Monday, October 13, 2014

Some Simple Math on Nevada's Margin tax

Suppose you are a small business owner that sells $1 Million per year worth of goods and services.  That's the level that triggers Nevada's proposed "margin tax".  $1 Million Sounds like a LOT doesn't it?  Surely those "rich millionaires" can afford to pay their fair share of taxes?  That's the thinking behind Nevada's proposed margin tax.  But a business owner doing $1 Million in sales is NOT a millionaire!  Let's dig a little deeper.  In MBA school they teach you that a well run business should drop 10% of gross sales to the bottom line as profit.  What does this mean?  Well, in a business selling $1 Million it simply means after you pay your employees, rent, the cost of goods that you sell, and other expenses like insurance, auto etc if you're extremely well run your profit should be $100,000.

Wow - that still sounds like a good pay day!  Those business owners sure are rich aren't they?  But wait a minute.  The real world isn't always as portrayed in business school.  Lots of small businesses in Nevada are extremely low margin and competitive - such as grocery stores or the computer business I happen to be in.  In the computer business many of us only drop 4% of our sales to the bottom line (yes really).  Why?  Partly because we have to compete with online retailers like Dell that discount computers.  So the profit in a business like computer sales and repair that does $1 million in sales might typically be $40,000 per year.  But don't forget - the federal government takes their share of that profit!  For simplicity let's assume a 33% federal tax rate.  The highest tax rate is now above 39% but 33% is fairly typical.  So lets say this hypothetical business owner sends $13,200 to uncle Sam, leaving him with $26,800 for his family to live on.

Now along comes the Nevada Margin tax.  There are 2 ways to calculate how much tax this business will owe but neither takes into account profit or how much federal tax a business owner has already paid.  The simplest of the two proposed methods is just to take 2% of 70% of gross sales.  2% of 70% of $1 Million results in a tax of $14,000!  That means this business owner will owe the state of Nevada MORE than his entire federal income tax bill, leaving his family a whopping $12,800 of his profits to live on.  It's easy to tax the other guy and easy to say "our kids deserve better schools".  But when you realize the unfairness in these numbers you understand this will literally cause businesses to leave the state or close up shop.  By the way, the second method of calculating the margin tax results in a tax of "only" $10,000 using sample numbers and ratios from our business.   In our case we will have no choice but to raise service rates and prices, resulting in lower sales.  Hey, maybe we'll get lucky and drive our sales down to $999K resulting in zero margin tax.  Make no mistake: business owners will be making this calculation.

The unfairness of the margin tax goes even further.   Because it doesn't account for profitability, it effectively places a heavier tax burden on some businesses than others.  For example a small doctor's office will pay far more dollars in tax than a used auto dealer or low margin equipment sales company.   For many smaller service businesses it will take Nevada from one of the lowest tax states to one of the highest tax states.  As they say in the movies: "that is going to leave a mark".

Do we really want a law that creates an incentive for business owners not to invest and work hard?   There will be a significant profit motive to keep sales below $1 Million, resulting in lower growth, lost sales tax revenue for the state, and more business owners with fewer employees.

Nevada's margin tax is WORSE than an income tax because it doesn't attempt to account for or even calculate the profitability of a business.  I HATE the idea of a state  income tax but I'd take a state income tax over this disaster. As a side note, since Dell isn't a Nevada corporation, do you think they'll have to pay the Nevada margin tax?   If not you've just handed Dell a huge price advantage over my 30 year old local Nevada based business. 

Please vote "No" on question 3.

Thursday, October 9, 2014

Why I have no Problem with "Plug and Play" camps at Burning Man

I'll start out by saying the camp I stayed in this year was NOT a plug and play (PNP) or turnkey camp.   Like many Burning man camps we had some folks who rented RVs and had even some that had those RVs delivered onto the Playa and picked up later.  But everyone in our camp was committed to doing the work themselves, helped with meals, brought and gave away booze, and volunteered for our open bar welcoming everyone on the playa into our lounge.

If you've ever attended Burning Man you know that there are all kinds of derogatory terms for people who don't participate in the "correct way".  It's one thing to be called a "sparkle pony" [people who don't help out around camp and spend all their time primping (usually young women)].  But a sparkle pony doesn't elicit nearly the venom among hardcore burners as a PNP (Plug and Play) AKA Turnkey camp. 

