Posts Tagged ‘economic diversification’

New Study Finds Low Tax Burden For Mature Nevada Businesses But Higher Costs For New Firms

By Sean Whaley | 12:11 pm February 29th, 2012

CARSON CITY – Nevada ranks at the top of states for its low overall tax liability paid by mature businesses, but only 38th for new firms due in part to a lack of incentives, according to a new comprehensive study by the Tax Foundation.

The first of its kind 50-state apples-to-apples analysis, released today in a report called “Location Matters,” a comparative analysis of state tax costs on business, could provide guidance to Gov. Brian Sandoval and lawmakers as they seek to diversify Nevada’s economy and grow jobs.

The study looked at Las Vegas and Reno.

Tax Foundation report, "Location Matters."

Nevada continues to lead the nation in unemployment.

The low ranking for Nevada for new firms is due in part to the lack of tax incentives provided to companies seeking to locate here. And despite the lack of a corporate income tax, other taxes and high unemployment insurance rates also contributed to the low ranking, said foundation President Scott Hodge in a telephone conference call announcing the results.

“Not having a corporate income tax is an incentive in and of itself, so that certainly, I think, is one of the most attractive features for Nevada and of course the other states that don’t have a corporate income tax,” he said.

Hodge said he hopes the study, “provides a real guide for legislators, and governors and other state officials, in reviewing their state in looking to find out how they can make it the most competitive possible and really encouraging tax competition across the states. And out of that we hope that better tax policy comes of it.”

The study compared seven types of firms across the states: a corporate headquarters, a research and development firm, retail store, call center, distribution center, capital-intensive manufacturing and labor-intensive manufacturing. It also compared the states based on mature firms and new firms.

Scott Hodge, president of the Tax Foundation.

Some of the highlights for Nevada include:

- Nevada ranks third for the mature retail operation, with a total tax burden nearly 40 percent below the national average. Nevada’s lack of a corporate income tax and low property tax burden are the key factors in this top ranking. However, the state does have the sixth-highest unemployment insurance (UI) tax burden for this firm type.

- The same factors of no income taxes and low property taxes are also key in the state’s fourth place ranking for mature distribution centers and eighth-place rank for corporate headquarters. Once again, these operations are also burdened with very high UI taxes.

- Nevada ranks 11th for both mature capital-intensive and labor-intensive manufacturing. However, the state would have ranked higher for these operations if not for the fact that its high sales tax rate applies to manufacturing equipment.

- The state ranks 46th for new capital-intensive manufacturing with a tax burden 92 percent above the national average. Even without the incentives that most states provide new firms, this operation has a low income tax burden. However, this firm is burdened by some of the highest UI taxes, sales taxes and property taxes, especially the property tax on equipment.

The study found that for new firms, Nebraska and Louisiana ranked first for several of the new business categories.

Ray Bacon, executive director of the Nevada Manufacturers Association, said he generally agrees with the information about Nevada contained in the report.

“The UI (unemployment insurance) might be a little off, but it won’t be as our rates will increase and will stay high for years,” he said.

Nevada has borrowed more than $700 million from the federal government to pay jobless claims during the current economic slowdown.

Implementing Sandoval’s jobs plan, including a call to create 50,000 jobs by the end of 2014, will not be easy, Bacon said.

The study was prepared by the Tax Foundation in collaboration with KPMG LLP, the U.S. audit, tax and advisory firm. Tax Foundation economists designed seven model firms, and KPMG modeling experts calculated each firm’s tax bill in each state. The study accounts for all business taxes: corporate income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes, and gross receipts taxes.

Hartley Powell with KPMG said the study should be useful for policy makers in all states because it “not only reviews the state tax obligations in all 50 states, but it shows the combined effect of all the major business taxes on seven specific firm types.”

The firm types are those that are highly sought after by states, he said.

“There are considerable differences of tax obligations across the 50 states, there are considerable differences in tax obligations by firm types within each state, and lastly there are large differences in tax obligations between mature and new firms in each state,” Powell said. “And of course, the bottom line is clear: location does matter.”

The Tax Foundation works to provide taxpayers and lawmakers reliable data and sound analysis on public finances at the federal, state, and local levels of government.


Audio clips:

Tax Foundation President Scott Hodge says Nevada’s lack of a corporate income tax is one of the most attractive features of the state:

022912Hodge :14 corporate income tax.”

Hartley Powell with KPMG says the study should be useful to policy makers in all states:

022912Powell2 :22 location does matter.”



