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Sean Whaley

Nevada Economy: Taxable Sales Rise Sharply

1 March 2004

CARSON CITY -- Holiday shoppers helped push statewide taxable sales up 9.7 percent in December over the same month a year ago, lifting the important economic indicator by double digits for the first six months of the fiscal year, a state agency reported Friday.

"With this latest report on the 2003 holiday season in December, we continue to see a positive trend for the current fiscal year in almost all categories of the reported taxes," Gov. Kenny Guinn said in a statement accompanying the report.

"This news, combined with how unemployment figures are down and new job indicators are up, shows Nevadans have strong confidence in the economic direction of the state," he said.

George Harris, who is leading a petition drive to give voters in November the chance to repeal the $833 million in tax increases approved by lawmakers last year, said the numbers show that the state's political leaders were premature in their desire to raise taxes.

"Shame on Kenny Guinn for being in collusion with gaming to create a crisis that didn't exist," he said. "This was about Guinn, gaming and liberal lawmakers growing government for no reason whatsoever other than to grow government."

The 2003 Legislature was one of the most contentious ever, requiring two special sessions before a deadlock on taxes finally broke in mid-July. It has prompted initiative petitions to repeal taxes and generated a legal fight over a state Supreme Court ruling that invalidated the Legislature's two-thirds vote requirement to raise taxes.

Guinn spokesman Greg Bortolin said the sales tax growth is only part of the story and is offset by lackluster performance in the equally important gaming economy. While gaming taxes are up slightly so far this year, growth in gaming revenues is at only 1.3 percent, he said.

"We're ecstatic that the economy has made a turn, but the sales tax revenues will not fully compensate for where gaming is," Bortolin said.

Carole Vilardo, president of the Nevada Taxpayers Association, also offered a note of caution.

"I'm not sure that four of our new revenues are going to meet projections," she said.

Vilardo said she has concerns about the alcohol, cigarette, live entertainment and payroll taxes approved by the Legislature and whether they will bring in as much additional revenue as anticipated. If not, then the excess growth in sales taxes might be needed to offset those shortfalls, she said.

Alcohol and cigarette tax projections seem to be overly optimistic, and some last-minute exemptions might affect the other two taxes, Vilardo said. Compliance with the new payroll tax is also an issue that could affect the amount of revenue it produces.

Assemblyman Bob Beers, R-Las Vegas, said there was never any real argument that the $833 million tax hike approved by lawmakers in 2003 was needed to cover any anticipated revenue shortfall in the state budget, which would have meant cuts to programs.

"These were new taxes required to fund the real expansion of government," said Beers, a tax increase opponent now running for the Senate seat held by Sen. Ray Rawson, R-Las Vegas.

Beers said if revenues continue to grow beyond projections, lawmakers will have a surplus in 2005. Whether excess funds are returned to taxpayers or spent could be determined in part in the upcoming elections, he said.

Catherine Levy, a spokeswoman for the Las Vegas Chamber of Commerce, said it should be recalled that the purpose of the tax increase in 2003 was to broaden the tax base to help the state withstand future economic downturns.

"The chamber is never going to complain about growth in an economic indicator," she said. "But taxable sales are unpredictable."

One of the biggest drivers of the December increase was automobile sales, included in the category called automotive dealers and gasoline, which rose a whopping 21 percent, according to the Department of Taxation.

Another major category, eating and drinking places, was up 8.5 percent. This category was up 9 percent in Clark County.

Statewide taxable sales totaled $3.6 billion, or 9.7 percent more than sales in December 2002. At the halfway point in the 2003-04 fiscal year, taxable sales total $18.7 billion, or 10.7 percent more than the total of the same period in the previous year.

For Clark County, taxable sales rose by the same 9.7 percent in December, to $2.6 billion, and are up 11.9 percent for the year to date, to $13.6 billion.

The report shows the growth in the taxable sales, and the revenues they generate to fund the operation of state government, are well ahead of what was projected by a panel of financial experts in May.

Sales tax revenues were projected to grow by 5.1 percent this year. But so far, sales tax collections are up 10.4 percent for the year and total $375.3 million.

The report also shows big jumps in alcohol and cigarette tax collections, but that is mainly because of the Legislature's decision last year to raise those taxes to help fund state government and the public schools.

At the halfway point of the fiscal year, cigarette taxes totaled $46.5 million, up 116 percent over the same period a year ago. Cigarette taxes were raised by 45 cents a pack, to 80 cents, by the Legislature on July 22.

Alcohol taxes were up 75 percent, to $10.1 million. Liquor taxes were raised by 75 percent by the Legislature starting Aug. 1.

While sales taxes are posting the strongest gains, the other major contributor to the state budget, the gaming tax, is also above projections. Through the first half of the year, gaming tax collections were about 3.1 percent ahead of projections and totaled $359.9 million.

Other components of the December taxable sales report showing increases included building materials and hardware, up 22.4 percent; wholesale trade and durable goods, up 15.5 percent; and apparel and accessory stores, up 16.2 percent.

Food stores showed a 10.4 percent increase in December, general merchandise stores were up 6.2 percent and miscellaneous retail was up 2 percent.