Nevada takes more on goods, but taxes far fewer of them

CARSON CITY - Would you rather pay the 6.85 percent state sales tax rate in Nevada or the 4 percent rate in Hawaii?

Any school kid who studies his arithmetic would pick Hawaii. But the correct answer is Nevada.

Huh?

That's because in Nevada sales taxes are levied on only 37.4 percent of the potential items and products that could be taxed. In Hawaii, taxes are levied on almost everything - 99.2 percent of the potential taxable items.

This information comes from "The Disappearing Retail Sales Tax," a report completed earlier this year by Indiana University professor John Mikesell.

The Tax Foundation, a national group, released a study last week noting Nevada's sales tax rate is eighth highest in the country, just a shade behind California's leading 7.25 percent.

But sales tax rates are not the best indication of what people actually pay because states vary widely in items they tax.

Mikesell attributed the decline in the sales tax base in Nevada and many other states to their failure to tax services and growing willingness over the last 40 years to exempt food for home consumption and other purchases from taxes.

"Exemptions are like termites - get one chewing and the whole gang shows up to eat away at the base," he said. "Legislators will go to great lengths to avoid approving good tax policies. I expect yours are no different than those in other states."

Nationally only 34.46 percent of potential taxable purchases are assessed sales taxes.

If the state sales tax bases had increased in proportion to the growth in household expenditures since 1970, then Mikesell figured the average state base would have been 53.9 percent higher in 2010 than it actually was.

He said that could have translated into more tax money for government to spend on services at a time when many states slipped into recession.

POLITICAL REALITY

During the 2011 session, Assemblywoman Peggy Pierce, D-Las Vegas, introduced bills to broaden the Nevada sales tax base and impose several other taxes, but her proposals received little real attention.

Since it takes a two-thirds majority to increase taxes in Nevada, and Gov. Brian Sandoval and many legislators of both parties opposed tax increases, Pierce's proposals largely were dead on arrival.

That is still the case, according to Geoff Lawrence, deputy policy director of the conservative Nevada Policy Research Institute.

"Political reality stands in the way," he said.

Lawrence once proposed the state sales tax rate be cut to 3.5 percent. By broadening the sales tax base to include many untaxed services, he said the amount of money raised from sales taxes could remain the same even if the rate was cut in half.

"I think economically it makes sense to broaden the base and lower the rate," he added. "I don't think anyone in the state Legislature is willing to stick his neck out and do it."

Some liberal groups, such as the Progressive Leadership Alliance of Nevada, oppose sales tax increases.

They consider sales taxes regressive, hurting poor people more than the rich. That's because everyone must buy at least a minimal amount of essential items to survive.

Since the tax is applied uniformly to all people, the taxes paid by the poor are a greater burden.

TAX EXEMPTIONS

Nevada voters in 1979 over­whelmingly approved a ballot question to exempt food for home consumption from sales taxes. Only eight states tax food for home consumption, down from 29 in 1970.

According to Mikesell, food purchases account for 7.75 percent of personal expenditures. Sixteen states also have tax holidays, usually before Christmas or the opening of school, when no sales taxes are charged. Eight others do not tax clothing.

Nevada legislators have discussed but have not approved these exemptions.

Moves to tax services like haircuts, beauty parlor visits, dry cleaners, advertising, auto repairs and other items also have been discussed in the state Legislature, but never brought up for a vote.

In his study, Mikesell noted that during the 1970-2010 period, 53.4 percent of potential items were subject to sales taxes in Nevada,

Since today the rate is 37.4 percent, it is clear, as he says in his study, that the retail sales tax base really has dis­appeared.

Only in Hawaii, New Mexico, South Dakota, Wyoming and North Dakota are more than half of items taxed.

Contact reporter Ed Vogel at evogel@reviewjournal.com or 775-687-3901.