The IRS has served notice that it wants a cut of the nearly $300 million in tax rebates that started arriving Saturday in Nevadans' mailboxes.
Recipients of nearly half the 1.9 million rebate checks will owe taxes on part of the money, although the taxes may be no more than a few dollars for many.
The original plan was a direct rebate of whatever Nevadans paid to register each vehicle in 2004. The Internal Revenue Service sent Guinn a letter saying those rebates would not be taxable. But the Nevada Legislature decided too many people would get back just a tiny check for older cars or trucks, some less than $10, and set the minimum check at $75. Lawmakers also voted to give $75 checks to every senior with a state ID or driver's license but no registered vehicle.
According to an IRS letter issued Friday, those amendments changed the rules and all seniors getting a check will owe taxes on the full $75 they get because it's income under federal law. Also, anyone getting back more than what they paid to register a vehicle will have to pay taxes on the difference. If, for example, it cost $33 to register a car and the owner got a $75 rebate check, taxes are owed on the $42 difference.
Michael Hillerby, chief of staff to Guinn, said the governor's original plan was better because it avoided any tax liability.
"We knew because of the IRS ruling this was coming because the payment is not related to what they paid so it's income," he said, "We still think the original proposal was strongest but, in order to get the votes, get that thing out of there, we compromised."
Hillerby said that in any event it will make little or no difference to most taxpayers because those who pay will find it costs them as little as $2 or $3 in taxes.
"And a lot of seniors make so little money they're not even required to file a tax return," Hillerby said.
In the end, he said, the important point is that people received a tax rebate from the state of Nevada.
"Some may be frustrated they have to pay a couple bucks in taxes but the bigger picture is we got a tax rebate out to the people," he added.