by Elizabeth Crum, Nevada News Bureau: Some of the highest excise tax revenues among the states are collected in Nevada, a new report from the Mercatus Center shows.
Nevada is one of six states – along with Connecticut, New Hampshire, Minnesota, and West Virginia – that collect over $600 in excise revenues per capita.
Excise taxes apply to the sale of particular goods or services, such as gaming, amusements, hotel rooms, cigarettes and alcohol.
Among the states in which gambling is legal, Nevada ranked low on the list for tax rates on gaming revenues with a rate of just 6.75 percent.
However, Nevada ranked third for overall gaming tax revenue in 2009 with receipts of $832 million.
Nevada stands out among the states in that it collected 14.8 percent of its total tax revenue from gaming in 2010, whereas the state average is closer to 3 percent.
Pennsylvania collected the most in gaming tax revenue in 2009 with $929 million. Indiana was a close runner-up at $878 million.
In contrast to its relatively low tax rates on gaming, Nevada is quite high in rates among states that charge rental car taxes at 10 percent.
Revenue generation is a function of state size, so economists consider it somewhat useful to compute excise-tax revenue per capita. A shortcoming of this method, however, is that it is does not necessarily indicate the real tax burden on state residents.
This is because out-of-state residents bear many of the amusement taxes collected, as they do in Nevada.
General sales tax vs. excise tax
The Census Bureau places sales taxes in two categories: general sales taxes and selective sales or excise taxes that apply to the sale of particular goods or services.
States collected $344 billion or nearly 49 percent of their total tax revenue from sales taxes in 2010, according to the Mercatus report co-authored by William Bruntrager, a Ph.D. Fellow at the Mercatus Center, and Thomas Stratmann, a professor of economics at George Mason University.
General sales taxes accounted for $224 billion in revenue in 2010, while excise taxes accounted for $120 billion or in sales-tax revenue.
Excise taxes can take the form of a per-unit tax of a fixed dollar amount or tax as a percentage of the price of a product.
Excise taxes made up 17 percent of total tax revenue in 2010.
Wyoming stands as the only state with less than $200 in excise-tax revenues per capita.
Amusement and gaming tax
Nevada has more casinos than any other state, with 260 non-Indian casinos, which along with tourism numbers explains its higher overall gaming tax revenues.
In addition to the gaming tax, Nevada also imposes an excise tax on any “live entertainment” tickets sold in the state. For facilities with more than 7,500 seats, the rate is 5 percent of ticket revenues. For those with less than 7,500 seats, the rate is 10 percent.
Currently, 13 states allow commercial casinos to operate within their borders, 12 states allow the operation of racetracks, and 29 states contain “Tribal Casinos” owned and operated by Indian tribes on tribal land.
The tax rates on gaming revenue vary among the states, and average about 20 percent. States that tax casinos by visitors generally impose a $2 to $3 tax per visitor.
Tourism: Car rental tax
According to the National Business Travel Association, there are 38 states that impose special taxes on car rentals.
Different states apply different methods of taxation. Some tax a percentage of the rental price while others impose a fixed-amount excise tax, applied on a per day basis.
In states with rental car taxes, the percentage of taxes is the more common method, and a typical rate is around 5 percent of the rental price.
Alaska, Nevada, and Maryland have some of the highest rates in the country at 10 percent in both Alaska and Nevada and 11.5 percent for rentals in Maryland.
Kansas and Utah are on the lower end, at 3.5 percent and 2.5 percent, respectively.
Some of the states that impose fixed-rate taxes are Hawaii at $3 per day and Florida at $2 per day.
Public policy considerations
The selective nature of excise taxes gives state governments a method for discouraging certain types of consumption while raising revenue.
Cigarettes, alcohol, and, lately, sugary soft drinks are among the items whose use is influenced by state governments through excise taxation.
Geoff Lawrence, a fiscal analyst at the Nevada Policy Research Institute, says excise taxes are essentially punitive sales tax rates that lawmakers attach to specific items because they find the item morally or ethically questionable.
“The irony is that by using the tax code to manipulate and discourage behavior, lawmakers ultimately make themselves dependent on individuals engaging in the very behaviors they sought to discourage,” said Lawrence.
Lawrence said excise taxes have long been used to target Nevada’s tax burden toward the tourism industry.
“This is an outgrowth of the economic fallacy that states can ‘export’ their taxes onto tourists,” said Lawrence.
While it may be politically convenient to push taxes off onto tourists, the real impact of excise taxes is that it suppresses consumer demand, which results in lesser revenues to Nevada businesses, he said.
“When a cocktail on the Strip costs $24 instead of $20 because of the state’s excise taxes, then a consumer who has only $60 to spend will purchase two instead of three drinks,” said Lawrence.
“That loss translates backwards to labor and capital, exerting downward pressure on wages paid to casino workers, among other things,” he said.
In some cases, a further policy consideration is that, where charging users directly for publicly provided goods and services is costly, excise taxes on so-called complementary goods may be reasonable.
An example of this would be charging fuel taxes as a proxy for the use of public roads.
Though some economists say they would like to see excise taxes replaced by a broad-based, single-rate tax on all consumption in order to reduce distortion, discussions by state lawmakers in recent years have focused more on the usefulness of excise taxes to accomplish some purpose for the state.
