Lawmakers are poised to move forward on a contentious bill that would maintain the modified business tax (payroll tax) rate at its current level rather than letting it revert to a lower rate.
The bill, AB538, was introduced on Tuesday and is a part of Democratic Gov. Steve Sisolak’s $8.8 billion budget. It would bring the state $98 million more in revenue over the coming biennium, but faces potential legal challenges over questions about whether it requires a two-thirds majority to take effect.
A constitutional provision passed in the 1990s and spearheaded by former Republican Gov. Jim Gibbons requires a two-thirds majority vote to raise taxes. Democrats are one Senate vote shy of meeting that threshold.
The bill would eliminate the so-called “MBT buydown,” approved in 2015 when the Republican-controlled Legislature passed a $1.1 billion package of new and extended taxes. The provision automatically reduces the payroll tax rate if certain taxes yield more revenue than projections made by the state’s Economic Forum, and was aimed at preventing an unexpected windfall from the untested Commerce Tax, which is assessed on business income.
The bill would repeal that section of law, and thereby ensure that no automatic reduction in the payroll tax rate could take place.
The scheduled hearing on Thursday comes two weeks after the Legislative Counsel Bureau issued a legal opinion that concluded the bill does not need a two-thirds vote of the Legislature to pass because it extends, rather than creates, public revenue. But legislative Republicans have promised to file suit if Democrats do forge ahead without two-thirds support, meaning the matter could end up in court and any programs depending on the funding could lose it.
In October 2018, tax officials announced that the MBT rate was set to decrease from 1.475 percent to 1.378 percent for most businesses and from 2 percent to 1.853 percent for finance and mining industries in July 2019, the start of the next fiscal year. Keeping the higher rates in place would bring in an estimated $48 million in each year of the two-year budget cycle.
Republican Senate Minority James Settelmeyer — who previously called the legal opinion a “work of legal fiction” — said on Twitter that the bill “is creating a constitutional crisis,” and called it a clear violation of constitutional provisions requiring a two-thirds vote to increase taxes. Most Senate Republicans have ruled out voting for the MBT extension.
Assembly Ways and Means Committee Chairwoman Maggie Carlton said her committee has been trimming the budget to prepare for the possibility that the MBT rate extension will not pass. She said Wednesday she doesn’t yet have a final tally on how much the budget has been pared back to make room for that contingency.
The bill is scheduled for a hearing in the Assembly Taxation Committee on Thursday at 4 p.m.