
Nevada Commerce Tax
Effective on July 1, 2015, SB 483 imposes an annual “commerce tax” for the privilege of “engaging in a business” in Nevada. The tax applies on an entity-by-entity basis on “each business entity whose ‘Nevada gross revenue’ in a taxable year exceeds $4,000,000.” For this purpose, the term “business entity” is defined to include a “corporation, partnership, proprietorship, limited-liability company, business association, joint venture, limited-liability partnership, business trust, professional association, joint stock company, holding company and any other person engaged in business.” Certain entities are excluded from the definition, including persons or entities that Nevada is prohibited from taxing under the Nevada or U.S. Constitution; certain “natural person[s]” unless engaged in business and required to file specified Internal Revenue Forms with their 1040s; certain government entities, nonprofits, credit unions, grantor trusts, estates, and real estate mortgage investment conduits; certain real estate investment trusts; business entities organized under Nev. Rev. Stat. Chaps. 82 or 84; entities that meet the definition of a “passive entity” under Nevada law; persons whose Nevada activities are confined to owning, maintaining, and managing “intangible investments” owned by such persons or by certain “statutory trusts or business trusts;” and persons who take part in “exhibition[s]” held in Nevada for which a state business license is not required.
“Gross revenue” is defined as “the total amount realized by a business entity from engaging in business in this State, without deduction for the cost of goods sold or other expenses incurred, that contributes to the production of gross income . . . .” Gross revenue does not include “amounts realized from the sale, exchange, disposition or other grant of the right to use trademarks, trade names, patents, copyrights and similar intellectual property;” the “value of goods or services provided to a customer on a complimentary basis;” cash discounts taken by a customer; amounts realized from transactions specified in Internal Revenue Code. (“I.R.C.”) §§ 118, 331, 332, 336, 337, 338, 351, 355, 368, 721, 731, 1031, or 1033; amounts indirectly realized from a reduction of an expense or deduction; the value of deductible donations (under I.R.C. 170(c)) to certain nonprofit organizations; and amounts not considered revenue under generally accepted accounting principles.
The law provides various deductions from gross revenue, including the following:
- Dividends and interest received upon federal or Nevada (or political subdivisions thereof) bonds or securities
- Revenue amounts used to calculate certain industry-specific taxes in the gaming (Nev. Rev. Stat. § 463.370, “Fees for State and County Gaming Licenses”) and mining (Nev. Rev. Stat. §§ 362.100-362.240, “Net Proceeds of Minerals”) industries
- An amount equal to the excise tax paid on liquor for businesses required to pay tax under Nev. Rev. Stat. Ch. 369 (“Intoxicating Liquor: Licenses and Taxes”)
- Certain amounts related to business entities required to pay tax under Nev. Rev. Stat. Ch. 680B, (Insurance Fees and Taxes)
- The amount of the premiums used to calculate tax imposed under Nev. Rev. Stat. § 694C.450 (Captive Insurers), and Nev. Rev. Stat. § 685A.180 (“Nonadmitted Insurance”)
- Certain payments received by healthcare providers and by a health care institutions
- Certain payments received by employee leasing companies
- “Pass-through revenue” received by a business, which includes, among other revenue items, revenue received by a business entity that is part of an affiliated group from another member of the affiliated group
- The tax basis of securities and loans sold, as determined for federal income taxation
- Interest other than interest on credit sales
- Dividends and distributions from corporations and distributive receipts and income from pass-through entities
- Receipts for the sale, exchange, or other disposition of an asset described in I.R.C. §§ 1221 or 1231
- Receipts from certain hedging transactions and loan repayments
- Certain proceeds from certain insurance policies, litigation damages, bad debts expensed, customer returns and refunds, and cash discounts
- Certain amounts realized from the sales of an account receivable and
- Certain income from a passive entity
Under the Act, revenue is sourced to Nevada under general and industry specific provisions. Each taxpayer will have to apply these provisions based upon their specific circumstances.
Under the law, if the business entity’s resulting Nevada gross revenue exceeds $4,000,000, the excess is subject to tax at various rates that depend upon the industry in which the business entity is “primarily engaged.” For this purpose, a business entity is treated as “primarily engaged” in the business category in which the highest percentage of its Nevada gross revenue is generated. There are 26 different business categories that correspond to various NAICS codes and have corresponding rates as follows:
|Agriculture, Forestry, Fishing, and Hunting||0.063%||Finance and Insurance||0.111%|
|Mining, Quarrying, and Oil and Gas Extraction||0.051%||Real Estate and Rental and Leasing||0.250%|
|Utilities and Telecommunications||0.136%||Professional, Scientific, and Technical Services||0.181%|
|Construction||0.083%||Management of Companies and Enterprises||0.137%|
|Manufacturing||0.091%||Administrative and Support Services||0.154%|
|Wholesale Trade||0.101%||Waste Management||0.261%|
|Retail Trade||0.111%||Educational Services||0.281%|
|Air Transportation||0.058%||Health Care and Social Assistance||0.190%|
|Truck Transportation||0.202%||Arts, Entertainment, and Recreation||0.240%|
|Other Transportation||0.129%||Food Services and Drinking Places||0.194%|
|Warehousing and Storage||0.128%||Other Services||0.142%|
|Publishing, Software, and Data Processing||0.253%||Unclassified||0.128%|
Each business entity is required to designate on its initial report the business category in which it is primarily engaged. Once the designation has been made on the initial report, it may not be changed unless the business applies to the Nevada Department of Revenue (“Department”) to change the designation and the Department determines that the business is no longer primarily engaged in the designated business category.
The commerce tax is due annually within 45 days of the end of the taxable year, which is defined as “the 12-month period beginning on July 1 and ending on June 30 of the following year.” The bill authorizes the Department to grant a 30-day extension for good cause upon written application. Thus, the due date for all business entities will be August 14th, with an extension available to September 13th.
Proposed amendments to payroll-based tax on financial institutions and business tax
SB 483 amends the Nevada tax on financial institutions and the business tax, both of which are based on payroll. These amendments include the allowance of a credit against the tax equal to 50 percent of the commerce tax paid by the employer in the preceding taxable year. The credit may only be used for any of the four calendar quarters immediately following the end of the taxable year for which the commerce tax was paid.
Any unused credit for each quarter may be carried forward but not beyond the fourth calendar quarter immediately following the end of the taxable year for which the commerce tax was paid, and a taxpayer is not entitled to a refund of any unused credit. These changes are effective July 1, 2015.
SB 483 also amended the Nevada business tax based on payroll by increasing the existing tax rate on general businesses from 1.17 percent of total wages in excess of $85,000 paid by the employer each calendar quarter to 1.475 percent of total wages in excess of $50,000 paid by the employer each calendar quarter. This change is effective July 1, 2015.
Also, SB 483 would require a reduction in the rate applicable to the tax on financial institutions and the business tax to the extent that the total revenue collected by Nevada with respect to both these taxes and the commerce tax exceeds certain thresholds.
Additional changes contained in SB 483
The law also:
- Increases the excise tax imposed upon cigarettes from 80 cents per pack to $1.80 per pack. This change is effective July 1, 2015.
- Increases the annual state business license fee from $200 per year to $500 per year applicable to: (a) corporations organized under Nevada law Chapters 78 (Private Corporations), 78A (Close Corporations), or 78B (Benefit Corporations); and (b) foreign corporations authorized to transact business in Nevada under Chapter 80. This change is effective July 1, 2015.
- The law also maintains the existing $200 per year business license fee applicable to other business entities.
If you have any questions as to how this tax law specifically applies to you and your business, please contact our office at (702) 870-7999.