Nevada's Tax Advantages

Taking Advantage of Nevada's Hospitable Tax Climate.
The following information is provided by Ashley Quinn Nelson Certified Public Accountants Incline Village, Nevada.

Clearly one of the factors which motivates many individuals and businesses to relocate to Nevada is the hospitable income tax climate which prevails in the state. Nevada imposes no income tax whatsoever on individuals or on business entities.

The single most important prerequisite to enable a taxpayer to take advantage of Nevada's "tax hospitality" is to domicile one's self in Nevada. In simple terms, this means the individual must make Nevada his principal place of residence--his primary home. Similarly, a corporation or other business entity must establish its "commercial domicile" in Nevada. Generally, this means establishing its principal office or place of business in Nevada--make Nevada the headquarters from which the business is managed and controlled.

Individuals who are "domiciled" in Nevada will generally escape state taxation of their income, except for income which arises from sources within another state. Two common situations in which income would be "sourced" to another state arise with regard to income from personal services performed by the individual in a "taxable" state, or income from property physically located.in a "taxable" state--rental real estate located in the "taxable" state, for example. Even in the case of individuals who are required to "source" one or more items of their income to a taxable state, circumstances may still allow a significant reduction in their overall state tax burden.

Let's say, for example' 'that a married couple moves from California with these basic sources of income:

Interest and dividends $390,000
Capital gain from sale of stock in closely-held business $500,000
Pension income (even if associated with California employment) $100,000
Net rental income from California apartment building $10,000
TOTAL $1.000.000

Ignoring deductions for the sake of simplicity, a California resident couple who file a joint return would expect to pay approximately $90,000 in state tax on this income. As Nevada domiciliaries, however, they would only pay about $1,000, representing merely the tax on the income from the rental property physically located in California. The move to Nevada for the taxpayers with this profile allows them, therefore, to shield from state taxation all of their "intangible," (that is, interest, dividend, and capital gain) income and all of their pension income. Quite a savings!

In addition to the obvious need to acquire a Nevada home, it is important in establishing Nevada residency that taxpayers take additional steps to clearly establish all (or, as many as feasible) business and personal connections in Nevada, and sever former connections with the taxable state from which they have moved.

The attached checklist outlines many of the more important judicially determined factors which must be considered in the effort to build as "airtight a case as possible with regard to the residency change. This checklist is framed in the context of a relocation from the state of California, although the factors would likewise apply to relocation from any number of other taxable state jurisdictions. While no factor by itself can positively determine residency, registering to vote or claiming the homeowners exemption in California have been found to make the taxpayer a California resident, regardless of the other factors. There may be other factors to be considered in determining residency. Please contact us or your tax advisor concerning the implications to your particular situation. CHECKLIST TO HELP DETERMINE CALIFORNIA RESIDENT / NON-RESIDENT STATUS


Answer either California or Elsewhere to the following...

During the year, how many months did you live in California? Elsewhere?
During the year, how many months did your spouse live in California? Elsewhere?
What percent of your income was from California? Elsewhere?
What percent of your spouse's income was from California? Elsewhere?
Where are you registered to vote?
Where is your spouse registered to vote?
Do you own a house in California? Elsewhere?
Where do you take your homeowner's exemption?
Where is your driver's license issued?
Where is your spouse's driver's license issued?
Where are your closest business contacts?
a. Where is your attorney located?
b. Where is your stockbroker located?
c. Where is your CPA located?
d. Where do you bank?
e. Do you belong to unions or professional associations?

Where are your closest social contacts located? (clubs, etc.)
Where are your vehicles registered?
Where do your children attend school?
Did you pay non-resident tuition in California? Elsewhere?
Which state has jurisdiction in the administration of your wills and trusts?
Where have you obtained a homestead exemption?
Where do you rent a safe deposit box?
Where have you filed an affidavit of domicile with a county clerk?
Where are you a member of a public library?
Where do you own a cemetery plot?

An Overview of State of Nevada Taxes

Any item below marked with an asterisk (*) is administered by the Department of Taxation. For information on taxes we don't administer, we encourage you to contact the enforcing agency for the latest and most up to date information. Wherever possible, we've noted a contact name, phone number, e-mail address or web site.

AD VALOREM (ACCORDING TO VALUE) PROPERTY TAX*

These taxes are administered by the Department's Division of Assessment Standards and local county assessors. Property taxes are applied to property of every kind and nature, including real and personal property. Some property is exempt from taxation pursuant to Nevada Revised Statutes. The Division values for assessment purposes the property of all interstate or intercounty railroad, sleeping car, private car, natural gas transmission and distribution, water, telephone, scheduled and unscheduled air transport, electric light and power companies, and the property of all railway express companies. The Division also values mining properties on behalf of county assessors. County assessors value and assess all other property.

