In 2015, Nevada lawmakers enacted the state’s first business activity tax—the “commerce tax“—that was effective July 1, 2015. The commerce tax is a gross receipts tax that is imposed (at various rates) on gross revenues sitused to Nevada exceeding $4 million.
All types of business entities (e.g., SMLLCs, LLCs, partnerships, individuals, and corporations) are subject to Nevada’s commerce tax, and all taxpayers have the same tax year—July 1 through June 30. The due date for the first commerce tax return is August 15, 2016.
Earlier this year, opponents of the tax tried to place a repeal initiative on the November 2016 ballot. Those efforts were unsuccessful—at least for this year—and the first return must be filed by all business entities that have Nevada nexus. Businesses may have assumed the commerce tax would be repealed prior to the due date of the first return. That is not the case. Furthermore, even taxpayers that do not have any Commerce Tax liability are required to file a return.
All entities “engaging in a business” in Nevada are subject to the commerce tax. Under the commerce tax law, ”engaging in a business” in Nevada means commencing, conducting or continuing a business; the exercise of corporate or franchise powers regarding a business; and the liquidation of a business which is or was engaging in a business when the liquidator holds itself out to the public as conducting that business. This language is arguably fairly broad.
The recently adopted commerce tax regulations provide some guidance on when a business entity is “engaging in a business in Nevada.” The regulation states that a business entity is commencing or conducting business in Nevada if it conducts 22 specifically enumerated activities, including but not limited to:
A catch-all provision captures any other activity that is sufficient to subject the entity to commerce tax under the U.S. Constitution.
Certain business that are already registered with the Nevada Secretary of State will have likely received a “welcome letter” from the Nevada Department of Taxation. This letter notifies the business of its commerce tax filing requirements and provides the business with an access code that can be used to enroll in the online Nevada Tax Center. Enrollment is necessary if the business wishes to file the commerce tax return online.
Businesses that are not already registered with the Secretary of State will need to take two steps to register for commerce tax purposes. First, they will need to complete and submit a Nevada Commerce Tax Registration Form for Business Entities. This form has four parts—the first part is a Commerce Tax Nexus Questionnaire. Per the form, if the business answers “no” to all the questions, then it does not have to register for commerce tax. While some of the questions are fairly straightforward (e.g., “Does your business entity have goods consigned in Nevada?”), others may be more challenging to answer (e.g., “Does your business entity provide other financial activities in Nevada?”).
The remainder of the form captures the information necessary to register the business for the Commerce Tax. This form may be submitted to the Department via email. After the form is submitted, the business can expect to receive a welcome letter that includes the access code necessary for online filing. The letter will contain a Commerce Tax Additional Information Form that must be completed and submitted to the Department of Taxation. Once the Department receives this form, the registration process will be complete, and the business may create an online account using the access code in the welcome letter.
Nevada does not permit combined or consolidated filing for commerce tax purposes. Each taxable business entity (including entities that are disregarded for federal income tax purposes) must make its own determination as to whether it is engaged in business in Nevada and—if so—it must file a separate commerce tax return.
Commerce tax returns may be filed in hard copy or electronically using the Department’s online system. As noted above, one point that may catch taxpayers by surprise is that business entities that have under $4 million in Nevada-sitused gross revenues will still need to file a commerce tax return if they are “engaged in a business in Nevada.” Such taxpayers do not need to file a complete return; rather, they must check a box on the return to certify that the business entity does not have Nevada-sitused gross revenues exceeding $4 million.
Commerce tax payments may be made online when filing electronically. Checks may be mailed to Nevada Department of Taxation, Attn: Commerce Tax Remittance, P.O. Box 51180, Los Angeles, CA 90051-5480. All payments in excess of $10,000 must be made electronically.
In recently released list of frequently asked questions (FAQs), the Department of Taxation clarified that business entities may request a 30-day extension by drafting a free-standing letter to the Department requesting an extension of time to file and pay. Interest on the unpaid tax will accrue, but penalties will be waived during the extension period. The extension request may be faxed to 775-684-2020 or mailed to Nevada Department of Taxation, 1550 E College Parkway Suite 115, Carson City, NV 89706.
There is a provision in the commerce tax law allowing the Department to waive payment of penalties and interest for a person’s failure to timely file and pay the commerce tax through February 15, 2017. This waiver is available only if the failure to file and pay occurred despite the person’s exercise of ordinary care, and was not intentional or the result of wilful neglect.
Per the FAQs, the standard the Department is applying for purposes of the six-month grace period is “excusable neglect.” Excusable neglect generally requires a showing that the taxpayer acted in good faith and had a reasonable basis for failing to file and pay in a timely manner. It is expected that a reasonable person would be working to comply with the law. Any waiver requests under this special provision will be reviewed on a case by case basis.
For more information, contact a KPMG State and Local Tax professional:
Sarah McGahan | +1 713-449-9748 | email@example.com
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