COMMENTARY: Boosting growth

Despite having failed three times in as many legislative sessions, it’s almost certain Nevada lawmakers will once again consider doling out billions of dollars to Hollywood studios next year.

The most recent proposal considered by lawmakers would have pledged up to $120 million annually to movie studios for the next decade — representing an eyewatering tenfold increase to the state’s current film tax credit program.

Supporters say such handouts are necessary to grow our local economies.

But what if there was a cheaper way to boost our state and local economies without gifting large amounts of taxpayer dollars to a single, highly volatile industry? Even better, what if that alternative method did not involve the sort of administrative burden and oversight that generally comes with handing out transferable tax credits to qualifying businesses in specific industries?

Repealing or suspending a current, burdensome tax on existing Nevada businesses could generate far more economic diversification and growth than any crony handout to Hollywood special interests — and it would be less expensive to boot.

The “commerce tax” in Nevada was passed as part of then-Gov. Brian Sandoval’s major tax package in 2015, and it imposes a gross-receipts tax on any business that does more than $4 million in revenue in the state, regardless of whether that business even turns a profit. Such a tax on receipts isn’t exactly a warm welcome to businesses considering a move to the Silver State, nor does it help grow the businesses that are already here.

The prospect of having to pay a tax on gross revenue — even in years when the company doesn’t turn a profit — is absolutely frightening to any business owner thinking about expanding or moving to Nevada.

Currently, this tax generates roughly $75 million to $89 million annually, which means repealing it would actually cost the state far less than the $120 million proposed as an “incentive” to lure Hollywood studios to Southern Nevada.

If Nevada is so flush with cash that it can supposedly spend $120 million per year to encourage economic growth of a single industry, why not simply repeal the commerce tax instead and give businesses in virtually every industry an incentive to set up shop in our great state? It would cost less and, unlike transferable tax credits that can be bought and sold after being issued, it wouldn’t require any complex administrative burden to track the credits or figure out which businesses qualify.

More importantly, as opposed to handouts for a single industry, lower corporate tax rates have a robust history of producing broad-based economic growth and attracting new businesses — which is far more than can be said for film tax credits. In Georgia, for example, the nation’s most aggressive film tax credit program has failed to achieve the sort of economic utopia lobbyists had promised when it was passed. According to an audit conducted by Georgia State University, that program cost the state roughly $160,000 taxpayer dollars for each job “created” by filmmakers.

Of course, the fact that repeal of the commerce tax would benefit a far wider breadth of potential (and existing) industries is precisely why it will be a hard sell in the Legislature.

Unlike handouts that benefit a single group of coordinated and politically connected special interests, most Nevada businesses lack the sort of star-studded lobbying efforts movie studios muster each legislative session. As it turns out, photo-ops with movie stars and fancy ribbon cutting ceremonies are attractive to some politicians.

However, ordinary small businesses (many of whom currently pay the commerce tax) are the true drivers of Nevada’s economic engine. As such, our state leaders need to stop taking money from our wide range of industries subject to the commerce tax and stop trying to transfer that tax revenue (and more) to politically connected, narrow, out-of-state industries such as film studios.

Simply repeal the commerce tax instead.

Brett Sutton is an attorney and mediator. He is president of Keystone Corp. and a resident of Las Vegas.