A Turnkey camp is one which provides many of the basics needed on the playa.  This means RVs, transportation, meals, bikes, and in some cases even costumes or pretty girls.  Organizers of such camps (sherpas) are reviled for making a profit or working for tickets and money.  Attendees of the camps are reviled for being "tourists" and not participating or giving back.  Turnkey camps also have a reputation of being exclusive, which violates one of the 10 principals of burning man (radical inclusion).  This may be because some of the PNP campers have some level of celebrity or notoriety, but the general perception is they have a closed camp because they are simply rich or snobbish.  A PNP camp isn't necessarily an exclusive or closed camp, but that's sometimes true.  A closed camp is one in which RV's are parked in a box formation, creating a private central plaza and discouraging others from just walking in.  Since these camps are often placed on the outer rim of the city (far away from the busy esplanade where all the action is) I've wondered why anyone cares.  What if those RV spots were simply empty?  Why does the very existence of  a few fancy RVs piss burners off so much?  There are plenty of other camps to visit, plenty of art to see.  Those RVs way on the outskirts of the action aren't hurting anyone. I think the hidden reason these camps are hated is simply class envy.  It bothers the average human to work hard and receive less than the next guy.

You see, going to burning man is HARD.  It is doubly hard for fly-in or international participants because finding businesses willing to rent cars or RVs to go out onto the dusty Playa is challenging.  Camping at Burning man is dirty, gritty and a lot of work.  You must bring your own food, water, booze and everything else you need to survive (radical self reliance) and commit to haul the garbage back out.  It is the hardest "vacation" you will ever take.  In addition, participation is a key principal - which means everyone who comes should give back in some way.  That could be small gifts, running a bar, volunteering for the organization or in thousands of other ways.  Everywhere else in the world people welcome "tourists" with open arms.  But at Burning Man a "tourist" who comes just to check out the scene and watch the craziness is considered undesirable.  Commercial enterprise is not allowed (with few rare exceptions such as coffee, ice, sewage, fuel etc).  This principal goes so far that many people tape off logos on the side of their U-haul trailers so there are no commercial logos displayed.

In a way, the prejudice against plug and play camps is a prejudice against international and fly-in travelers.  If you're flying in from Germany the logistics of getting an RV, transportation to the black rock desert, buying bikes, food, water and then cleaning the mess up afterwards are daunting.  Not to mention expensive.  So when Oregon, Washington, California, and Nevada residents look down their nose at people who organize professional camps what they have to remember is that WE have the advantage of being able to take our own vehicles to burning man by driving.  People further away simply don't have that option.  Looked at from this perspective, we see that burners angry at plug and plays are actually being exclusionary themselves.  They are favoring a LACK of diversity both geographically and economically.  The truth is wealthy people simply piss burners off because most of them aren't wealthy.  Radical exclusion of the rich is hardly in the burning man spirit.

Facebook is ablaze with angry burners who resent these "tourists".  How DARE they come when they don't put the year round work to create art or theme camps?  This anger baffles me because I happen to know these camps donate a lot of money to art on the playa.  In fact many of them pay above par for their tickets.  That money flows into the Burning Man Art donation program and into other things that make the festival grow.  I know this because my camp donated over $20,000 above the cost of our tickets this year to art (in addition to the free chill space, food, and booze we gave away).  The true "plug and plays" donated far more.  Yesterday a guy suggested that all PNP camps be located at 7:30 and P street (the outer ring is L street - there is currently no P street).  My response is simply that the turnkey camps are already placed between K and L and already treated as second class citizens.  You want to create non-existent streets to put them even farther out?  You want to further enable class warfare? That's not radical inclusion and it's mean spirited.  Here's an idea:  Place them further in as long as they agree to be open.

One role for BMORG would be to assign a "playa coach" to each placement team.  When the playa coach visit camps and encounters a "velvet rope" they sit down with the camp leads and have an educational conversation with them, explaining things.   In the same way they are being exclusionary towards burners BMORG might have to be exclusionary toward THEM next year. A gentle reminder should be all it takes.

