The Commerce Tax – Choosing the Correct NAICS Code
The first annual payment of the Nevada commerce tax is due on August 15, 2016 for the fiscal year of July 1, 2015 through June 30, 2016. All non-exempt taxpayers must file a commerce tax return, even if the taxpayer’s annual gross revenue falls below the $4,000,000 threshold. Among other reasons, the first return is very important because it is the first opportunity for a taxpayer to select the appropriate NAICS code for their business. The selection of the proper NAICS code is significant because the tax rate applicable to each filer is tied to the NAICS code. And because many taxpayers may be able to lawfully choose from two or more NAICS codes, each with its own rate, the taxpayer must make its NAICS selection carefully so as to not inadvertently trigger the applicability of a higher than necessary tax rate. The initial decision is that much more important because a taxpayer cannot change the NAICS code in the future without the permission of the Nevada Department of Taxation. Even taxpayers whose revenue falls under the $4,000,000 threshold should select the appropriate NAICS code, as that code will be binding in the future if that taxpayer crosses the $4,000,000 threshold.
Many taxpayers are currently receiving a “Taxpayer Information Update Form” from the Nevada Department of Taxation. That form typically lists the NAICS code on file for the taxpayer with the Department, which was typically selected by the Unemployment Insurance Division, and instructs taxpayers on how to request permission to change that NAICS code. This instruction runs contrary to Nevada law, which allows taxpayers to select their NAICS code for the commerce tax on their first commerce tax return as described here.
Because many taxpayers may be able to lawfully choose from two or more NAICS codes, the current situation creates a potential problem for taxpayers who may not realize the importance of selecting the appropriate NAICS codes for their businesses, and may similarly not realize that their NAICS code selection does not require permission from the Department unless a change is sought after the first commerce tax return is filed. The current request for information from the Department creates a trap for unwary taxpayers. Because of this, McDonald Carano urges you to carefully review your commerce tax issues with a qualified legal professional.
The Tax Commission recently approved administrative regulations on the Commerce Tax. Those regulations will be presented to the Legislative Committee for final approval or rejection. The regulations were the product of many administrative workshops and multiple revisions based on comments and concerns from taxpayers. The Tax Commission has yet to give final approval to the forms and instructions for the Commerce Tax. There will be further discussion on this issue at the Tax Commission meeting on May 16.
The first Commerce Tax returns are due on August 15, 2016. MCW has supplied NAIOP with background information to share with tenants, explaining the importance of using a correct NAICS code on their initial tax filing in August 2016.
On May 2, the Nevada Supreme Court heard arguments about whether a repeal of the Commerce Tax passed in 2015 should be on the ballot for a vote in November. Those opposing the repeal of the tax, a PAC named the Coalition for Nevada’s Future, argued that because the repeal would leave the state budget unbalanced, it is unconstitutional. The RIP Commerce Tax Inc., the group initiating the repeal, argued that the amount of money that would be lost is small relative to the overall state budget, and the budget gap could be closed by the Interim Finance Committee.
An excellent review of the nuances of the issue is found here in an LVRJ column by Steve Sebelius: http://www.reviewjournal.com/opinion/columns-blogs/steve-sebelius/strict-compliance-or-deadlettering
His conclusion is this:
(If)… the measure goes on the ballot, things really get interesting: If voters approve repealing the commerce tax, it’s erased from the law. But if voters decide to keep the tax, it’s frozen in statute, and cannot be changed in the future without another statewide vote of the people. (That even applies to small changes, such as the rate of taxation, a business category, etc.) That’s why opponents (of the repeal) are fighting the referendum so hard. For them, the only success is keeping the measure off the ballot in the first place.
There remains an open question as to whether the proponents of the referendum will have sufficient signatures to qualify the petition, assuming the legal challenge is rejected. Signatures are due by June 21, 2016.
Susan Fisher | Vice President of Government Affairs
MCDONALD CARANO WILSON LLP