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At the start of 2003, Republican Governor Kenny Guinn proposed a $1.1 billion tax increase. Shortly after Guinn introduced this plan, Dan Burdish, a Nevada businessman, founded Nevadans for Restraint. The organization promised to use a 1904 amendment that allows voters to put laws passed by the state government up to a referendum. The tax increase includes an $200 increase of the per employee annual business license to $300 until replaced by a .25 percent gross receipts tax starting in July 2005, a 70 cent per pack increase of the cigarette tax to $1.05, a .25 percent increase in the gross gaming tax to 6.5 percent, a 7.3 percent tax on admission to movies, professional sports events, strip clubs, and other amusements, a property tax increase of 16 cents per $100 in assessed value, an 89 percent increase in alcohol taxes, a 50 percent increase in incorporation fees, and a recommendation that the legislature levy sales taxes against untaxed professions such as law and lawn maintenance. (AP 3/5/03)
Compromises with the state legislature forced Governor Guinn to whittle his tax plan down to $864 million by late June, but it still failed to meet the constitutionally mandated two-thirds requirement in the State Assembly by one vote on June 29th of last year. “All 23 Democrats and four Republicans favored the plan, while 15 other Republicans [blocked] its approval.” (AP 6/29/03) The state budget was already approved, but an anti-tax block forced the legislature into a special session. The State Senate was able to pass an $873 million version of the tax hike on June 26th by fifteen to five.
In spite of the willingness by State Assembly Republicans to raise taxes by up to $700 million, Guinn took a case to the State Supreme Court in order to waive the two-thirds majority requirement for raising taxes. (AP 7/22/03) In a six to one decision on July 10th, the Nevada Supreme Court ruled that the constitutional requirement to fund education superceded the two-thirds majority tax amendment. The drive to introduce the supermajority amendment was led by US Representative Jim Gibbons (R-NV). In 1994 and 1996, the amendment was supported by over seventy percent of Nevadans. (AP 7/11/03) Opponents of this blatant judicial activism took the case to the federal District Court, which ruled on July 18th that it had no authority to review the rulings of a state court. Realizing their judicial defeat on July 22nd, the anti-tax block voted for the plan in order to avert “a constitutional crisis.” (AP 7/22/03) It passed the State Senate by seventeen to two and the Assembly by 28 to 14, the minimum needed.
The tax fight took a toll on Governor Guinn’s ratings, which slipped ten points according to a Mason-Dixon poll since the start of the legislative session when he proposed the original $1.1 billion increase. (LA Times 7/13/03) Amongst members of his own party, his approval rating fell from 63 percent to 44 percent, which is the same level as Democrats. This may have caused Guinn to make an August 17th pledge not to raise taxes during the next legislative session. However, this drop in popularity was not enough for the recall movement. An organization attempting to recall Guinn, headed by Tony Dane, admitted defeat late November after they failed to get enough signatures. A similar movement to recall the six Nevada Supreme Court judges stalled in mid-August due to the stringent requirements for signature collection.
After the tax plan was passed, the press and research organizations began to find problems with the tax increase. The Associated Press released an article on the harms of the tax increase on Tuesday, July 29th. While supporters of the hike were able to paint it as a tax on businesses, it became clear that these costs would actually be passed on to consumers. “Buried at the bottom of page 135 of [the tax increase bill] is a section permitting any public utility to increase its rates for service to offset any new tax liability.” (AP 7/29/03) Other businesses, including Republic Services and Southwest Gas, are considering price increases as well. The Nevada Policy Research Institute found more problems with the Gross Receipts Tax that will take place in 2005. Firstly, because the tax applies to every step of the production process, Nevada producers will be put at a disadvantage compared to goods from other states. Moreover, the institute found that smaller companies will have a harder time competing against larger, vertically integrated firms that only has to pay tax on the final sale. Both of these effects will drive jobs out of the state. Perhaps most ironically, the Interim Finance Committee of the state legislature considered appropriating an additional $6.5 million just to collect these taxes, raising that total to almost $10 million. (Reno Gazette-Journal 9/16/03) In fact, the new taxes make the system so complicated that an entirely new $27 million computer system will be needed over the next three years.
On October 30th, grassroots activists began to resist the tax hike. George Harris of Nevadans for Sound Government filed a petition that get rid of the entire tax increase. (AP 10/31/03) The state Legislative Council Brenda Erdoes said that the petition may be unconstitutional because it did not include the full text of the tax increase law. Another petition filed by the same organization would prevent government employees from serving in the legislature. As of October 30th, 16 out of 63 state legislators held full time government jobs, and six received both legislative and civil service paychecks. This obvious conflict of interest could partially explain the willingness to grow government. The next day, over 100 people attended an “Axe the Tax” rally in support of these two petitions. In order to show up on the ballot for the November 2004 election, they need to collect 51,234 signatures each by May 18th. The ban on public servants from holding office would require two electoral wins: one in 2004 and one in 2006. In mid-November, State Secretary of State Deal Heller, said he would bring a court challenge to the petitioners if the tax hike petition was not reworded to include the entire tax bill.