Nevada enacted a new Commerce Tax with the passage of Senate Bill 483. The tax is imposed annually on Nevada-sourced gross revenue in excess of a $4 million statutory exclusion. The tax rates range from 0.051% to 0.331% and are determined by the predominant classification of the taxpayer’s business activities. The tax becomes effective July 1, 2015, and the first tax return is due by August 14, 2016.
Commerce Tax Imposed
The new Commerce Tax is a modified gross receipts tax imposed on each taxable business entity for the privilege of doing business in Nevada. It creates 26 business categories, each consisting of one or more industry classifications as defined by the 2012 North American Industry Classification System (NAICS). Each business category is assigned a separate tax rate. The rates range from 0.051% to 0.331%, depending on the category assigned by the NAICS classification. Any business that does not fit into an assigned category is taxed at the rate of 0.128%. If a business spans multiple categories, it is taxed using the category from which the majority of its economic activity is derived. Once a tax category is selected, it cannot be changed unless authorized by the Department of Taxation.
The Commerce Tax is imposed annually on an included entity’s gross revenue, less specific exclusions and deductions such as pass-through revenue, passive income, cash discounts, and other types of excluded receipts. The remaining gross revenue is then sitused to determine the Nevada gross revenue. Any amount in excess of $4 million is Nevada adjusted gross revenue. The Commerce Tax is computed by multiplying the Nevada adjusted gross revenue by the corresponding tax rate for the company’s primary business category. Nevada businesses that already pay a gross receipts-type tax (gaming, mining, and insurance) can exclude revenue from those activities from the Commerce Tax. Businesses may claim a credit of 50% of their Commerce Tax against their Modified Business Tax.
There will be many challenges for companies doing business in Nevada to determine the correct taxable amount and which tax classification applies to the business activities. Ryan can consult with companies before the first tax return is due in August 2016 to ensure the calculations and activity classification related to this new tax are correct.
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