Business Leaders Want Clear And Practical State Plan For Economic Diversification

By Sean Whaley | 3:38 pm December 8th, 2011

CARSON CITY – A member of the panel charged with helping diversify Nevada’s economy and create jobs said today he wants to make sure the state plan developed to achieve these goals is a practical working document.

“I hope we have concrete definitions that go beyond buzzwords,” said Sam Routson, a member of the state Board of Economic Development.

The plan needs to be a working tool that the public can easily understand, he said. Routson is the chief administrative officer for the agricultural company Winnemucca Farms.

State Economic Development official Steve Hill, right, Gov. Brian Sandoval, and other state officials hear about the Brookings report in November. / Nevada News Bureau file photo.

Routson’s comments were in response to a report prepared by the Brookings Institution and SRI International that was delivered to the panel in early November. The report, intended to help the state with its economic diversification efforts, identifies seven economic sectors, some already in existence such as gaming and tourism, and some emerging, such as clean energy, where Nevada should focus its efforts.

The report has come in for some criticism for failing to offer clear definitions of the economic sectors the state should be focusing on to diversify the state economy.

Ray Bacon, executive director of the Nevada Manufacturers Association who testified in the public comment section of the meeting of the panel, which includes Gov. Brian Sandoval and several private sector appointees, said he would have sent the report back because of a lack of clear definitions.

The report discusses advanced manufacturing, which used to be called high tech, but it lacks specifics, Bacon said. Other sectors, such as clean energy, are not defined either, he said.

“We can’t get there until we know what the definitions are,” Bacon said.

Steve Hill, executive director of the Governor’s Office on Economic Development, said the intent is to produce a state plan that is a working document and one that is “direct and to the point.”

The plan is being developed now and is expected to be released in January.

Board member Kathleen Drakulich asked Hill if the Brookings/SRI report provided enough detail to prepare the state’s plan.

Hill said the report has provided a great deal of depth, but that the state’s plan won’t be prepared based solely on the information. Hill said he is reaching out across the state to get comment for the plan.

Because it is being generated so quickly, Hill said the first draft of the plan will not be a complete answer to Nevada’s economic diversification efforts. As the board and state officials learn more about what works, the plan will be updated to reflect that knowledge, he said.

After the meeting, Sandoval said the criticisms are welcome.

“Now Mr. Hill, who is writing that plan as we speak, has heard some of the concerns of folks with regard to the Brookings report,” Sandoval said. “That report was never supposed to be the end-all, be-all with regard to economic development in the state of Nevada. It was going to identify our strengths, our weaknesses, which clusters we should be focusing on and essentially provide the foundation for our state economic development plan. And I think it accomplished just that.”

The state’s plan of action will be a business plan with the measurements needed to ensure accountability, he said.


Audio clips:

Gov. Brian Sandoval says criticisms of the Brookings report will help produce an effective state plan for economic diversification:

120811Sandoval1 :18 the state plan.”

Sandoval says the Brookings report is just one tool to help develop the state plan:

120811Sandoval2 :24 accomplished just that.”


Nevada Consultants Weigh In On Conflicting Reports Assessing State’s Business Climate

By Sean Whaley | 4:28 pm July 6th, 2011

CARSON CITY – Last year Gov. Brian Sandoval was pleased to display a copy of Chief Executive magazine in which Nevada ranked 5th best among the states as a place to do business based on a survey of more than 600 chief executive officers.

Nevada’s ranking has since fallen to 10th but remained in the Top 10 this year.

More recently, however, CNBC scored all 50 states on 10 categories of competitiveness, including the cost of doing business, workforce and quality of life. Nevada found itself wanting in the review, placing 45th in the analysis.

Such studies come out on a fairly regular basis, some rating Nevada highly and others giving the state poor marks.

So who is right?

Jeremy Aguero, a principal analyst with Las Vegas-based Applied Analysis, a financial advisory and economic consulting firm, says that while he appreciates the effort put into the studies, he doesn’t see the reports as overly useful.

Jeremy Aguero of Applied Analysis

“We don’t spend a whole lot of time on them, nor do we see them as being remarkably valid or important to the process,” he said. “Economic development, like anything else to most business people, is a consideration that must be unique to them.”

Multiple factors from tax structure to the ability to move goods play important roles in such decisions for businesses based on what their companies do, Aguero said.

