NEVADA STATE TAX DEVELOPMENTS FALL 2014
C. Administrative Developments 1. Technical Bulletins
As a result of legislation in 2013, the Department is now publishing technical bulletins on the Department’s website.
2. Limited Exemptions For Manufacturing
The Department reminded companies about the limited sales tax exemptions afforded to manufacturers.2 A manufacturer can purchase items that are incorporated into the product for sale to the customer
exempt under the resale exemption. Component parts of inventory being manufactured are thus exempt.
Sales tax applies to purchases by a manufacturer for use by the manufacturer. Purchases of supplies, equipment, tools, chemicals (etc.) purchased by the manufacturer are subject to sales tax. The Nevada sales tax thus applies much more broadly to manufacturers than sales taxes of other states.
3. Tax On Air
The Department informed taxpayers of the Department’ position that sales tax applies to air, reasoning that air is perceptible to the senses, and thus taxable tangible personal property to the extent the air is sold for consideration.3 Tax would thus apply to pure oxygen sold in an oxygen bar.
4. Accrual Reporting / Bad Debts
Retailers who make credit sales (sales other than cash on delivery) must report sales tax to the
Department under the accrual method.4 The sales tax should be reported to the Department when the sale is made, even if the buyer has not fully paid. If the buyer does not pay the sales price, the retailer is generally entitled to a bad debt deduction when the account is written off.
5. Successor Liability
The Department reminded taxpayers about the successor liability aspects of acquiring a business.5 When a person buys a business they may be held liable for any tax or fees owed by the business to the Department. A person buying a business should consider seeking a “Certificate of Amount Due” from the Department prior to paying the seller. If any amount is owed by the seller to the Department, the buyer can then withhold such amount from the purchase price and pay the amount to the Department.
6. Voluntary Disclosure
The Department reminded companies about the Department’s voluntary disclosure program.6 Under the program, businesses meeting certain criteria that come forward and pay back taxes in good faith will generally receive abatement of penalties and interest. The forms related to the voluntary disclosure program are available on the Department’s website.
7. Construction Contractors
The Department reminded taxpayers how the sales tax applies to construction contracts for the improvement to realty, whether the construction involves building or affixing a structure or other improvement to realty or remodeling or repairing an existing improvement to realty.7 Construction contractors are consumers of materials purchased to fulfill the contract. Contractors should pay sales tax to vendors (or accrue and remit use tax) and not charge sales tax to the customer. Contractors should not purchase such materials exempt as a sale for resale.8
8. Documenting Sales For Resale: Resale Certificates (not Sales Tax Permits) The Department reminded taxpayers about the differences between resale certificates and sales tax permits.9 The Department is receiving an increasing number of phone calls from Nevada
sellers/retailers, stating that many vendors/wholesalers from whom they purchase inventory for resale,
3 Nevada Tax Notes, January 2013 edition.
4 Nevada Tax Notes, January 2013 edition.
5 Nevada Tax Notes, October 2012 edition.
6 Nevada Tax Notes, October 2012 edition.
7 Nevada Tax Notes, April 2012 edition.
8 Nevada Tax Notes, July 2012 edition.
are requesting copies of purchasers’ Sales Tax Permits; not copies of purchasers’ Resale Certificates.
This is not correct as Sales Tax Permits are not interchangeable with, and may not be used in lieu of, Resale Certificates. Nevada vendors/wholesalers selling tangible personal property for resale in Nevada must take care when obtaining Resale Certificates from customers claiming to be exempt from paying sales tax because the purchaser must re-sell the merchandise/property on which sales tax is not paid.
Blank Resale Certificate forms may be downloaded from the Department’s website by going to the Common Forms Link. Blank Resale Certificate forms/cards may also be purchased at most office supply or stationery stores.
9. Bundled Transactions
The Department reminded taxpayers about the sales tax aspects of so-called “bundled transactions.”10 If a sale of tangible personal property includes taxable items and non-taxable items or a non-taxable service, the entire amount of the sales price is taxable if the items are not separately stated to the
customer. This is called a bundled transaction pursuant to NAC 372.045. Businesses that typically make sales that qualify as bundled transactions include wedding chapels, caterers, event planners, and
repairmen.
There are some exceptions to this rule: If the true object of the transaction is really a service or the value of the taxable items is less than 10% of the entire transaction, then the retailer does not charge sales tax but pays sales tax on the cost of the taxable item to them. For example, you pay $200 dollars to get your wedding vows renewed and it comes with a photo (value $5) of the ceremony, the customer should not be charged sales tax on the $200, but tax is due on items used to produce the photo.
If a non-itemized invoice is given on a transaction that includes food, drugs, or medical equipment and the value of the taxable items is less than 50%, then the transaction is also not considered a bundled transaction.
10. Animal Feed – Taxation Depends On Type Of Animal
The Department reminded taxpayers (retailers) that not all sales of animal feed qualify for exemption.11 If the feed is intended for animals that do not ordinarily constitute food for human consumption, the exemption does not apply.
