I agree with Democratic lawmakers about this much, at least — Nevada’s tax structure is due for an update.

Economically, Nevada has historically had more in common with single-resource extraction states like Alaska and Wyoming than with states with multiple competing industries. In extraction states, it’s quite easy for the single industry to pay the majority of the state’s bills — Alaska even famously cuts checks to its citizens each year using the proceeds it earns from its oil fields. Additionally, since most of the primary product of these states is bought by people outside of the state, the state can raise taxes on their extractive product without taxing those who live and work within the state.

Unsurprisingly, getting people from out of state to pay for the public services used by the people who live in these states is wildly politically popular. As long as that industry is able to pay the state’s bills, nobody else has to — who doesn’t like free stuff, right?

As the old saying goes, however, there ain’t no such thing as a free lunch. Tying the public purse to the fortunes of a single industry ties the interests of the public to that industry, which is why oil companies and casinos have been happy to be the benefactors of Alaska’s and Nevada’s state governments, respectively, over the past several decades. For example, though environmentalists should arguably listen more to the Alaska native communities who support additional petroleum developments in their backyard, one might wonder if it’s an accident that the only choices seemingly available to those communities are oil extraction or grinding poverty and broken public services.

Nevada, of course, has no choice but to move on from its singular resource — the world’s seemingly inexhaustible appetite for casino gambling and hospitality. Not only is Nevada’s population growing substantially faster than our tourism industry, leading to more citizens trying to fund more services with increasingly limited dollars, but our tourism industry isn’t as evenly distributed as it was when Nevada had a near-monopoly on gaming. Though people still visit casinos and hotels in Lake Tahoe, Reno, Elko, and elsewhere outside of Clark County, there haven’t been enough people heading to those destinations to pay the public’s bills in decades. Even in Clark County, it’s taking more and more public subsidies — sports stadiums, convention centers, high-speed trains, and the like — to compete, both domestically and internationally.

None of this was news in 2000, and circumstances certainly haven’t changed for the better since then. Even then, state and local governmental budgets frequently resembled the physical environments they exist in — years of penny-pinching drought, followed by occasional and unpredictable bursts of plenty. Right now, for the first time in years, the state government in Carson City not only has a surplus of water but also a surplus of money — but anybody who knows anything knows it won’t last.

This is the context we should use to consider the proposals recently floated by state Sen. Dina Neal (D-North Las Vegas) and Assemblywomen Selena La Rue Hatch (D-Reno) and Natha Anderson (D-Sparks) to modernize the state’s tax structure. They, and other legislators, are trying to get Nevada out of the habit of tying its financial fortunes to the fortunes of the Strip. Those three in particular are being quite creative and inventive in their efforts.

Having acknowledged that, is a digital sales tax, like the one proposed by Sen. Neal, a good idea? In a word, no. By exempting digital goods from sales taxes, Nevada is actually taxing e-waste — the unnecessary bits of plastic and metal otherwise used to distribute digital media that can be substituted through downloaded bits and bytes, which we would all like to see less of in our landfills. Additionally, expanding the scope of the state’s sales tax more generally would expand the scope of one of the highest and most regressive taxes currently available to the state. 

A digital sales tax, then, would harm the poor and the environment.

What about the consumer data collection tax proposed by Asm. La Rue Hatch and co-sponsored by Asm. Anderson? The proposed measure would augment one pool of other people’s money (gamblers and guests from out of state) in the state’s budget with another pool (out-of-state companies storing Nevadan consumer data). Though that’s politically clever, it would be an administrative nightmare, assuming out-of-state advertisers could even be compelled to play along.

Would, for example, The Nevada Independent be responsible for paying for the “consumer data” it collects through its donor and newsletter portals since that data is used to encourage readers to support this publication by buying tickets for hosted events, buying swag, or just donating outright? Or would that responsibility fall to News Revenue Hub and Mailchimp, respectively? If it’s the latter, would they, in turn, bill their customers back to pay for the tax? If they billed the tax back, would their services still be economical to Nevada’s businesses? If not, how would that affect the ability of Nevada’s small businesses (and, yes, nonprofit news sites) to function in a modern economy, especially when they’re competing against businesses in 49 other states who aren’t taxed on consumer data?

Then there’s Asm. Anderson’s wealth tax study, which — at the risk of throwing a subsequent biennium’s worth of research out the window, I’d just like to remind everyone that we have Nevada’s court system, not Washington’s, and Nevada’s court system has been growing noticeably impatient with the Legislature’s attempts to rules lawyer their way around our state’s various limitations surrounding the Legislature’s authority to raise taxes. If, after two years of study, the Legislative Counsel Bureau reported that there was a way to implement a wealth tax without amending our state’s prohibition against income taxes, I’d ask for a second opinion. 

And possibly a third.

Now, lest you think I let Grover Norquist ghostwrite today’s column, my objection to these proposals is not due to an inherent objection against taxation more generally. In fact, I have a (technically) simple (but politically difficult) solution:

Remove California’s property tax “reforms” from Nevada’s statutes.

