Breaking down Gov. Lombardo's gas tax holiday and other claims of lower taxes

LAS VEGAS (KSNV) — In Gov. Joe Lombardo's first State of the State address, he proposed suspending the state gas tax for one year while also promising to "cut taxes for households and businesses."

In Lombardo's words, at the conclusion of his speech, his budget "doesn't raise one dime of new taxes."

This keeps in line with campaign promises he made during the 2022 election season. His budget must be approved by the Democratic legislature, which includes a supermajority in the State Assembly.

Lombardo's sweeping promises for spending in his $11 billion budget while not raising taxes stems from a budget surplus he said came as a result of the pandemic.

Here's how Governor Lombardo's gas tax holiday and other tax claims would work:

GAS TAX

It was unclear during his speech exactly how much state tax was included in his gas tax holiday plan. Nevada's gas tax has many layers, including a 23-cent State Excise Tax and 27.48 cents in other taxes and fees, according to the American Petroleum Institute. This is in addition to the 18.4 cents in federal gas tax and additional fees taxed at the county level.

The governor's office has since told News 3 it would be 17 cents per gallon, and the more expensive diesel tax would be included in the suspension. It wasn't clear how that number was determined.

According to Lombardo, the 12-month tax suspension at the pump would save hundreds of dollars for a family of four.

This comes after record-high gas prices in 2022 as a result of increased demand following the COVID pandemic and a strained supply exacerbated by Russia's invasion of Ukraine.

A handful of other states similarly instituted a gas tax holiday, including Florida for just one month in October and Georgia for nine months. Nevada's one-year gas tax holiday would be the longest in the country.

"Overall, these gas tax holidays are very effective," said Patrick De Haan, head of petroleum analysis with GasBuddy. "And stations generally pass them along. Because it's a competitive advantage, stations will lower the price up into the point where they can't anymore."

De Haan said he's more supportive of a gas tax holiday at the state level since it won't translate to a massive jump in demand or impact the Highway Infrastructure Fund.

Nevada's federal Democratic lawmakers last year proposed a federal gas tax holiday, but it ultimately fizzled out once it was discovered state law requires that Nevada's tax on motor vehicle fuel would have to be increased if the federal government reduces or discontinues its own tax.

"As an analyst, I don't really like it because it does not fix why prices are high," said De Haan. "But as a taxpayer, I like it because I need gas and it's savings."

The state gas tax is the primary funding source for the Nevada Department of Transportation (NDOT), and Lombardo's plan has raised questions about the funding of road projects. Lombardo said the gas tax holiday would save approximately $250 million for consumers and businesses, which is a quarter-of-a-billion dollars that would fund the state's roads.

In his address, the governor said he'd use the budget surplus to fill in the holes and not let the tax suspension "negatively affect our fuel-tax funded road and construction program."

Someone familiar with the matter said NDOT learned about the gas tax holiday plan as it was announced during Lombardo's speech, but brushed off concerns it would affect road funding.

"We look forward to working with Governor Lombardo as his office works out the details for this proposal," NDOT said in a statement.

On Monday, AAA showed a gallon of gas in Nevada cost $3.95, the fourth-highest in the nation. As for the future, it's difficult to know how impactful a 12-month gas tax holiday will be on consumers.

"We all hope we don't hit those record highs again," said John Treanor, AAA Nevada spokesperson. "And it was a really historic and unusual set of circumstances that got us there."

Lombardo, a Republican, would need the Democratic-controlled Legislature to pass the measure with a simple majority to take effect.

LOWERING OTHER TAXES

Lombardo also promised his budget would lower taxes for businesses in his push to make Nevada a "Pro-business, Pro-development State."

Specifically, the governor seeks to adjust the modified business tax rate (MBT) and Commerce Tax, as he said in his State of the State address.

The MBT is a tax that affects businesses with employees who make quarterly wages over $50,000. Once that threshold number is reached, a tax kicks in for the amount above $50,000.

Nevada is one of four states that doesn't have a corporate tax, alongside Texas, Washington and Ohio. Though tax experts and professionals said they generally support Lombardo's plan, they had questions about its execution.

"I wonder where the money's going to come from. You know, it's a fantastic plan," said Andrew Leavitt with Pinnacle Lending Group. "The reality is that inflation has gone up, and most consumers just don't have that extra expenditure right now."

Lombardo said he'd lower the MBT by 15% from 1.36% to 1.17% in order to "ensure that rising prices don't create increased burdens for Nevada businesses."

However, this MBT decrease was already set to happen with or without Lombardo. In accordance with state law (NRS 360.203), the MBT rate was set to lower that amount on July 1 despite the governor claiming the decrease as his own.

Regardless, tax experts who work with Nevada companies are in support of the move.

"By lowering the taxes on the business, that means the business has more money to potentially maybe keep payroll, to keep reinvestments back into the company, to purchase additional product and supply new resources," said Andrew Leavitt. "And it doesn't seem like a lot on the small decimals, but when you start measuring in the millions, it becomes expensive."

Lombardo also said his budget raises the exemption for businesses subject to the Commerce Tax from $4 million to $6 million. He said it marks the first time the Commerce Tax exemption has been adjusted "in favor of taxpayers ever."

The Commerce Tax kicks in for businesses that generate gross revenue over $4 million in a fiscal year. Kim Walker, a certified public accountant in Las Vegas, said tweaking this exemption isn't likely to affect most small businesses or "mom-and-pop shops," but would save money for larger companies like casinos and construction companies.

"We hold ourselves out to be a business-friendly state, part of that agreement to businesses is to provide them with a low tax bracket for their companies in terms of the payroll taxes, and this would accomplish that mission," said Walker, who is the owner of Kim Walker Inc. "We're always looking to attract new employers to our state, part of that attraction would be the best tax benefit for employers."

According to the Nevada Department of Taxation, the governor's Commerce Tax adjustment would affect about 1,500 taxpayers based on filings from Fiscal Year 2022.

Groups like the Democratic National Committee came out against these tax proposals, calling it a "corporate tax giveaway."