Angry Burners hear me.  All of us are only able to attend burning man because we have jobs.  Burning man is an opulent self-indulgent party in the desert. Yes, YOU spent your chilly February night after work welding an art car.  While you did that a busy google exec stayed up fretting about company profitability and the decisions he made created millions in wealth leading to employment for thousands.  Some of those thousands built the art out there.While YOU attended a preburn build party a German business man worked a 14 hour day to finance his next venture and employ 400 people.  While YOU packed your Subaru the weekend before the burn Anne Hathaway shot film until she paid someone to pack her costumes for her.  These folks and the people who help them are making a contribution to both our society and to burning man that is just as valid as yours.  Their contribution to art on the playa probably exceeds yours.

A tale of two burners:  A young burner hitchhikes to Gerlach and holds a sign along the side of the road saying "Need a miracle" and when finally a generous sole gives him a ticket he hitches into BM with a backpack and a tent.  He spends the rest of the week walking around mooching meals and drinks and gawking at art.  There are a LOT of such individuals.  We've all seen them.  Yet no one is angry at this lonely tent camper, even when he passes out in the dust in their chill space because he's a friendly hippie type that greets everyone with a hug and a vacuous grin and never spends too long in one place.  And if this young burner happens to be an attractive female? OMG she encounters little animosity anywhere!  Now imagine a second burner:  a successful business exec from Europe who rents an RV in a PNP for $10K.  He is automatically labeled a tourist dickhead.  Even if he volunteers for stints in the camps open bar or makes cheese sandwiches or makes donations to art.  Doesn't matter.

Stop hating on the turnkey camps.  It takes all of us to make Burning Man a success.  They are not ruining Burning Man!  They are helping and breeding new generations of aficionados.  Next year some of those wealthy tourists you hate so much will be the ones funding and building the camp next to you.  Do you know what a zoo it is when people find out where Mark Zuckerberg or Anne Hathaway are camped?  Talk about mess up yer burn.  Having your bike stolen is nothing compared to having thousands of people strolling through camp gawking at you. The mere rumor of celebrity causes buzz. Pretend those diesel pushers out on K street are not even there and ask yourself why you really care?

Voting and early voting in Washoe County

OK here are the 3 simple steps  (4 including voting)

1)      You must register to vote by October 14th (next Tuesday)  if you aren’t already registered.   You can register quickly online (it will tell you if you’re already registered)  After you enter your information, it will warn you if you’re already registered and allow you to update your data.   I was able to change my mailing address to the office so I can receive ballot booklet here.
2)      Review your sample ballot.  you can go to  and type in your last name and birthday as shown here to get your sample ballot

3)      The “election” is on November 4th.   But I would recommend not waiting. It is much better than waiting until Vote day – lots of flexibility.    “early voting”.   Early voting is easy in Nevada, and is available to every voter. Voters can vote at any location in their respective county where early voting is offered.   Why not pick a time and place below and put it on your calendar so you remember to do it?
Early voting offers the following benefits:
·         Makes voting more accessible to more citizens;
·         Increases voter participation rates;
·         Allows more accurate and efficient ballot counts;
·         Reduces administrative costs to the taxpayer; and
·         Creates a more informed and thoughtful electorate.

2014 Early Voting Dates The  General Election: November 4, 2014    Early voting is from  October 18, 2014 through October 31, 2014    graphic of the  Document below is also here:

Step 4
Please consider voting No on question 3

From: Jim Paschall
Sent: Thursday, October 09, 2014 9:28 AM
To: Darren McBride
Subject: RE: Question 3 the Margin Tax Vote. Here is one view of a very important vote a business owner I know shared with me.

If you would be willing to instruct me on how to vote against this, me and the guys will vote against this.

