The Margin Tax Initiative: What Exactly Is It?

In November, Nevada voters will be asked their opinion on the margin tax initiative, in conjunction with the 2014 statewide general election ballot. In plain words, this tax, also called the “Education Initiative,” there institute an extra 2-per-cent tax on revenues of over $1-million. Now, this amount is on revenue, not on profit – so many small businesses, as well as many of the unions, are opposing this new tax.

As well, there is no “pass” for your first $1-million; so if by chance a company has $1,000,001 in revenue, they are taxed on the entire amount, not just the $1. On that amount of money, the tax would be $20,000; for small businesses and franchise owners, this could mean the difference between being able to pay oneself – and not.

The included industries in this tax would be: “family owned restaurants, medical clinics, daycare centers, repair shops, veterinarians, janitorial services, ranches and farms.” These types of businesses, most especially family owned restaurants and the like, usually have an especially small profit margin. Even ranches and farms may have a decent profit in one year, but they usually have to bank that profit for a “rainy day” – they often fail to break even in years where the weather is affected, or the industry they’re dealing with is down.

The big issue here is that many small businesses are struggling as it is – according to the Nevada Small Business Development Center, four out of five businesses fail within five years. This new tax may make that ratio four out of five businesses failing within three years. It would also give Nevada businesses one of the highest tax burdens in the country.

What about franchisees? Although they may have $1-million of revenue, they definitely do not keep their full profit. A large portion of that amount gets paid to the franchisor, leaving them with a dwindling pay check. The website entrepreneur.com (http://www.entrepreneur.com/article/228698) mentions a restaurateur who makes $2.1-million in two restaurants. That may seem like a lot, until you run the numbers … at a 20-per-cent margin, he estimates a profit of $400,000. The 2-per-cent tax – which is based on the $2.1-million, not on the profit – would be $42,000. This actually amounts to the franchise owner receiving 10.5 per cent less on his profit – not 2 per cent.

This tax also does not take into consideration businesses that cannot pay the tax; and in fact, are actually losing money. There is a dedicated website – www.stopthemargintax.com – against the margin tax initiative that goes into more details.

“Overall, it would dump a massive $750-million increase on the costs of doing business for Nevada employers. That would severely damage our state’s already struggling economy and job market.” (taken from the www.stopthemargintax.com website)

This is a huge amount of money on the everyday people in Nevada. One million dollars in revenue may seem a lot to those of us who are salaried employees. But again, it bears to be repeated – this amount is based on gross revenue, not on gross profit.

What is your opinion on the margin tax initiative?

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