Changes in Nevada Corporate Tax Practices

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Tax Alert – On May 31, 2015, the Nevada Legislature (i) approved a “Commerce Tax” on all business transacted in Nevada and (ii) increased the rate and expanded the number of businesses required to pay the Modified Business Tax (“MBT”).

The Commerce Tax is imposed annually on all businesses with Nevada-sourced gross revenue in excess of $4,000,000 per year. Companies responsible for remitting Nevada Commerce Tax must file a Commerce Tax return with the Nevada Department of Taxation (the “Department”) within forty-five (45) days of the fiscal year ending on June 30. The Commerce Tax rates vary based on a company’s North American Industry Classification System (“NAICS”)…

The MBT is a quarterly payroll tax imposed on all Nevada businesses. On July 1, 2015, the MBT rate increased from 1.17% to 1.475% and the MBT quarterly exemption decreased from $85,000 to $50,000.

Nevada businesses that incur Commerce Tax and the MBT may be eligible for limited tax relief. A business that files a Nevada Commerce Tax return may apply for a credit of up to 50% of that year’s Commerce Tax on a dollar-for-dollar basis, which is assessed against the immediately following year’s MBT quarterly returns. The Commerce Tax credit may be applied to any or all of the immediately following year’s MBT quarterly returns until exhausted, but may never exceed the quarterly MBT amount due. For example, in fiscal year 2015 – 2016, if a business pays Commerce Tax in the amount of $10,000, the business will be assessed the following quarterly MBT by the Department for the 2016 – 2017 fiscal year:

The business may apply a $3,000 tax credit in quarter one and a $2,000 credit in quarter two or evenly distribute the credit amongst all four tax quarters. Alternatively, a business may devise another form of distribution as long as it does not result in the credit exceeding the relevant quarterly MBT due.

Due to the relative complexities of the interaction between the Commerce Tax and MBT, companies conducting business in Nevada should seek appropriate tax counsel before filing a Commerce Tax or MBT return. With effective tax planning, companies may be able to mitigate the significant costs imposed by Nevada’s new tax laws.