Nevada companies, or those that do business in the state, have new tax obligations in fiscal year 2016 based on Senate Bill 483. The bill’s accompanying commerce tax, which is expected to impact some 47,000 businesses and self-employed individuals, is part of a broadly applicable tax package that will contribute more than $1.4 billion to the state’s coffers in the first two years.
Many businesses will need to begin now to accurately assess their gross revenue and business category under the law’s complex provisions and determine the relevant deductions and exclusions so they can prepare to file initial reports next summer.
Smart Business spoke with Monic Ramirez, a tax partner at Sensiba San Filippo LLP, to learn more about the Nevada commercial tax and its impact on businesses.
Who is affected by the new law and who is protected from its reach?
The law applies not just to businesses located in Nevada, but also to those that do business in the state that generate more than $4 million in revenue. For out-of-state entities doing business in Nevada, gross revenue sourced to the state should be determined by:
■ Rents and royalties paid for real property located or used within the state.
■ Sales of real property in the state.
■ Rents and royalties for tangible personal property that are used or located within the state.
■ Sales of tangible personal property that are either shipped or delivered to a Nevada buyer.
■ Transportation services for which the origination and destination points are within the state.
■ Any services that result in the purchaser’s benefit occurring within the state.
Passive entities, credit unions, estates, grantor trusts, nonprofits, certain Real Estate Investment Trusts and any natural person not engaged in business are explicitly excluded from the tax. The law also includes an exemption for businesses generating less than $4 million in revenue.
A net loss for the year does not remove the responsibility to pay since the tax is calculated based on gross revenue. There are, however, ways to reduce the amount owed.
How does size and business structure play a role in the net effect of the tax?
Business category is a key data point since the commerce tax rates vary based on industry. Companies representing 26 different codes defined by the North American Industry Classification (NAIC) system are responsible for paying the new tax on gross revenue in excess of the exemption amount at rates between 0.051 percent and 0.331 percent.
Unclassified businesses or those that do not clearly fit into one of the specified codes will pay a rate of 0.128 percent.
Business entities that engage in multiple business categories will pay a single rate determined by the applicable category that creates the most Nevada revenue. The category that is reported on the initial commerce tax report will remain in effect until the entity has filed and received Department of Taxation approval for any requested change.
Separate entities within a parent-subsidiary group are not treated as a single unit under the provisions of the commerce tax.
These businesses will need to file a Commerce Tax Report for each entity subject to the tax. Companies that are currently structured in such a manner are strongly advised to review their arrangements to avoid paying more than necessary in combined Nevada payroll and commerce taxes.
What are the provisions that will mean increased cost for many businesses?
Additional amendments to the bill apply to a far broader swath of the business community.
Fortunately, the law contains multiple deductions and exclusions from the gross revenue taxable under the new plan, any business that may be affected should begin a careful examination of Nevada revenue, company structure and NAIC category and adjust accordingly to prepare for next year’s tax returns.
The earlier this assessment and adjustment is implemented, the more opportunity there may be to minimize the impact of increased state tax liability as a result of SB 483. ●
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