There is a new concept being floated that will begin to surface in state legislatures starting in 2007 to provide a uniform set of rules for companies that provide registered agent (what Nevada calls "resident agent") services for business entities filed in each state.  I had have had a phone conversation and exchanged email with a state senator in Nevada who intends to introduce a Uniform Resident Agent Act early next year.

The National Conference of Commissioners on Uniform State Laws (NCCUSL) met a couple of months ago for their 115th Annual Meeting in Hilton Head, South Carolina and approved a new version of the Uniform Limited Liability Act to be submitted to states for consideration and adoption.

The Board of Equalization has ruled that an LLC registered in Montana was doing business in California solely because the managing member was a California resident (Appeal of Mockingbird Partners LLC (May 17, 2006) Cal. St. Bd. of Equal. Case No. 306061). This is the second taxpayer to lose on this issue in the past few months and there are more cases to come.

The Nevada Department of Taxation has announced that "due to technical difficulties" they have been unable to mail out current Business License renewal notices.  No penalty will be assessed on June or July 2005 renewals where no renewal notice has been received.  In the interim, the Department is telling customers to send in a check with a "note" indicating the business license number, business name, and renewal period.

Legislative initiatives don't deal with the real issues

    By Steven Miller, policy director, Nevada Policy Research Institute

Here in Nevada the political class endlessly professes its dedication to getting our public schools out of their seemingly interminable rut.

One of the positive changes made by the Nevada legislature during its 2005 session was the adoption of statutes the provide for the creation of a "series LLC".  The concept of a series LLC was first invented in Delaware a couple of years ago, and has since been adopted by Oklahoma, Iowa, and now, Nevada.

SB 453 was passed out of conference committee without the provision that would have given closely-held Nevada corporations the benefit of charging order protection for stockholders.  On advice of staff, and at the request of the former chairman of the business law section of the Nevada Bar Association, the committee determined that additional study regarding the impacts of this potentialy landmark legislation was needed.  The proposal will be presented again for consideration in the 2007 session.

SB 453, which was introduced as a technical clean-up bill by the Nevada Secretary of State's office, has been amended in the Nevada Senate to include the language which provides charging order protection for stock of closely held Nevada corporations which have between 2 and 75 stockholders.  The bill was approved by the Senate unanimously yesterday, and today has been introduced in the Assembly where it has been referred to the Committee on Judiciary.

Nevada had a minimum-wage question on the ballot last year to increase the minimum wage by $1.  But was that only something to kick the minimum wage in Nevada up a dollar? Many people thought so, but a lot more was at stake than the news media let on.

According to the Nevada Policy Research Institute, that same proposal-with all its many built-in booby traps-has already passed the Nevada Assembly and received its first reading in the Senate. If the Nevada business community does not weigh in quickly, and massively, the Silver State's business climate will never be the same.

That's because:

• What's called the "dollar increase" actually means a dollar increase over the federal minimum wage. And while the AFL-CIO is leading the charge here in Nevada, it's doing the same in Washington D.C. There, it's pushing for legislation to increase the federal minimum to $7.25-which means the tab to Nevada business owners could easily be $8.25 per hour!

• The proposal on the ballot last fall-and now embodied in AB 87-also requires that Nevada's minimum wage be indexed to rise as much as 3 percent each year with the federal Consumer Price Index, as published each year by the U.S. Bureau of Labor Statistics. Thus the Nevada minimum wage will automatically rise each year by another amount, regardless of the state of the economy, or employment levels, or changes in competing states.

• Washington State was victimized in 1999 by a similar minimum wage law-cited approvingly by AFL-CIO representatives before the Nevada Assembly-and today the Washington minimum wage is more than 36 percent higher than the national average!  Worse, powerful evidence found by respected national economists Richard Vedder and Lowell Galloway, indicates that the Washington poverty rate almost immediately expanded by more than 20 percent!