11. Taxation Of Printing As Sales Of Printed Material
The Department reminded taxpayers that printing is not treated as a nontaxable service. Rather, the printer is treated as the retailer of the printed material and tax applies accordingly.
12. Drop Shipments And Streamlined Sales Tax Agreement
In light of Nevada’s membership in the Streamlined Sales and Use Tax Agreement, the Department advised taxpayers of corresponding changes in the rules governing sales tax on drop shipments. Under the new rules, a third party drop shipper may accept an out-of-state resale certificate, or a Streamlined Sales Tax Exemption Certificate from a retailer in state or out-of-state who is selling to the end user in the State.12
10 Nevada Tax Notes, July 2012 edition.
11 Nevada Tax Notes, January 2012 edition.
13. Tax Applies To Dietary Supplements
The Department advised taxpayers that the exemption for certain food products does not apply to dietary supplements.13 A product is a dietary supplement if it:
1. Contains one or more of the following dietary ingredients:
(a) A vitamin;
(b) A mineral;
(c) An herb or other botanical;
(d) An amino acid;
(e) A dietary substance for use by humans to supplement the diet by increasing the total dietary intake; or
(f) A concentrate, metabolite, constituent, extract or combination of any ingredient described in paragraphs (a) to (e), inclusive;
2. Is intended for ingestion in the form of a tablet, capsule, powder, softgel, gelcap or liquid or, if not intended for ingestion in such a form, is not represented as conventional food and is not represented for use as a sole item of a meal or of the diet; and
3. Is required to be labeled as a dietary supplement in accordance with 21 C.F.R. § 101.36.
14. Delivery Charges – Not Taxable If Segregated and Separately Stated
In light of prior (2009) legislation, the Department advised taxpayers on the taxation of delivery or transportation charges. These charges are not subject to tax provided the seller separately states and segregates such charges to the buyer. If these charges are bundled with other charges such as handling or packaging, the total charge is subject to tax.14
15. One Time Trade Show Attendance
The Department reminded taxpayers on the rules applicable to attending a one time trade show in Nevada. A vendor attending such a trade show may obtain a “One-Time Permit” from the trade show promoter, which will facilitate remitting tax on sales at the one time trade show to (and essentially through) the trade show promoter.15
16. Security Deposit Requirements if Amount Exceeds $1,000 –Nev. Admin. Code
§ 372.825 (eff. Nov. 1, 2010)
Businesses and individuals must register with the Department and post a security deposit prior to conducting resale or wholesale activities in Nevada. The Department amended the regulation regarding security deposits so that, effective November 1, 2010, newly registered businesses and individuals will be required to post a security deposit with the Department only if the amount of required security
13 Nevada Tax Notes, January 2012 edition.
14 Nevada Tax Notes, October 2011 edition.
exceeds $1,000 (based upon estimated average tax due). If the Department determines that a person knowingly made false statements relating to sales volume to minimize the amount of security required under the regulation, the Department may increase the amount of security on the basis of the actual tax due quarterly, monthly, or annually. If a person becomes habitually delinquent in his or her tax
obligations, the Department must require additional security. The Department interprets the term
“habitually delinquent” to mean two or more delinquencies, late payments, returned checks, returns showing tax due that were filed without payment of the full tax due, or any combination thereof in the 12 consecutive months before the date on which it investigates the matter.
17. Penalty for Negligence
In January 2011, the Department cited the following as examples of negligence in which the Department must impose a 10% negligence penalty (in addition to other penalties) pursuant to the Nevada Revised Statutes (“NRS”) § 360.330: (1) when a taxpayer fails to file more than one return; (2) when a taxpayer collects but (substantially) underreports sales tax; (3) when a taxpayer does not implement the changes recommended in an audit and the same reporting problems are revealed in a subsequent audit; (4) when a taxpayer fails to keep records as required by NRS § 372.735; or (5) when a taxpayer improperly gives a resale card to a vendor so as to avoid payment of the tax.
18. Government Contractors Subject to Use Tax
In July 2010, the Department reminded taxpayers that construction contractors performing work for the government “must pay Use Tax on building materials consumed in the performance of their contracts (NAC 372.190-210). The government’s exemption from Sales and Use Tax per NRS § 372.325 does not extend to contractors who do work for them.” Contractors considered to be a “constituent part of the governmental entity” under NRS § 372.340, however, are an exception to this rule.
19. In Re: Boyd Gaming Corporation Group (Nevada State Tax Commission, Feb. 14, 2012) – While sales tax applies to complimentary meals given to gaming customers provided there is sufficient consideration, sales tax abated in light of prior Department guidance
The taxpayer operated resort casinos. The taxpayer allowed its gaming customers to redeem points to claim complimentary meals. Based on prior guidance from the Department, the taxpayer accrued and remitted use tax on the cost of the complimentary food and did not charge sales tax to its customers.
