Nevada is one of just nine states with no income tax. That leaves Nevada largely reliant on a sales and use tax — applied at one of the highest rates in the nation — to generate roughly a third of state revenue.

But some Democratic lawmakers are concerned that the state’s tax structure, and thereby its ability to produce revenue, lags behind the needs of the growing state.

That’s why Sen. Dina Neal (D-North Las Vegas) is sponsoring SB396, a bill that would impose a sales tax on digital goods sold in the state. The sales tax adjustment is meant to capture technological changes in the economic landscape, such as music once being taxed when sold as a CD or cassette tape and now no longer being taxed when sold and distributed via streaming services.

Republican Gov. Joe Lombardo has pledged to not raise taxes, however, meaning approval of such a bill and other Democrat-sponsored proposals for tax increases is unlikely. On SB396, a spokeswoman for Lombardo said, “We’ll monitor all bills as they work through the legislative process and engage when we feel necessary,” though adding that the governor “has been very clear on where he stands on any type of new taxes.”

In a longer-term push to evaluate potential new tax streams, Assemblywoman Natha Anderson (D-Sparks) is seeking a study of wealth taxes during the upcoming interim through ACR7. 

“Nevada does not collect taxes equally. As a result of this broken system, our state cannot adequately fund the supports and services our communities, our neighbors and our children need to thrive,” Anderson said during a hearing of the bill Tuesday.

Similar to Neal’s push to modernize the application of the state’s sales tax, Assemblywoman Selena La Rue Hatch (D-Reno) is sponsoring a bill (AB421) that would create an excise tax on commercial consumer data collection in an effort to discourage data collection and increase digital privacy.

Under the bill, major data collectors, such as Facebook, would be required to pay a monthly tax based on the number of Nevadans they collect data from, but the measure faces opposition from major business groups, including the Nevada Retail Association, Nevada Resort Association and Cox Communications.

Digital sales tax

Neal’s bill, which she also brought forward in the 2019 and 2021 legislative sessions without success, is meant to bring certain goods into the state’s sales tax base, as products from music to television shows to books have moved from tangible to intangible in recent decades amid technological advancements. 

Those technologically advanced products, such as music streaming on Spotify and digital codes for PlayStation games, are not captured by the sales tax because they are not explicitly defined in state law.

“This bill is not really about money, even though it generates money,” Neal said during a hearing on the bill Tuesday, adding that it’s meant to ensure “goods that used to be a part of our sales tax base are now brought back into our sales tax base by having the law defined.”

The addition of a digital goods sales tax would bring in a projected $50 million in tax revenue annually, according to data from legislative fiscal staff. That includes nearly $13 million in revenue for the state general fund, which would represent less than 1 percent of projected state sales tax revenue.

The bill, which received support from Educate Nevada Now, the Retail Association of Nevada and the city of Las Vegas, would apply the tax on retailers that have more than $100,000 in gross annual revenue or that process more than 200 transactions annually. The measure was opposed by a representative of Americans for Prosperity, a libertarian political advocacy group, who called for a commitment to lower the sales tax rate alongside the push to broaden the tax base.

Wealth tax study

Anderson’s push to evaluate potential forms of a wealth tax during the 2023-24 interim comes as other states have similarly made a push to tax higher earners.

Washington, another state without an income tax, in 2021 enacted a 7 percent capital gains tax on any gains in excess of $250,000 in a calendar year from assets such as stocks or bonds. 

Alongside Anderson, Marco Guzman, a senior policy analyst with the Institute on Taxation and Economic Policy, presented on the resolution Tuesday, describing Nevada’s tax structure as “regressive, meaning that effective tax rates are higher for low-income households, but decrease as income goes up.”

Nevada’s tax system ranks as the fifth most unequal tax structure in the nation, according to an analysis conducted by the institute, a left-leaning think tank that studies tax policy.

Anderson said the study is meant to bring a “thoughtful approach” to examine what constitutes a wealth tax, what other states have wealth taxes and different forms of such a tax — from estate taxes to capital gains taxes to unrealized gains taxes.

Those forms of taxes could be limited by the Nevada Constitution’s prohibition on income taxes. But one kind of wealth tax has passed legal muster elsewhere under a similar limitation. Last month, the Washington Supreme Court ruled the state’s capital gains tax was constitutional and could be collected, despite a lower court ruling finding that it violated the state’s constitutional prohibition on income taxes. 

If the resolution is passed this session, the interim revenue committee would be required to complete the study and report the findings to the Legislature in 2025.