ALCOHOLIC BEVERAGE TAX*

The tax rate on liquor is based on the percentage of alcohol. Tax Rates per gallon are:

0.5% - 14% 40 cents

More than 14% - 22% 75 cents

Over 22% $2.05

Malt Beverage 9 cents

CIGARETTE TAX*

Packs of 20 are taxed at the rate of 35 cents per pack. A tax on other tobacco products is imposed at 30 percent of the wholesale value which is paid by the wholesale dealers.

CORPORATE FEES

Corporations are formed by filing Articles of Incorporation in the office of the Secretary of State. Thereafter, it is necessary only to file certificates of amendment to articles; certificate of reduction of capital; merger agreement; and lists of corporate officers, directors and resident agents within 60 days after incorporation and annually thereafter on the anniversary month. Contact: Secretary of State, 101 N. Carson St, No. 3, Carson City, NV 89701. Telephone: 775-684-5708.

ESTATE TAX*

The amount of tax is the maximum state credit allowable against the federal estate tax.

GAMING TAX

For information, contact: Gaming Control Board, 1919 E. College Parkway, Carson City, Nevada 89706. Telephone: 775-687-6500.

INCOME TAX

Nevada has no personal income tax, per its Constitution.

INSURANCE PREMIUM TAX*

In Nevada, insurers pay 3.5 percent of the total direct premiums written for the preceding calendar year covering property or other risks in the State. Return premiums may be deducted. An insurance company domiciled outside Nevada pays the same premium tax and fees to Nevada as a Nevada company would be required to pay to the domiciliary state when such tax and fees are greater than that charged by Nevada. A Nevada domestic company maintaining a qualified home office in Nevada will receive a reduced premium tax rate of 1.75 percent. This also applies to a foreign company establishing a qualified regional home office.

LODGING TAX*

A statewide hotel/motel room tax of 1 percent is imposed in addition to any similar tax imposed by a local government.

MOTOR CARRIER FEE

Fees for interstate and intrastate carriers vary by vehicle and use. Contact: Department of Motor Vehicles and Public Safety, Motor Carrier Bureau, 555 Wright Way, Carson City, Nevada 89711. Telephone: 775-684-4711.

MOTOR VEHICLE FUEL TAX*

Gasoline and gasohol are taxed at 23 cents per gallon. Additional county taxes range from 5 to 10 cents per gallon. Combined state/county rates will vary from a minimum 28 cents per gallon to a maximum of 33 cents per gallon depending upon the county. Diesel fuel is taxed at 27 cents per gallon. Aviation fuel is taxed at 2 cents per gallon, counties have an option, by ordinance, to impose an additional 1 cent to 9 cent per gallon tax.

MOTOR VEHICLE REGISTRATION FEES

For information regarding registration and current tax rates contact: Department of Motor Vehicles and Public Safety, Registration Division, 555 Wright Way, Carson City, Nevada 89711. Telephone: 775-684-4830.

NET PROCEEDS OF MINERALS TAX*

Annually, operators and royalty recipients are required to report the total gross yield and claimed net proceeds received from each geographically separate operation where a mineral is extracted during the preceding year.

OIL AND GAS CONSERVATION FEE

There is an administrative fee for the production of oil and natural gas of 100 mills per barrel of oil or 50,000 cubic feet of natural gas, a minimal cost to producers. The permit processing fee for oil wells is $200 and for geothermal wells varies from $50 for domestic wells to $500 for industrial wells. Contact: Commission on Mineral Resources, Division of Minerals, 400 W. King Street, Suite 106, Carson City, NV 89710. Telephone: 775-687-5050.

PERSONAL PROPERTY TAX

Warehousing, especially, enjoys the benefit of Nevada Tax Laws. The Nevada Freeport Law exempts from State taxation all personal property in transit through the State while it is being stored, assembled or processed for ultimate use in another state. In addition, inventories held for sale within Nevada itself are likewise exempted from personal property taxation. Mobile homes are registered by county assessors upon payment of personal property tax.

PROPERTY TAX*

Assessment is 35% of full cash value. Nevada’s statutes limit the rate of the ad valorem property tax to a total of $3.64 for each $100 assessed valuation. The current weighted average is approximately $3.0758 for each $100 assessed value and the ad valorem revenue derived from old property in the aggregate is limited to a 6 percent annual growth rate without a vote of the people. Visit: the Division of Assessment Standards.

SALES AND USE TAX*

Sales tax is imposed at the retail level. Use tax is imposed on tangible personal property purchased for storage or use in Nevada on which Nevada sales tax was not paid at the time of purchase.

Nevada's sales/use tax rate is currently from 6 ½ percent to 7 ¼ depending upon the county.

