Taxing online purchases in Nevada gets complicated

CARSON CITY — Democratic lawmakers’ efforts to impose a new tax on services could complicate Nevada’s efforts to collect sales tax from online purchases, according to testimony before a legislative committee.

Under Assembly Bill 569, the state would impose a 1 percent transaction tax on nearly every service imaginable, from haircuts to accounting.

Democratic leaders say they want to create a more stable state tax system and provide adequate funding for schools and social services.

But on Thursday during a hearing before the Assembly Taxation Committee, interim state Tax Department Director Chris Nielsen said if AB569 becomes law, it could hinder Nevada’s future efforts to maximize revenue from sales taxes on Internet purchases.

"It is not a huge amount of money right now. It is the potential," Nielsen said of Internet sales taxes he estimated could be worth up to $300 million annually.

The reason is the services tax, as proposed, would jeopardize Nevada’s status as one of 24 states on the Streamlined Sales Tax Governing Board.

The board was formed in 2000 to simplify sales tax policies nationally but has evolved into the only group capable of helping states coordinate collections across state lines.

Currently, states can collect sales tax on Internet purchases consumers make only from companies with a physical presence in the state where the purchase is made.

If a Nevadan buys a product on Walmart’s website, the state is entitled to sales tax because Walmart has stores in Nevada.

If a consumer buys a product on Overstock.com, the state isn’t entitled to sales tax because that company has no physical presence in Nevada.

A bill in Congress would enable interstate collections, and states such as Nevada are poised to act by using the Streamlined Sales Governing Board as a facilitator because it would be impractical for each state to create its own system to track every online purchase and coordinate the collection of the tax.

"There isn’t any other group out there poised to do what needs to be done," said Scott Peterson, executive director of the board.

AB569 would jeopardize Nevada’s status with the board because one of the membership requirements is states with a sales tax on services maintain a rate that’s the same as their sales tax on goods. Nevada lawmakers are calling the tax on services a transaction tax not a sales tax.

Proponents of AB569 would need to increase the 1 percent rate on services to meet the statewide rate of 6.85 percent or reduce the existing rate on goods to match the proposed services rate, Peterson said.

Congress and the potential service tax aren’t the only hurdles Nevada faces in collecting more sales taxes from Internet purchases.

Even if Congress were to expand states’ authority for collection, voters in Nevada would have to vote to allow the Legislature to collect the money.

The uncertainty surrounding the prospect of bigger collections from online purchases is why Democrats aren’t worried about how a service tax could undermine Internet-based collections in the future.

"I just think we have to weigh only what is best for Nevada right now," said Assembly Taxation Committee Chairwoman Marilyn Kirkpatrick, D-North Las Vegas.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.