The Department assessed sales tax on the value of the food. The taxpayer protested the assessment before the Commission, claiming that: (1) sales tax does not apply to complimentary food; and (2) in the alternative, the assessment should be abated under equitable estoppel principles. The Commission held that sales tax applied to the complimentary meals, reasoning that the amount spent to earn the gaming points established sufficient taxable consideration. The Commission, however, held that the additional tax (beyond the use tax that had already been paid) should be abated because of reliance on prior Department guidance.
In 2013, the Nevada legislature enacted assembly bill 506, which excludes complimentary food (other than alcoholic beverages and paper goods associated with complimentary food) from the sales tax.
D. Trends/Outlook for 2014/2015 1. Margin Tax Proposal
If enacted, the margin tax proposal would dramatically change the corporate tax environment in Nevada.
2. Voter Approval Required for Certain Changes to Sales and Use Taxes
On November 2, 2010, Nevada voters rejected Ballot Question 3, which would have allowed legislators to change tax laws “to resolve a conflict with any federal law or interstate agreement” dealing with collection of sales taxes. The proposal was intended to more easily permit Nevada to begin requiring out-of-state sellers to charge sales tax on internet purchases made by Nevada consumers if Congress were to legislatively overturn the United States Supreme Court’s decision in Quill Corp. v. North Dakota. Following the overwhelming defeat, the Nevada Legislature must continue to present such changes for voter approval.
III. PROPERTY TAXES
Nevada ad valorem property taxes apply to “all property of every kind and nature whatever within [Nevada]” at a rate of “35 percent of [the property’s] taxable value.” NRS §§ 361.045, .225.
A. Legislative Developments 1. In General
The 77th Regular Session of the Nevada Legislature began on February 4, 2013, and adjourned sine die on June 3, 2013. The Governor called a special session beginning on June 4, 2013. The next regular session will begin on February 2, 2015.
2. Modifications To Tax Abatement Requirements
Assembly Bill 1 (special session, generally effective July 1, 2013) revises the provisions governing economic incentive abatements of sales tax, property tax, and other taxes. The bill revises the qualifications, the duration of abatements, and makes other changes.
3. Modifications To Partial Tax Abatement Of Energy-Related Incentives
Assembly Bill 239 (generally effective July 1, 2013) makes various changes to the partial tax abatement for energy-related incentives.
4. Partial Tax Abatements For Capital Investments In Educational Institutions Assembly Bill 138 (generally effective July 1, 2013) provides that a business that makes a capital investment of at least $1 million in a program at the University of Nevada, Reno, the University of Nevada, Las Vegas, or the Desert Research Institute for the support of research, development or training related to the field of endeavor of the business and that meets certain other requirements is eligible to apply for a partial abatement of personal property taxes. The law also provides that a business that makes a capital investment of at least $500,000 in the Nevada State College or another smaller
institution within the Nevada System of Higher Education in support of college certification or research or training related to the field of endeavor of the business and that meets certain other requirements is also eligible to apply for a partial abatement of personal property taxes. The abatements expire by limitation on June 30, 2023.
5. Modifications To Partial Tax Abatement For Buildings Meeting Energy Efficiency Standards
Assembly Bill 33 (generally effective June 11, 2013) modifies the provisions related to partial tax abatements for meeting certain energy efficiency standards.
B. Judicial Developments
1. Lowe v. Washoe County, 627 F.3d 1151 (9th Cir. 2010)
Taxpayers filed a complaint under 42 U.S.C. § 1983, alleging that the valuation of their Nevada real property used to calculate their ad valorem property taxes for the 2008–09 taxable year violated both the Nevada Constitution and the Due Process Clause of the U.S. Constitution. The taxing authorities
challenged the jurisdiction of the suit under the Tax Injunction Act. The Tax Injunction Act provides that a district court “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341. The Ninth Circuit held that Nevada’s administrative and judicial review process
provides an effective and adequate means by which a dissatisfied taxpayer could contest a property valuation. The court relied on evidence that numerous taxpayers had previously been successful in challenging such valuations in Nevada courts. Accordingly, the court granted the defendant county’s motion to dismiss for lack of subject-matter jurisdiction.
2. Marvin v. Fitch, 232 P.3d 425 (Nev. 2010)
The Nevada Supreme Court held that members of the State Board of Equalization qualify for absolute immunity in certain property tax matters because such immunity is granted to individuals performing quasi-judicial functions, which the board performs when determining whether to equalize property
valuations. The court stated, “By concluding that the State Board’s equalization process is quasi-judicial, we honor the Legislature’s intent and safeguard every taxpayer’s right to meaningfully participate in the annual equalization process.”
C. Administrative Developments
1. County Officer Performance Audits
The Department amended several current regulations (LCB File No. R039-10) to require the Department to audit the performance of county officers in carrying out specified responsibilities and to revise the provisions governing the contents of assessment rolls and the determination by county assessors of the taxable value of property.
IV. OTHER TAXES