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Employers to Receive Refunds of Overpaid Nevada Modified Business Tax

BY: Mavanee Anderson, Esq. | 05/28/21

The Nevada Supreme Court determined the Modified Business Tax (MBT) rate should have been reduced on July 1, 2019. According to the court, a bill that was passed during 2019, which prevented the previously scheduled automatic tax rate reduction form going into effect, is invalid. The Nevada Department of Taxation (DOT) is required to refund excess taxes paid plus interest to applicable businesses [Leg. of the State of Nev. v. Settelmeyer, No. 81924 (Nev., 5-13-21); Nevada Gov. Steve Sisolak, Press Release, 5-13-21].

Automatic Tax Rate Reduction Eliminated in Error

State tax law – as it existed at the beginning of 2019 – required an automatic reduction in the MBT rate when revenue collected by the DOT during the previous fiscal year met a certain threshold. The revenue threshold was met in 2018, so the tax rate was scheduled to be reduced on July 1, 2019.

However, a bill (S.B. 551) passed by the state legislature in 2019 eliminated the automatic reduction. Certain types of bills – including those that create, generate, or increase public revenue – require a supermajority (i.e., 2/3 vote) for passage under the Nevada Constitution. Because the bill was only passed by a simple majority – not a supermajority – it is invalid.

The MBT rates have remained the same (1.475% on taxable wages exceeding $50,000 annually for most businesses, 2% for financial institutions and mining companies) and were not reduced to 1.378% and 1.853%, respectively. The DOT has been ordered to refund to businesses the excess tax collected, plus interest from the date of collection. The DOT has not yet posted guidance on its website or updated the applicable FAQs or forms, but updates are expected in the near future.

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Mavanee Anderson, Esq., is Editor of PayState Update and Payroll Information Resources for the APA.