I don’t normally share political things.  But this margin tax initiative is very bad. I have one friend/business owner who plans to move his business if it passes.  After studying it I think it has the potential to significantly impact lots of low margin businesses (such as grocery stores), and of course, Sierra Computer Group and Highly Reliable Systems.  Taxing business Gross margin is much worse than an “income tax” because it’s not tied to profit.  We owe the tax whether we make profit or not and in a low margin business like ours it could force us to raise product prices (meaning even more customers will just buy from Dell and CDW as opposed to Sierra Computer Group).  But the real killer is labor.  For each hour of $100 computer service we bill, we currently make about $4 in profit (after paying the tech, overhead, insurance etc).  If the 2% margin tax passes I’m concerned the government would take $2 of this.  This tax has already been tried in Texas (it’s called Franchise tax there and is implemented at about 1%.  Nevada is proposing double that to 2%.  In Texas there have been very poor results. The Margin Tax would raise Nevada’s taxes on businesses to among the highest in the country.  If you have a different viewpoint, feel free to write it up and I’ll send it out as a counterpoint.   Thanks!  Darren

Educating our children is an extremely important part of society.  Nevada is, year over year, one of the bottom dwellers in the country for funding education.  This surely is not a highlight about living in this great state.    Question #3 on next months ballot, "The Education Initiative" tries to increase funding of our education system by imparting a tax on all business that have revenues of over one million dollars.  

In my opinion, this is a very irresponsible way of gaining the necessary funds to better our education system.  We need more money for education, that is a given, but we can do it in a much better way that can help rather then hinder our state.  Below I have copied a list of 10 reasons why this is very bad for our state.  

Obviously all of you guys can make your own mind up on which way to vote and this is in no way trying to sway you in one way or another, I am just trying to show some of the facts and possible unintended consequences such a tax would have on both our state and our economy.  

Top Ten Reasons the
Margin Tax will hurt Reno-Sparks’ Economy

1.     Jobs Will Be Lost as Corporate Tax Rate Jumps: Jobs would be lost in the Truckee Meadows as businesses attempted to keep their doors open. Other jobs would be lost when businesses closed up shop altogether. Economic development efforts would be hurt and some companies would find it more advantageous to stay put or locate to other states. That’s because Question 3’s tax rate would be an average of 14-15%, nearly double California’s corporate income tax rate.
2.     Job Attraction and Retention More Difficult: Many prospects have delayed their decision to come here until after the election and several existing companies have made clear their intent to either relocate out of the state or do their planned expansions at another location if the tax passes.
3.     No Guarantee It Will Go To Education: While proponents claim that these new dollars will go to education, there is nothing in the initiative to keep the Legislature from re-allocating existing funding to other programs. The initiative in essence gives the Legislators a blank check. There is no guarantee that one “additional” dime would go to the education needs of Washoe County students.
4.     No Real Accountability: There is no plan or accountability for how this almost $1 billion in new revenue would be spent. While proponents claim that these new dollars would go to education, they are never clear on the specifics. Will these dollars go to the classroom? Or to more administrators? Or to more outside lawyers hired by the School Board? No one knows, because there is no plan.
5.     Will Not Support WCSD Infrastructure Needs: There is no guarantee that one cent of this massive tax increase would go toward the capital needs of the Washoe County School District. State dollars are not currently used for the maintenance needs of our older school buildings, for the technology and security upgrades that are desperately needed, nor to eliminate the need for the modular buildings that are filling up our elementary school playgrounds. Local tax dollars fund these needs and the Margin Tax would not help at all.
6.     Increase Costs For Everyone: Every Washoe County resident would see increased grocery, utility, and healthcare bills. No business is immune to this devastating tax and those every day costs would be passed on to consumers.
7.     Some Industries Are Hit Harder than Others: At least one industry will be eliminated by the tax, the secure trust business. Experts in this industry have stated that this change will drive the entire industry to South Dakota. The loss of these investors will have a ripple effect on our entrepreneurial community as many of those business owners are also angel investors.
8.     Retail and Restaurants Also Hit Hard: Reno is in the midst of a rebirth, fueled by locally-owned retail shops, bars, and restaurants in vibrant districts such as Midtown, Fourth Street, and Wells Avenue. The retail and restaurant industry would be harmed the most by the Margin Tax, as they operate on very thin margins.
9.     Destroys Entrepreneurial Momentum: Most entrepreneurs lose money in their first several years of operation, yet they will still be on the hook for thousands of dollars in taxes if their revenue exceeds $1M annually.
10.  The Tax Is Confusing and Will Likely Require Costly Litigation: Instead of spending money on new goods, equipment, and salaries, our local businesses would be spending money on high-priced lawyers or CPAs to help them through the maze of confusion that is the initiative language. Those same businesses would also be paying for the state to hire lawyers to fend off the lawsuits that they filed!