In a recent post, Michael Hart discussed a reported wave of shareholder lawsuits that may cause entrepreneurs to reconsider incorporating in Delaware. Now, he and Paul Wassgren note a new development in Nevada, another favorable state for entity formation, that could have the same effect there.

Copyright: klotz / 123RF Stock Photo
Copyright: klotz / 123RF Stock Photo

Despite the soaring summer temperatures in the deserts of Nevada, it appears that hell has finally frozen over in the Silver State.  Often perceived as a “tax-free state,” Nevada has enacted a commerce tax on businesses with Nevada-sourced income, effective July 1, 2015.  In truth, Nevada has had a Modified Business Tax in place for some time, but it was limited to certain industries such as gaming and mining.

The new commerce tax is more pervasive, and while still industry-specific, the tax applies to nearly all entities conducting business within the State of Nevada. In addition, all businesses are now required to file the Commerce Tax Return Form annually, even if there is no tax liability.  This is a sea change for the Silver State.

Finally, also effective July 1 of this year, the annual state business license application fee for Nevada corporations has more than doubled to $500, up from $200.  In light of these changes, entrepreneurs may start to reconsider the trend in favor of incorporating in Nevada.

Paul Wassgren is a partner in the firm’s Las Vegas and Los Angeles (Century City) offices, and Michael Hart is an associate in the Los Angeles (Century City) office.