Sales and use tax is one of the largest taxes administered by the Department. Questions concerning taxability, filing requirements, exemptions, security bonds and others often arise. The proper application of the laws to your situation can quickly become confusing.

Check out our Frequently Asked Questions for help and to insure you are recording and remitting your sales and use tax correctly. If you need further assistance, please contact your nearest District Office.

SALES AND USE TAX ABATEMENT FROM LOCAL SCHOOL SUPPORT TAX AND COUNTY/CITY RELIEF TAX

A person who maintains a business or intends to locate a business in Nevada may be eligible for a partial exemption from the local school support tax and the county/city relief tax on the gross receipts from the sale, and the storage, use or other consumption, of eligible machinery or equipment for use by a business. The exemption would apply to all but 2 percent of the taxes incurred on eligible purchases. Businesses must meet qualifying criteria and must be consistent with Nevada goals for economic development and diversification.

The Commission on Economic Development must approve all applications for this tax abatement. If an application is approved, the taxpayer is eligible for the tax abatement for two years. The Department of Taxation administers the abatement plan after it receives notification of certification. Contact: Commission on Economic Development, 108 E. Proctor, Carson City, Nevada 89710 or telephone in-state 775-687-4325, out of state 1-800-336-1600.

SALES AND USE TAX DEFERRAL

Nevada allows for deferred payment of sales or use tax on the purchase of capital goods if the purchase is for equipment that will help to create new jobs or prevent the loss of existing jobs. The purchase or purchases must total at least $100,000 in a one-year period with the interest-free payment schedule for the sales tax ranging from 12 months for a $100,000 purchase to 5 years for purchases totaling $1 million. Businesses that are certified for a sales tax abatement may also elect to defer the 2 percent tax that is not exempted.

Application for sales tax deferral must be made in advance to the Commission on Economic Development or within 60 days after the date on which the tax was due. The Department of Taxation then sets up the deferred payment plan and administers each deferred tax account. Contact: Commission on Economic Development, 108 E. Proctor, Carson City, Nevada 89701 or telephone in-state 775-687-4325, out of state 1-800-336-1600.

SHORT-TERM LESSOR FEES*

There is a 6% fee charged on the rental/lease of passenger vehicles rented/leased for a period of 31 days or less. A "passenger vehicle" means a motor vehicle designed to carry 10 persons or less, except motorcycles.

STATE BUSINESS TAX*

Each person, corporation, partnership, proprietorship, business association and any other similar organization that conducts an activity for profit must obtain a State of Nevada Business License and pay a one-time license fee of $25. Sole proprietors, with no employees, all non-profit 501 (c) organizations and governmental entities are exempt from the license requirements and the tax.

A tax is levied for the privilege of conducting business in Nevada. The tax is based on the total number of full-time equivalent employees performing a service in Nevada and is established at $25 per each full-time equivalent employee per quarter. The tax for each calendar quarter is due on the last day of the quarter and must be paid on or before the last day of the following month.

Forms for Business Tax, including applications and tax returns, are maintained on the Department's Forms page, while additional documents are located on the Publications page.

STATE BUSINESS TAX ABATEMENT

A new business may qualify for a partial exemption if it will have 25 or more full-time employees with an average hourly wage of at least 100 percent of the average statewide hourly wage and a capital investment of $250,000 or more in a county or city whose population is less than 50,000; or, in a county or city whose population is 50,000 or more, a business will have 75 or more full-time employees with an average hourly wage of at least 100 percent of the average statewide hourly wage and makes a $1 million or more capital investment.

An existing business may qualify for a partial exemption if it meets at least two of the following requirements:

1. Increase number of employees by 10 percent more than it employed in the immediately preceding fiscal year or by six employees, whichever is greater.

2. Will expand by making a capital investment in this state in an amount equal to at least 20 percent of the value of the tangible property possessed by the business in the immediately preceding fiscal year.

3. The average hourly wage that will be paid by the existing business to its new employees in this state is at least 100 percent of the average statewide hourly wage.

Businesses that are consistent with the Commission on Economic Development’s plan for economic diversification and development and meet the above requirements may qualify for a partial exemption of 80 percent in the first year of operation, 60 percent the second year, 40 percent the third year, and 20 percent the fourth year. For additional information contact the Commission on Economic Development, 108 E. Proctor, Carson City, Nevada 89710 or telephone in-state 775-687-4325, out of state 1-800-336-1600.

TIRE SURCHARGE FEE*

Tires sold at retail are subject to a $1.00 per tire surcharge fee.

UNEMPLOYMENT COMPENSATION TAX

For information regarding registration and current tax rates, contact: Department of Employment, Training and Rehabilitation, Division of Employment Security, 500 E. Third Street, Carson City, NV 89713. Telephone: 775-687-4545.