Nevada Enacts New “Commerce Tax” on Businesses and New Sales and Use Tax Nexus Standards

Effective July 1, 2015, Nevada has enacted a new “Commerce Tax” on business gross receipts that will affect thousands of Nevada businesses.

By Jeff Weinkle, SALT manager

Nevada has long been viewed as a great tax environment for businesses due to its lack of a state income tax. With a substantial portion of the state budget derived from gaming industry taxes, most businesses are primarily concerned with the state sales and use tax and the modified business tax on employee wages. This changed effective July 1, 2015, with the enactment of the new “Commerce Tax” on business gross receipts that will affect thousands of Nevada businesses. [1]

Under the Commerce Tax, all taxable businesses entities with Nevada nexus will pay a tax on their annual Nevada-sourced gross receipts in excess of $4 million. A business entity includes corporations, partnerships, limited liability partnerships and limited liability companies, as well as individuals who file Schedule C, Schedule E, or Schedule F. Certain qualifying entities may be exempt, including REITs, passive entities and entities whose activities are limited to owning, maintaining and managing certain intangible investments. Tax rates range between 0.051 and 0.331 percent (0.00051 – 0.00331), and the appropriate rate is determined by the business’ primary NAICS code. In general, taxable gross receipts encompass most gross business revenues and gains with exclusions for royalties, corporate dividends, income from federal or Nevada securities, bad debts, returns and pass-through income. Revenues from sales of property are sourced to Nevada when shipped to a buyer located within the state, and revenues from the performance of services follow a market-based approach. [2]

The filing period for Commerce Tax purposes is the annual period beginning July 1 and ending June 30 of the following year, with the tax due within 45 days of the end of the period. Businesses that have fewer than $4 million in Nevada receipts owe no tax but are still required to file a report. Filings are done for each separate taxable business entity; there do not appear to be any provisions allowing combined or consolidated reports.

If all of this seems familiar, it is likely due to the Commerce Tax having been modeled heavily after Ohio’s Commercial Activity Tax on gross receipts. However, Nevada is not currently enacting the controversial bright-line presence nexus rules found in Ohio’s tax laws that require many companies with only state-sourced receipts and no other presence to file and pay the tax. [3] Yet it is worth noting that the Commerce Tax is not subject to the federal protections of Public Law 86-272 and will apply to any business whose only connection to Nevada is that it is formed under Nevada law or is qualified to do business with the Nevada Secretary of State.

As a final point, Georgia residents should note that the Commerce Tax appears to be consistent with Georgia’s interpretation of a tax “measured on or by income” for purposes of the adjustment to federal gross income permitted to resident owners of pass-through entities. [4]

While we have placed particular emphasis on the Commerce Tax, it is just one part of the suite of tax changes signed into Nevada law this year. Other notable changes include:

  • An increase in the Modified Business Tax rate for most companies from 1.17 percent (0.0117) to 1.475 percent (0.01475) and a corresponding decrease of the quarterly wage exemption from 85,000 to 50,000.
  • An increase in the annual state business license fees to $500 for corporations and $200 for pass-through entities.
  • An increase in the cigarette excise tax from $0.80 to $1.80 a pack.
  • Making permanent the higher 2.6 percent rate on the Local School Support portion of the state sales tax previously scheduled to sunset June 30, 2015.

In addition, Nevada passed legislation that expands the physical presence nexus standards for sales and use tax purposes as follows: [5]

  • Implementation of a new “affiliate” nexus standard. Beginning on July 1, 2015, out-of-state retailers with controlled group members present in Nevada are presumed to have nexus if the Nevada group members engage in certain activities in the state, including selling products or services under a similar business name, using substantially similar trademarks or trade names, or conducting other activities associated with the retailer’s ability to establish or maintain a market in the state.
  • Implementation of a new “click-through” nexus standard. Beginning Oct. 1, 2015, out-of-state retailers that compensate a Nevada resident for referring potential customers to the retailer (typically through a website link) and generate more than $10,000 in annual Nevada sales through such referrals are presumed to have nexus.
  • In both cases, the out-of-state retailer may be able to rebut the presumption by providing proof that the in-state party’s activities are not significantly associated with the out-of-state retailer’s ability to establish or maintain a market in the state for the retailer’s products or services.

After a busy 2015 legislative session, it is clear that the tax landscape has changed considerably in Nevada. Taxpayers should consult their tax advisors to discuss the impact of these new Nevada rules. HA&W’s SALT team continues to monitor these types of developments and will continue to provide updates in future issues of this newsletter.

Contact Jeff Weinkle, SALT manager, at jeff.weinkle@aprio.com or Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at jeff.glickman@aprio.com for more information.

[1] S.B. 483, approved by the governor on June 9, 2015, can be accessed by clicking here.

[2] Nevada’s rule for sourcing revenues from services is based on the proportion of the purchaser’s benefit received in the state, taking into account the physical location where the purchaser ultimately uses or receives the benefit of such services.

[3] Ohio’s bright-line factor presence rules require any business entity with $500,000 in Ohio gross receipts, $50,000 in Ohio payroll, $50,000 in Ohio property or any amount of the preceding factors equal to at least 25 percent of total business activity to file and pay Commercial Activity Tax, regardless of physical or other presence in the state. See the June 2015 edition of the SALT Newsletter for analysis of pending constitutional challenges to this rule.

[4] The adjustment is available to Georgia residents under GA Code Ann. §§48-7-27(d)(1)(B) and 48-7-27(d)(1)(C). For further information on this issue, see our articles in the May 2015 SALT Newsletter and this issue of the Newsletter.

[5] A.B. 380, approved by the governor on June 9, 2015, can be accessed by clicking here.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.

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