An Affiliated Nightmare: Part I
A key definition in the margin-tax scheme would have catastrophic impact
By: Geoffrey Lawrence
Much ado has been made, and will continue to be made, about what is the most important question on Nevada’s 2014 ballot. But one critical aspect of the state teacher union’s proposal to enact a business margin tax has gone virtually unnoticed: the definition of an “affiliated group.”
For the non-accountant, this might sound like a tedious and technical detail, but it could wind up as the most significant aspect of the proposal if the tax becomes law.
As with many business taxes, the margin tax would require business owners who have organized their operations under multiple legal entities to consolidate the finances of each entity onto a single tax filing. This “affiliated group” of firms is then treated as a single entity for tax purposes. For large corporations with multiple subsidiaries — MGM Resorts, for example — this is normally a straightforward operation that causes few problems.
The way that teacher union operatives drafted their proposed margin tax, however, is different. And it would wreak havoc for owners of both small and large businesses.
The problem is how they’ve defined an “affiliated group.”
Union representatives have said their proposal was modeled after the Texas margin tax. In Texas, firms can be considered an “affiliated group” if at least 80 percent of the ownership of each firm is held by the same individual or group of individuals.
For Nevada, however, the union defined an affiliated group as “a group of two or more business entities, each of which is controlled by one or more common owners or by one or more of the members of the group.” (Emphasis added.)
Under this changed definition, firms with only minority ownership in common would be considered an “affiliated group” and forced to file taxes jointly — an administrative nightmare for taxpayers and state tax collectors both.
The only possibly mitigating language is the requirement that the entities are “controlled by” common owners. But here’s how the union proposal defines a controlling interest:
Consider that definition carefully.
To recruit, support and advocate for candidates for public office who support private sector job creation, low taxation, a responsible regulatory environment, and effective delivery of essential state services.