When the Nevada legislature passed it's tax bill at the end of the 2003 session, it included a "live entertainment tax" that was intended to generate revenue from live events such as NASCAR races at the Las Vegas Motor Speedway and Celine Dion concerts, etc.  However, it was discovered that creating a definition of "live entertainment" that isn't too far-reaching was too much for the legislature.  In an attempt to limit that tax to apply to larger events, the original bill exempted "strolling" musicians, such as a mariachi band in a mexican restaurant who provides a little ambiance.  Unfortunately, under that definition four pianists who provided background music at the Eifel Tower restaurant in Las Vegas were fired because their jobs did not fall under the exemption and the restaurant didn't want to pay the tax that their music generated under the law - which was not the intent of the law.  So, the Nevada Tax Commission rides to the rescue and manages to figure out a way to redefine "strolling" musicians - which you can't do if you play a piano - to include any musician who provides ambient background music whose name does not appear on a billboard.  So now, it is possible under the law to stroll while playing a piano in Nevada.

Senate Billl 127 was introduced in the Nevada legislature today, which creates an exemption from the annual $100 Nevada business license for small businesses that gross no more than 2/3 of the Annual Average Wage for the prior year. Previously this exclusion applied only to home-based businesses, but now the exclusion would apply to all businesses with income below this threshold. Many Nevada companies are formed for the purpose of holding title to non-income generating assets, and would fall under this exemption. The bill was referred to the Senate committee on Taxation.

The proposal by Utah Gov. Huntsman to repeal the state corporate income tax which was killed in the Assembly last week has re-surfaced in the Senate.  I haven't seen the new bill, but it is supposed to be very similiar to the original proposal that would have phased out the corporate income tax over several years starting in 2007.  I will be interesting to see if the Governor and his staff, who are all fairly new to the political process, can pull this off.  We'll see.  My bet is that they are going to get a crash course in state politics through lessons learned by bitter experience.

Charles E. Chinnock, Executive Director of the Nevada Department of Taxation, testified before the Assembly Ways & Means committee this morning that he predicts that compliance audits under Nevada's new tax structure to increase from approximately 1,800 per year at the present time to over 3,000 audits per year by next year.  Chinnock also reported to the legislature that the agency has moved toward an automated risk determination program that will now be triggering audits on the probability of compliance or non-compliance of taxpayers.

Yesterday, Republican legislators gutted the proposal by Gov. Huntsman that the Utah corporate income tax be phased out by 2012.  Apparently, legislators were shaken by a poll conducted by Salt Lake media that showed that 66% of respondants oppose the plan.  Of course, that is the very same media that is quick to point out that repealing the corporate income tax would "cost public schools at least $200 million by 2012".

Economists might well debate how accurate that assessment really is.  One economic truth, however, is that corporations don't really pay taxes.  They simply build it into the cost of goods and services, and pass it on to the consumer.  This is the real reason that corporate income taxes are politically popular:  Politicians can hide the fact that they are passing taxes on to the individual, and are able to mask the total tax burden paid by families.

Unfortunately, a political move to repeal the corporate income tax takes will require some forward-thinking, and some courage.  We hope that these are characteristics of our elected representatives, but the reality is that a politicians primary job - some would say it is their only job - is to get re-elected.  So they run from positions not supported by polls.  The real problem is that Joe Public is probably less qualified to make intelligent decisions regarding tax policy in our country than ever before.  When you think about it, any time the idea of reducing or eliminating a tax - any tax - is discussed, the public is bombarded with dire forecasts and doomsday predictions by special interest groups.  We have become conditioned to believe that we actually need to pay half of our income in various taxes.

In a society where tax policy is regularly used as form of penalty or incentive to advance somebody's theory of social engineering, the government frequently plays the role of Robin Hood (particularly at the federal level).  Someone once said that the government that robs Peter to pay Paul will always have the support of Paul.  We saw that in Utah's legislature yesterday.

The tax discussion in Nevada gets more entertaining with every incoming report of projected revenues.  Last Saturday, a group of economists from the Nevada Policy Research Institute (which I support, by way of full disclosure) issued a report that stated that the 2003 tax hike was not necessary and that the Governor and the Legislature were "misled by faulty and unreliable methodology into supporting a set of unnecessary tax increases".   Of course the Governor has vehemently denied and publicly disagreed with the think tank and stubbornly defends every penny of the largest tax hikes in the state's history.  His doomsday revenue projections then, and subsequent tax hike have now resulted in a surplus of hundreds of millions of dollars - and growing.

