Important Updates for Certain Business Entities in the Silver State
Nevada does not impose a corporate or personal income tax, which has made it an attractive state for many businesses. However, on June 10, 2015 a bill was signed enacting the new Nevada Commerce Tax, which is effective July 1, 2015. The first Commerce Tax Return is due 45 days after the tax year end, or August 15, 2016, for fiscal year July 1, 2015 through June 30, 2016.
The Commerce Tax is an annual gross receipts tax imposed on business entities engaged in business in Nevada that have more than $4,000,0000 of Nevada gross revenue. Business entities subject to the new commerce tax include, but are not limited to:
- Sole proprietorships
- Limited liability companies
- Joint ventures
- Any other person engaged in business
Certain business entities are specifically exempt from the commerce tax, including IRC section 501 (c) non-profit organizations. Business entities not organized or incorporated in Nevada will need to complete a nexus questionnaire to determine if the Commerce Tax applies.
The Commerce Tax is based on gross receipts apportioned to Nevada, less certain exclusions and deductions. There are no deductions for cost of goods sold or other expenses. However, there is a $4,000,000 allowable standard deduction from gross receipts to arrive at Nevada taxable revenue. The Nevada taxable revenue is then multiplied by the applicable tax rate. The tax rate for each business is based on its NAICS code (North American Industry Classification System) and the rates vary from 0.051% to 0.31% depending on the industry.
In addition, the tax is imposed on a separate entity basis. It is important to note that the $4,000,0000 standard deduction can reduce business revenues subject to tax but does not exempt a business from the filing requirement. However, a business entity with Nevada gross receipts of under $4,000,000 during the taxable year can utilize a simplified reporting method.
The complexities involved with this new tax include sourcing of receipts, determining whether a business entity is subject to Commerce Tax, and the administrative aspects associated with the fiscal year and due date.