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State senator continues push to expand sales tax base to include digital products


by April Corbin Girnus, Nevada Current

State Sen. Dina Neal (D-North Las Vegas) for the third time in as many legislative sessions appeared before her peers and made the case for modernizing Nevada tax structure.

To help make her point she bought with her some relics of the past: a Village People 8-track tape, a Wham! cassette tape, a Marky Mark and the Funky Bunch CD.

“The truth is the economy has changed,” Neal told the Senate Committee on Revenue and Economic Development, which heard the bill Tuesday. “Our sales tax statute needs to change. This moves us in that direction.”

Neal, who also chairs the senate revenue committee, has reintroduced her digital goods tax bill, Senate Bill 396. It would essentially broaden Nevada’s sales tax base to include digital products like ebooks and streaming services, which are not currently subjected to sales tax even though their physical predecessors and counterparts are.

This is the third time Neal has sponsored such a bill. In 2021 and 2019, the bills never made it to a vote in the chamber.

Neal encouraged her fellow lawmakers to look at the issue as a matter of public policy, rather than an issue of revenue, though the bill would increase revenue and needs to be approved by the legislature with at least a two-thirds majority.

Nevada’s sales tax is applicable only to tangible products — the physical CDs, DVDs, books, video games and software being sold. Digital copies of those things (like those you might purchase through iTunes or SoundCloud) aren’t addressed in the state’s sales tax language, which was written decades before such products existed. Also not addressed within existing tax laws are digital streaming services like Netflix and Hulu.

Sales of audio streaming and radio services overtook sales of durable goods like audio discs and tapes in 2015, according to U.S. Department of Commerce data prepared by Legislative Counsel Bureau for the bill hearing.

An LCB analyst estimated that in fiscal year 2022 at least $568 million in digital products were purchased and not subject to the state’s sales tax. Fiscal Analyst Michael Nakamoto told the senate committee that LCB estimates the digital goods tax would be the 27th highest category of taxable sales — sandwiched between “miscellaneous manufacturing” and “fabricated metal product manufacturing.”

For comparison, “food services and drinking places” is the top category of taxable sales, with a taxable base of $13 billion in fiscal year 2022. “Motor vehicle and parts dealers” makes up the second highest category and had a taxable base of $9 billion in fiscal year 2022.

LCB estimated the digital sales tax would bring in $25 million over a biennium. That would move the economic forecast for the upcoming biennium from $3.925 billion in sales tax revenue to $3.950 billion.

Sales tax is the single largest source of income for the state’s general fund budget. Sales tax is also one of the most volatile types of revenue that states can rely on.

According to Neal, 25 states already tax digital goods.

SB 396 would prevent continued erosion of the sales tax base by digital products, said Neal. The bill lists specific digital products, like downloaded video games, television streaming sites and ringtones. But it also includes a catchall phrase of “other digital products” that would capture future products or services that might not exist today.

“The metaverse is real,” said Neal, lightheartedly referring to platforms promising a more immersive virtual platform that some purport to be the future of the internet. “I put a baby toe in that but I am not at all touching the metaverse.”

A variety of groups spoke in support of SB 396 during its hearing Tuesday.

Educate Nevada Now, a public education advocacy group, said the bill is aligned with recommendations made by the Commission on School Funding to increase state revenue and bring K-12 funding levels up to the national average within the next decade. The commission noted in an extensive report released last November that intangible goods and services account for nearly two-thirds of the overall economy.

That report called the 2021 version of Neal’s digital goods tax bill “one of the clearest examples of proactive tax policy due to its recognition of the migration of certain products away from their former tangible form to an intangible and nontaxable form.”

The Retail Association of Nevada is in “strong support” of the bill.

“We have taxed these durable, tangible items in Nevada since 1955,” said lobbyist Bryan Wachter. “I think if the internet had been around in 1955 we would have also included digital books.”

Wachter pointed to a “marketplace facilitator” bill that passed during that 2019 session without much fanfare as proof of the positive impact of modernizing state taxes. That bill, which was prompted by a U.S. Supreme Court decision, similarly updated outdated tax language and made sales tax applicable to websites like Amazon or Ebay, which sell physical products online. It brought uncaptured revenue to the state, and fiscal analysts have said that, because it far exceeded economic forecasters’ original projections, the new tax softened the blow of the pandemic shutdowns in 2020.

The City of Las Vegas also supports the bill, with lobbyist Randy Robison saying that the digital goods tax would not just benefit state coffers but also city budgets. Sales tax and consumption tax — together known as consolidated tax, or c-tax — makes up more than half of the city’s budget, he said.

Nevada Current
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