Incorporating In Nevada: Why the Recent Changes May Impact Your Decision

This is a brand new tax assessed on the gross receipts of all business revenues in excess of $4 million, with no deductions for expenses. Passive entities, nonprofits, real estate trusts and certain other entities are exempt, but all others are grouped together according to their code in the North American Industrial Classification System and assessed at a unique rate assigned by industry. Those rates assuredly will increase within 2 years. The following points are the critical aspects of this new tax:

• The assessment is only on revenue that results from economic activities or transactions that occur within the state's borders, including the shipment of any goods from out of state to a Nevada address. Business owners will need to apportion all such revenues before filing a commerce tax return. In addition, any pass-through revenues are exempted from the tax. Pass-through revenues are defined as "Revenue received by a business entity that is required by law or fiduciary duty to be distributed to another person or governmental entity.” If your accounting books are kept at a corporate headquarters outside the state, you may also be required to pay all travel expenses for Taxation Department officials to come review your books.
• If you have a controlling interest (at least 50 percent ownership) in multiple business entities, these entities will be grouped together as an "affiliated group" for purposes of the tax. If, for instance, you have majority ownership in five companies all with gross receipts of $2 million (below the tax threshold) these companies would be grouped together to form $10 million in gross receipts and you would be assessed the tax on the $6 million in revenues beyond the $4 million threshold. You may want to advise any partners you may have who could be adversely affected by this change.

For all corporations, the annual assessment for the state business license fee will increase to $500. This is more than double the current “temporary increase” rate of $200 that you have been paying, and five times the $100 rate that existed prior to 2010! For all other business entities besides corporations, the annual business license fee will remain $200. This increase is perhaps the most detrimental of all and should be taken into serious consideration when making your decision on where to incorporate.

Each year, every business in Nevada is required to update the Secretary of State with its list of Officers, Directors, Managers, etc. This fee varies by entity type, but will increase by $25 for every entity type. If you are currently paying $125, your new rate will be $150. That may not seem like much of an increase, but when you consider the increased fees and taxes, it all adds up to no good.

In 2003, the Nevada Legislature created an excise tax on all private-sector payroll in Nevada at a rate of 0.67 percent. That rate was raised to 1.17 percent on a temporary basis in 2009. It has now been raised again on a permanent basis to 1.475 percent with an exemption for the first $50,000 in quarterly payroll. For all mining companies and financial institutions, the rate is 2.0 percent. However, firms can now deduct 50 percent of the amount paid in commerce tax from their MBT liability.

In 2009, the Nevada Legislature raised the statewide sales and use tax by 0.35 percent on a temporary basis. That change has now been made permanent.

The cigarette tax was raised from 80 cents per pack to $1.80 per pack. The requirements for the pre-payment of certain mining taxes were extended along with the suspension of certain allowable deductions from mining taxes. If you require a more detailed explanation, please speak to your tax professional for further information.