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Las Vegas – A new fiscal and economic impact analysis of Question 3 (the Margin Tax Initiative) by leading Nevada economic researcher Jeremy Aguero has concluded that the measure’s proposed tax on the gross revenues would significantly increase the tax burden on employers in Nevada and damage Nevada’s economic competitiveness by making Nevada one of the highest taxed states in the country for businesses.

The in-depth report titled, “The Fiscal and Economic Impacts of Nevada Question 3,” was authored by Jeremy Aguero of Applied Analysis, a Las Vegas-based fiscal and policy research firm. Both the proponents of the measure and the Coalition to Defeat the Margin Tax Initiative commissioned Aguero to analyze the fiscal and economic impacts of the proposed Margin Tax.


  • Question 3 would impose a new 2% tax on businesses with gross revenues of more than $1 million annually, regardless of profitability.
  • This tax would translate into the equivalent of a nearly 15% corporate income tax, substantially higher than any other western state, including California (which has a corporate income tax of 8.8%).
  • Of the more than 5,500 businesses that would be impacted by Question 3, roughly two-thirds are small businesses with annual revenues of $5 million or less.
  • Question 3 would take Nevada from below the national average in terms of business taxes to one of the country’s top five states with the highest business tax burdens.
  • In total, the initiative would increase the tax burden on Nevada businesses by $650 to $750 million annually.

“There is little doubt that Question 3 would make our state less competitive from a business tax standpoint,” Aguero said.

If passed by Nevada voters in the 2014 general election, Question 3 would impose a new 2% tax on any business with gross revenues of more than $1 million annually, regardless of profitability. Unlike most business income taxes, Question 3 would be based on business revenues – not profit.

Proponents of Question 3 call it the “Education Initiative” because the measure seeks to earmark the proceeds for Nevada’s Distributive School Account (DSA), which is used to fund K-12 education. However, Question 3 does not actually guarantee additional money for Nevada schools. Under this deeply flawed and very costly initiative, the state legislature could simultaneously take money from the DSA to fund other things. If the revenues from Question 3 do end up funding education, the initiative provides no accountability for how school districts would spend the money.

The report provides many examples of how the Margin Tax Initiative would affect a variety of businesses. One analysis compares the tax liability created by current Modified Business Tax of 1.17 percent with the tax liability created by the proposed Margin Tax of 2 percent on both low-margin and high-margin businesses. Under this analysis, a high-margin business with adjusted total revenues of $9.95 million has a net tax liability of $34,263 as determined by the current Modified Business Tax of 1.17 percent. The net tax liability for the same business as created by the proposed Margin Tax is $87,237 – a 250-plus percent increase. A low-margin business with revenues of $9.95 million would experience under the proposed Margin Tax a 230-plus increase in tax liability – from $34,263 under the existing Modified Business Tax to $81,737 under the proposed Margin Tax.

“This report solidifies our deep-seated concerns about the Margin Tax Initiative,” said coalition spokesperson Karen Griffin. “Not only would Question 3 damage Nevada’s fragile economy, kill jobs and unduly burden businesses, but because of its complete lack of accountability, it provides no guarantee that our school children would see more funding for their classrooms. Moreover, many businesses that sell goods and services in Nevada would pass on their increased costs from the tax to consumers, increasing the costs we pay for food, clothing, health care, electricity, phone bills, and other products and services.”

The entire report by Aguero can be downloaded by visiting the website of the Coalition to Defeat the Margin Tax Initiative at


  • Comparability to Texas Franchise Tax. The proposed margin tax is commonly compared to the Texas Franchise (margin) Tax; however, there are some important differences between what currently exists in Texas and what is being proposed in Nevada. Perhaps most notable is a substantially higher tax rate. At 2.0 percent, the Nevada margin tax will be two times that imposed on business generally in Texas. For retailers, wholesalers and restaurants the proposed rate is four times the rate imposed in Texas.
  • Effective Tax Rate. In a detailed analysis of aggregated corporate and partnership income tax returns by industry classification, nearly every business analyzed bore significantly higher business tax liability under the proposed margin tax. On average, this differential was approximately 4.5 times the rate currently borne under Nevada’s payroll tax. With an effective tax rate approaching 15 percent, Nevada’s effective business tax rate would be materially higher than any other Western state, including, without limitation, California. Respecting that there were both higher and lower effective tax rate outcomes depending on the type and structure of company analyzed, the results of aggregated income statement analysis were consistent with company-specific analyses of margin tax liability.
  • Relative Tax Burden. The proposed margin tax distributes Nevada’s business tax burden throughout the state’s economy more efficiently than the existing Modified Business Tax. That said, it will have some pyramiding effects (where a tax is paid on a tax) and some businesses will continue to have tax liability even when they are losing money. There has been some discussion as it relates to the offsetting effects resulting from reduced Federal corporate income tax liability. Generally speaking, state and local taxes paid by a business are treated as a cost of doing business for federal corporate income tax purposes. While it can certainly be concluded that Nevada’s margin tax will result in less federal income tax liability, this is only because imposition of the tax itself decreases the amount of profit Nevada businesses earn, in some cases eliminating profit altogether. Respecting that additional research may be warranted in this area, no adjustment was made to the impact assessment to reflect changes in federal tax liability.
  • Competitiveness and Potential Impacts on Economic Development. The proposed margin tax would take Nevada from below the national average in terms of businesses taxes paid per employee, per $1,000 of personal income and per $1 million of gross state product to among the top five states in the country in each of those categories. It is unclear, and beyond the scope of this review, to determine the extent to which the imposition of a tax at this level would disrupt existing business patterns or other Nevada economic development and diversification efforts. Should either of these conditions occur, it would materially affect the potential yield of the tax and the state’s economic and fiscal system more broadly.

Media Contact:
Karen Griffin, 775-846-8275;
Melissa Warren, 702-528-6016;

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