“So this idea that you can sort of paint the economy with a broad brush I don’t think is very fair or very helpful,” he said.

Lisa Mayo-DeRiso of Las Vegas, who assists people seeking to start new companies and invest in Southern Nevada businesses, said the truth of the divergent studies is likely somewhere in the middle.

“Do you meet up with somebody who is very positive and has a great attitude about Las Vegas, or do you run into people that maybe don’t have as positive an attitude,” she said. “I think a lot of it depends on what conversations you have as you look at doing your due diligence.”

Mayo-DeRiso, president of Mayo & Associates, said interest in Southern Nevada appears to have increased in recent months.

One new and innovative business, Blue Oasis Pure Shrimp, is growing shrimp in Southern Nevada to produce a locally grown, healthy product to provide to the hotel industry. The 40 million tourists who visit Las Vegas each year consume 22 million pounds of shrimp, she said.

“Now you are meeting demand and you are creating jobs to meet that demand,” she said.

Lisa Mayo-DeRiso of Mayo & Associates

Mayo-DeRiso said certain industries make a lot of sense for Southern Nevada. Medical facilities and medical tourism, for example, have great potential because the area is so under served in this area, she said.

Having worked on several business relocations that took as many as seven years to conclude, it is clear that bringing in a company is a time-consuming process that can’t be accomplished quickly, Mayo-DeRiso said.

“If anybody tells you you can move an industry here in a year, or two years, they’re crazy,” she said.

Mayo-DeRiso is upbeat about Las Vegas.

“I think everybody has to have a positive attitude, all the way from the governor all the way down to the people that give out land entitlements or work with people on leasing space and so forth,” she said.

Guy Hobbs of Hobbs, Ong & Associates, a Las Vegas consulting firm, agreed that the studies don’t have a lot of value in helping with the state’s diversification efforts.

He noted the executive survey ranked the states in three general areas: taxation and regulation, quality of workforce and living environment, while the CNBC analysis measured 10 categories, including education, where we placed 50th.

“There’s a huge difference between competing for a warehousing operation than competing for an R&D and tech type of company,” Hobbs said.

Guy Hobbs of Hobbs, Ong & Associates

“So I think it’s kind of hard to look at either one of these and take them too seriously,” he said. “When you look at just taxation and regulation, which is, I think, the area in which most of this comes up, yes, we’re probably one of the better environments in the entire country from a tax and regulatory standpoint or business friendliness standpoint, no question about that.”

This factor alone has not resulted in comprehensive economic diversification in the state, however, Hobbs said.

Nevada’s current climate, with its loss of much of the construction segment of the economy, does give policymakers a chance to try some new ideas, he said. But leaders need to assess what the state’s specific advantages are that can then be marketed globally to attract new business, he said.

“Effectively we have an opportunity to reinvent what we hope our economy will be, and that’s more than just talking about economic development and diversification,” Hobbs said. “You have to make a commitment to it, and evidence that commitment by the policy actions that are taken.”

Aguero said many businesses have voted with their feet, and it is not a coincidence that Nevada led the nation in employment growth and new business formation over the better part of the last 20 years, the great recession notwithstanding.

“That is the greater measure than merely a set of statistics that may or may not accurately reflect the considerations of individual business,” he said. “The fundamental question I think for us as a community is will the strength that we have play toward the areas that we want to develop economically, from an economic development or diversity standpoint.

“If the answer to that question isn’t yes, then we need to make some changes and go for it,” Aguero said. “But I think it would be economically disastrous to try and be everything to everyone.”

Audio clips:

Jeremy Aguero says the analyses are not particularly important to the economic development process:

070711Aguero1 :19 unique to them.”

Aguero says painting the economy with a broad brush is not helpful:

070711Aguero2 :08 or very helpful.”

Aguero says a true measure is Nevada’s employment growth:

070711Aguero3 :23 an individual business.”

Aguero says Nevada can’t be everything to everyone:

070711Aguero4 :22 everything to everyone.”

Lisa Mayo-DeRiso says views of Las Vegas as a business choice depend on who you interact with:

070711Mayo-DeRiso1 :16 your due diligence.”

Mayo-DeRiso says everyone needs to have a positive attitude:

070711Mayo-DeRiso2 :14 and so forth.”

Guy Hobbs says it is hard to take either assessment too seriously:

070711Hobbs1 :26 question about that.”

Hobbs says Nevada has a chance to reinvent its economy:

070711Hobbs2 :18 that are taken.”