As of July 1, 2015, business taxpayers that annually generate more than $4 million of Nevada-sourced gross receipts are subject to the state’s new commerce tax enacted by Senate Bill 483.
Nearly every type of business, including C corporations, S corporations, partnerships, and individuals reporting income on Form 1040 Schedule C, Schedule E, and Schedule F, are subject to the commerce tax, other than the following exempt entities:
- Real estate investment trusts, with certain exceptions.
- Certain entities with Nevada activities that are confined to owning, maintaining, and managing certain intangible investments.
- Passive entities, which are not subject to tax and that may deduct income for the purpose of calculating the tax liability of its owner or owners. Passive entities generally are defined as having 90 percent or more of their income from intangible sources and as being legally organized as flow-through entities such as a partnership, limited partnership, or LLC.
- 501(c)(3) not-for-profits.
Nature and Computation of the New Tax
The tax base generally is defined as the total amount realized by a business from conducting business in Nevada. The base amount does not provide a deduction for the cost of goods sold or other expenses incurred, which contribute to the production of gross receipts. Gross receipts include, among other things, amounts realized from the sale, exchange, or other disposition of a business’s property and amounts realized from the performance of services. Receipts from services are sourced to the state if the benefit is received by a customer in Nevada.
There are, however, significant exclusions and deductions from gross revenue. Items excluded from receipts include, among other things, amounts realized from the sale, exchange, disposition, or other grant of the right to use trademarks, trade names, patents, copyrights, and similar intellectual property. Deductions are available for, among other things, interest income (other than interest on credit sales), distributive or proportionate shares of receipts and income from a pass-through entity, and dividends and distributions from corporations. Contractors engaged in building or remodeling real property are entitled to a deduction for payments to subcontractors.
The commerce tax is imposed on a separate-entity basis. However, revenue received by a taxpayer from another member of its affiliated group is deductible. An affiliated group is defined as a group of two or more taxpayers that are directly or indirectly owned or controlled by one or more common owners using a 50 percent ownership threshold.
The tax provides for 26 different rates, which are based on a taxpayer’s North American Industry Classification System (NAICS) code and vary from 0.051 percent to 0.331 percent of taxable receipts, and include, for example:
- Construction (NAICS 23): 0.083 percent
- Manufacturing (NAICS 31 to 33): 0.091 percent
- Wholesale trade (NAICS 42): 0.101 percent
- Retail trade (NAICS 44 to 45): 0.111 percent
- Healthcare and social assistance (NAICS 62): 0.190 percent
If a taxpayer is engaged in more than one industry, the tax rate will be based on the NAICS classification representing the highest percentage of Nevada gross revenue.
Payroll Tax Credit
Nevada imposes a payroll tax on business entities. Prior to July 1, 2015, the tax was 1.17 percent of wages paid in excess of $85,000 per quarter. Under the new commerce tax, the payroll tax has increased to 1.47 percent of wages paid in excess of $50,000 on a quarterly basis. Financial institutions will continue to be subject to a 2 percent payroll tax rate. A credit is available for up to 50 percent of the commerce tax paid against payroll taxes.
Payment and Filing
The first payment and return is due Aug. 15, 2016, for activity from July 1, 2015, through June 30, 2016. The July 1 to June 30 tax year applies regardless of the tax year used for federal income tax purposes. It does not appear that estimated payments are required.
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