Over the weekend, the Reno Gazette-Journal ran an editorial suggesting that it’s time for Nevadans to consider a corporate “margins” tax. The Las Vegas Sun wrote that a coalition has formed to push for a margins tax via an initiative petition. Unsuccessful legislation to enact a margin tax was considered by the Nevada Legislature in the first half of 2011, and was modeled on a similar tax enacted in Texas in 2006.
The Texas Constitution is similar to the Nevada Constitution in that both prohibit an income tax on individuals. Members of a limited partnership in Texas recently filed a lawsuit alleging that the margins tax violates the Texas Constitution because it is (1) a thinly disguised income tax and (2) the individual income of each partner is their share of partnership profits which is being taxed. (As a side note, the Texas margins tax has come in well under projections, and continues to cause political headaches for Texas politicians – read more here).
Many Nevadans similarly derive their individual income via a business entity such as a limited partnership, LLC or a pass-through corporation, meaning their individual incomes could well be within the scope of a margins tax – and also meaning the implementation of a margins tax to their income would raise constitutional issues.