Nevada Utilities Can Pass Tax Increase to Customers

Penny Tax
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Legislators crowed about how the record tax increase they passed July 21 protected the"little guy." But a largely unnoticed provision of the tax bill is expected to mean higher electric, phone, gas, cable and trash bills for all Nevadans.

Buried at the bottom of page 135 of SB8 is a section permitting any public utility to increase its rates for service to offset any new tax liability. The law also includes companies that have agreements with cities and counties to provide services such as cable TV and trash collection.

The utilities and companies can estimate what they'll pay in new taxes from now until Jan. 1, 2005, and can start collecting that from ratepayers over the next 16 months, according to state Consumer Advocate Tim Hay.

"The effect of the bill is to give public utilities an automatic passthrough,"Hay said."There are no provisions for how they allocate that."

Representatives for utilities and the affected companies said that even if the tax liability is passed on to customers, the impact would be minimal because those companies have such large customer bases over which to spread the impact.

Under the new law, a business'payroll will be taxed at 0.65 percent this fiscal year and 0.7 percent in the next fiscal year, less the cost of health benefits the company provides its workers.

Southwest Gas Co. spokesman Roger Buehrer said the payroll tax created by the Legislature will roughly cost his company an additional $400,000 a year.

"It's very early on and that initial estimate is based on our rough understanding of how the tax would work and how we figure the health care credit,"Buehrer said.

Using that estimate, the company's added tax liability could be about $600,000 for the period through Jan. 1, 2005.

Southwest Gas has 575,000 customers in Nevada, with roughly 473,000 of those in southern Nevada.

Buehrer said his company has not yet decided whether it will pass the estimated tax liability on to customers, but said Southwest Gas will go to the PUC for guidance.

Other companies said they were still trying to figure out what the tax means to them.

Republic Services, which provides garbage and recycling services in southern Nevada, has about 1,400 employees. But Republic has 400,000 customers over which that tax liability can be spread, according to Lee Haney of the Rogich Communications Group who serves as the company's spokeswoman.

"We're still in the process of evaluating,"Haney said."But at first glance it appears to be a fairly minimal impact when you have as many customers as we do."

Hay said the companies could bill current customers for the entire amount of the tax increase. But since the total amount won't be known until 2005, consumers may actually pay more up front and have little recourse to recoup that money 16 months from now, he warned.

Hay said he also fears a utility like Sprint could actually place all of its tax liability across its customer base, meaning someone who only has basic phone service might pay the same rate increase as a customer with cell phone, high-speed Internet or broadband services.

Sprint spokeswoman Detra Page said each of the company's divisions is separate, with basic phone service regulated by the state PUC and wireless or cellular services unregulated bu the state.

"Each of the divisions will look at the impacts separately,"Page said.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said the section of the bill in question was recommended language from Legislative Counsel Bureau attorneys to protect monopoly businesses.

"Monopolies are different,"Buckley said."They are guaranteed a reasonable rate of return."

Buckley said if utilities and companies like Republic were not able to pass the increases along, they could consider the new taxes to be a"taking"of their assets.

"Our staff felt that it had to be set up this way,"Buckley said."I would have preferred it to be done the other way, but I'm only one person."