One law maker suggested that the state needed to look at some kind of a tax rebate program.   A little over a month ago, Guinn called that idea "shortsighted."

Next, Guinn interestingly proposes a $300 rebate on motor vehicle registrations.  Out of one side of his mouth, he defends the necessity of taking more money from state residents, while out of the other side of his mouth he is now telling those legislators who have publicly challenged the idea of rebating money they fought hard to raise that they will face a taxpayer revolt if they don't give money back.  (And, he has made it abundantly clear that if he doesn't think of the idea, it is not worth discussing.)

Here is a leader with uncommon clarity on issues of public policy.  He has managed to alienate most republican lawmakers because of his abandonment of conservative fiscal policies, and now his is angering many democrats (and the few republicans who supported his tax increases) by turning around and giving it back.

I have to look up the definition of "lame duck" again.  Something tells me it has application here.

Newly-elected Utah Governor Jon Huntsman, Jr. told the Utah Taxpayers Association that he proposed to eliminate the state's corporate tax structure as well as the state's capital gains tax in the 2005 Legislature, which began yesterday and runs for 45 calendar days.  If he is successful, Gov. Huntsman will move boldy toward making Utah competitive with Nevada, Wyoming, and South Dakota in attracting new business filings and entity formation in the state.

This announcement puts pressure on Nevada to act progressively to protect its reputation as a leader in attracting small business filings.  With the state tax playing field leveling out between Nevada and Utah, Nevada's efforts to provide superior indemnification of corporate officers and directors is still an advantage, but represents a gap that can be easily closed with a single act by either state's legislatures.

Since Nevada has officially recognized new business filings - called commercial recordings by the Secretary of State's office - as a revenue source for funding and balancing the state budget, it finds itself needing to act as if it were a private enterprise defending its market share and revenue stream.  It will be interesting to see how Nevada responds to this challenge.

The proposed legislation that would create charging order protection for Nevada corporations has been updated and submitted to industry lobbyists.  The original proposal was to provide charging order protection for corporations with fewer than five shareholders, but the new proposal puts tha shareholder cap at the S corporation limit of 75 shareholders.   Meetings have been held with legislators, with the possibility of either a committee bill introduction, or an amendment into other legislation once the Nevada legislature starts up in February.
    - Derek

The Nevada Department of Taxation is close to granting approval of a short form version of the Nevada Business License Application Form.   The Nevada Resident Agent Association has been working closely with the Department for several months to develop a form that is more simple and less intrusive for companies that do not purchase goods that would subject them to Nevada Use Tax, and also have no employees in Nevada.    Just yesterday I received a preliminary form from the Department of Taxation for my review and comment.  I made several suggested changes - mostly in the instructions - and sent the form back to them.  The short form will probably be available for use within a couple of months.

The "charging order" is a unique asset protection device that has traditionally applied - in various degrees - to limited partnerships and LLCs.  It is primarily designed to protect an innocent partner from being exposed to the foreclosure of another partners ownership interest - and thus have to deal with a potentially hostile third party as a substitute partner. This principle has never been applied to corporations because the general thought is that stockholders are "blind" to one another.  For example, if you own stock in Microsoft, you could probably not care less what happens to the stock of another shareholder, because it has no impact on you.  However, in a small corporation, that is not necessarily true.  Where only a few shareholders are present, they are NOT blind to each other.  They truly are partners in every respect, except by name only.

In the 2005 Nevada Legislature which starts this coming February, I am introducing through the Nevada Resident Agent Association, a bill that would create charging order protection for small, closely-held corporations with a limited number of shareholders.  If we can get this idea passed, it will create a new level of asset protection for stock of small corporations that will no longer allow stock of these companies to be an attachable asset.  I am sure that not every political interest will think this is a good idea, so it should make for an interesting political battle.  As the bill is introduced, and makes its way through the political process, I will keep you posted.
- Derek Rowley