***

A couple of years ago, I wrote about Nevada’s broken property tax system before, including the history of Question 6, the Legislature’s successful attempts to forestall its ratification, the 1981 Tax Shift, and 2005’s AB439 — put together, these measures implement our state’s version of California’s Proposition 13, which limits both statewide property taxes and annual increases. At the time, I also wrote about how Nevada’s property tax payers now face the same issues faced by California’s property tax payers — namely, neighbors now have radically different property tax bills depending on when they each bought into their neighborhood.

One thing I didn’t cover at the time, however, was what the net effect of all of these “reforms” had on municipal budgets.

After the passage of AB439 in 2005, property tax increases in Nevada on primary residences are now capped at up to 3 percent per year. Property tax decreases, however, are currently uncapped. This means that, if your house is worth 33 percent more next year than it was this year, your property taxes will only increase by 3 percent. However, if your house is worth 33 percent less next year than it was this year, your property taxes will decrease by 33 percent. Additionally, subsequent property tax bills will only increase by up to 3 percent of the decreased value.

What all of this means is, if you bought a home which then decreased in value by a third, it would take at least 15 years for that property’s taxable value to reach the original taxable value it was assessed for when you first bought the home, without even adjusting for inflation. This, however, assumes that Nevada’s unique application of taxable depreciation to homes, which reduces taxable value by 1.5 percent each year, doesn’t delay that readjustment further — and further assumes that the cap on allowable annual property tax increases doesn’t fall below 3 percent, as it did in 2017 and 2018.

During the Great Recession, home prices in Nevada decreased by a third — then kept decreasing, taking assessed property values with them. Because of the cap on annual property tax increases, however, property tax revenue took longer to recover:

Sources: Annual Comprehensive Financial Reports (Las Vegas, archived; Henderson; Reno, archived — 2010, 2011 missing; North Las Vegas, 2005-2009 archived, 2011-2013 archived; Sparks)

Even now, despite Nevada hosting one of the hottest real estate markets in the country, property tax revenues in Las Vegas and North Las Vegas have never recovered, in nominal terms (meaning without adjusting for inflation), to their peak in 2009. Property tax revenue in Henderson, Reno, and Sparks, meanwhile, didn’t recover to 2009 nominal levels until 2020.

Consequently, despite Nevada’s consistently growing population, the number of police officers, firefighters, and other municipal workers servicing our growing population has remained flat. Sparks, for example, has 22 percent fewer firefighters than it had in 2005. Reno, meanwhile, has fewer police officers than it employed in 2008.

On the other hand, according to the Tax Foundation, Nevada not only enjoys lower property tax rates than famously liberal Kansas, Oklahoma, Texas, or Florida — our property taxes are even lower, as a percentage of owner-occupied housing value, than California. Sure, that growing pothole on the street near your driveway will never get filled in, the fire department doesn’t have the personnel to get that growing wildfire approaching your backyard under control, and police response times are best measured geologically, but at least we’re getting what the Legislature is willing to let local governments pay for.

Fortunately, unlike California, Nevada’s property tax “reforms” were implemented the old-fashioned way — through legislatively adopted statutes instead of through a popularly ratified constitutional amendment. Consequently, unlike any attempts to impose an income tax (or a lottery) on the wallets of unsuspecting Nevadans, it doesn’t necessarily have to take five years for the Legislature to undo some of the damage it's done to municipal finances over the past few decades.

And, to the Legislature’s credit, it’s even taking some small steps towards doing so.

Nibbling around the edges, there’s SB96, which would remove the convoluted cap on property tax increases based on the average percentage of change in assessed valuation over the preceding decade with a simple 3 percent cap on annual increases. There’s also SB400, which removes a sunset on a property tax measure passed in 1995 to fund Las Vegas Metropolitan Police Department. Then, finally, there’s SB394, which passes an explicit limited exemption on the statewide property tax cap for public schools.

On the other side of the ledger, SB374 seeks to protect veterans and senior citizens with poverty-level household incomes — even if they’re renting — from rising property tax rates. Targeted tax breaks for those who absolutely need them is a vastly superior method of ameliorating the pain of rising property taxes than the blanket assumption inherited from Carter-era Californians that, once a homeowner has cleared escrow, they should be treated as a fixed-income retiree who is incapable of absorbing even the most modest of tax increases. There’s no reason to treat college-educated Millennial first-time homeowners growing into the peak of their earning potential as if they’re living off of Social Security.

There’s still a lot of work to be done and a lot of political courage to be had. Overturning the California-inspired artificial statutory limitations on municipal budgets imposed by past legislators in Carson City and returning to Nevada’s constitutional limits on property taxation would go a long way towards giving local governments the resources they need to provide local services. Until the courage is summoned to do that, however, the state of our roads, public safety, fire protection, and schools will remain tied to the fiscal health of our state government — for better or worse.

David Colborne ran for office twice. He is now an IT manager, the father of two sons, and a weekly opinion columnist for The Nevada Independent. You can follow him on Mastodon @[email protected], on Twitter @DavidColborne, or email him at [email protected].