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Executive Branch Audit of Business License Exemption Applications Finds Millions in Lost Revenue
Audit is first step in enforcing state business license requirements
Posted Date: 4/14/2011
FOR IMMEDIATE RELEASE
Contact: Pam duPré
(775) 684-5748
pdupre@sos.nv.gov

(Carson City, NV; April 14, 2011) – An Executive Branch audit that began in July of 2010 of business license filings in the Secretary of State’s office found that a significant number of businesses are falsely claiming they are exempt from paying the annual business license fee. Secretary of State Ross Miller requested the audit in an effort to level the playing field for the thousands of businesses that maintain good standing in Nevada.

The audit found the state will experience nearly $11 million in lost revenue in the next fiscal year ($5.4 million if the current sunset provision is enacted on June 30) due to the significant increase in the number of businesses that claim to be exempt from annual business license requirements, but in fact, don’t qualify under state statutes. The law requires any person or entity that performs a service or engages in a trade for profit to obtain an annual state business license. Home-based businesses that currently make less than $27,000 a year in net earnings are exempt from the requirements, as are a very limited number of other types of business.

After observing a significant increase in the number of exemptions claimed in the last several years, Secretary Miller asked for the Executive Branch audit.

The audit indicates a substantial increase in current practices that encourage “Title 7” entities, including corporations and LLCs, to claim the exemption. The audit reinforces the need identified by Secretary Miller to clarify existing law. In Assembly Bill 78, he is proposing to more clearly define what entities are and are not exempt from business license requirements. His proposal mirrors the regulation promulgated by the Department of Taxation when that agency issued the state business license prior to October, 2009. That regulation limited the home-based exemption to “natural persons”, who are individual proprietors, rather than the current practice, which can include corporations and other business entities.

“The audit speaks strongly to the need to pass Assembly Bill 78 which levels the playing field for all businesses and captures lost revenue that is critically needed,” Secretary Miller said in reaction to the audit. “At a time when legislators are looking at severe budget cuts and possible tax increases, it only makes sense that we clarify and enforce the laws on the books. It’s absolutely in the state’s best interests to do so.”

The Secretary of State’s office also conducted its own internal investigation of a limited number of businesses and could not detect a single instance where the identified businesses were properly claiming an exemption. The investigation found that 73% of the entities investigated were falsely claiming the business license exemption. The remainder of the entities did not responded to inquiries from investigators and will have their charters to do business in the state revoked.

The Executive Branch audit also identified the likelihood that a significant number of businesses in the state have not filed for an exemption or obtained a business license. By comparing local government business license records to the Secretary of State’s records, auditors found 22.5% of locally-licensed businesses do not have a state license, constituting another nearly $4 million in lost revenue to the state (nearly $2 million if the current sunset provision is enacted on June 30).

Secretary Miller says his office will accept the audit’s recommendations to evaluate whether it would be cost-effective to validate whether businesses claiming the exemption do in fact qualify, and to use outside resources to identify businesses not currently licensed in violation of the requirements.
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