MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session January 24, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, January 24, 1995, Chairman Bob Price presiding in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Bob Price, Chairman Mrs. Jeannine Stroth, Chairman Mr. Pete Ernaut, Vice Chairman Mr. Michael A. (Mike) Schneider, Vice Chairman Mrs. Maureen E. Brower Mrs. Joan A. Lambert Mr. Mark Manendo Mr. John W. Marvel Mr. P.M. Roy Neighbors Mr. Brian Sandoval Mr. Larry L. Spitler COMMITTEE MEMBERS ABSENT: Mr. Morse Arberry GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division, LCB OTHERS PRESENT: Ms. Mary Matheus, Budget Analyst, Legislative Counsel Bureau Ms. Carole Vilardo, Nevada Taxpayers Association Mr. Howard Barrett, Nevada Taxpayers Association Ms. Yolanda G. Gonzalez, Department of Taxation Ms. Janice A. Wright, Department of Taxation Presiding Chairman Mr. Bob Price opened the meeting at 1:30 p.m. He informed that Assemblyman Williams was no longer a member on the Taxation Committee and Mr. Morse Arberry had joined Taxation. Chairman Price introduced Ms. Carole Vilardo, President of the Nevada Taxpayers Association (N.T.A.,) along with Mr. Howard Barrett, Director of Research (N.T.A.). Ms. Vilardo provided a briefing on taxation policy issues taken by N.T.A.'s Board of Directors. She said the Taxation Committee frequently received bills that created a funding mechanism for a program or program expansion; N.T.A. often opposed the bills, most times not in opposition to what the revenue was to be used for, but for the manner in which the Taxation Committee looked at generating revenue or collecting it. Ms. Vilardo referred to a brochure that was provided (by Mr. Ted Zuend) to the Taxation Committee entitled "Tax Facts" (Exhibit C). She noted that it was used extensively throughout the State, in conjunction with a brochure N.T.A. published in 1994, "Understanding Nevada's Property Tax System" (Exhibit D). Ms. Vilardo informed that another tax brochure was being created entitled "Understanding Nevada's Business Personal Property Tax." Ms. Vilardo informed that, unless one was a member of Nevada Taxpayers Association, the brochure titled "Tax Facts" that Ms. Vilardo sent Committee members had to be reported as a gift at a $10.00 value. A letter would be sent that explained this. Assemblyman Mark Manendo emphasized he would return the brochure as he did not want to be on record as receiving any gifts from anybody. Chairman Price recognized Ms. Mary Matheus, the local government fiscal analyst with the Fiscal Division of Legislative Counsel Bureau (L.C.B.). Ms. Matheus presented a report entitled "Local Financial Reporting Total Summary" (Exhibit E). A more detailed data base at the Fiscal Division was maintained. Ms. Matheus presented a brief history, (Exhibit F), to the Committee. Assemblyman Roy Neighbors requested clarification regarding the State distributed school fund--he thought that it was no longer a fund but an account within the general fund. Ms. Matheus was unsure and would ascertain this information for Mr. Neighbors. Ms. Yolanda Gonzalez and Ms. Janice Wright from the Department of Taxation provided a brief overview of Nevada's tax base; the overview was specifically targeted to freshmen and those who had not been involved with the Tax Committee (Exhibit G ). Ms. Gonzalez and Ms. Wright would be at the joint Senate/Assembly Taxation Committee meeting on January 26, 1995 wherein a more elaborate presenation was to be made. Ms. Gonzalez stated the mission of the Department of Taxation was for administration of a consistent, equitable, and efficient tax system. The main office was located in Carson City, and there were two district offices in Reno and Las Vegas. Functionally, the Department was divided into three (3) sections: the Executive division; the Compliance division, comprised of the Revenue and Audit departments; and the Department of Assessment Standards, where the local government finance section was. Ms. Gonzalez elaborated the responsibilities and structure of each of these entities. Ms. Gonzalez provided a List of Publications, (Exhibit H), issued by the Department of Taxation; she thought the "Segregation of the Roll, Statistical Data" was particularly noteworthy. In addition to the List of Publications, three (3) publications are particularly useful tools: the "Taxable Sales and Use Statistical Report" (Exhibit I); the "Annual Report" (Exhibit J); and the "Ad Valorem Tax Rates" report (Exhibit K). Assemblyman Jeannine Stroth questioned the collection of sales tax; specifically, the dollar amount one was allowed to deduct by submitting payments on-time. Ms. Gonzalez was not sure of the exact number but would obtain it and provide the figure to her. Ms. Gonzalez stated the collection tax had changed frequently; it was designed to recognize the paperwork burden on the individual retailer. Mr. Neighbors wondered about the out-of-state use tax: was it discriminatory? For example, one could purchase big appliances out-of-state, bring them back to Nevada, and pay nothing. But small businesses with out-of-state contracts had a $100 worth of paperwork and had to pay taxes. Ms. Gonzalez explained the tax collection operated on the honor system in the State of Nevada; all retailers are required to report the tax. The same held true for out-of-state businesses. If an out-of-state business was sending salesmen to, or advertising in Nevada, or had what was called "nexis", which meant a connection in some way to the State, that retailer was required to register with the Department of Taxation. When registered, the business was put on a mailing list and received monthly or quarterly tax returns and was required to report. The collection process was done on an honor basis from the retailer. There was also a one-time "sales tax reporting form" utilized in particular instances for use tax. Hence, the use tax was designed to be a complement to the sales tax with the result being protection for Nevada businesses. Ms. Gonzalez said the design of the Nevada sales was to complement the use tax: if you paid one, you did not pay the other. Mr. Neighbors requested further clarification on the use tax as opposed to the sales tax. If a big ticket item was purchased and title changed in another county, did that particular county under the basic sales tax not receive credit; was that a separate fund that came back as SCCRT (Supplemental City/County Relief Tax) to the counties? Ms. Gonzalez explained the rate of taxation was the same, whether it was sales tax or use tax. She then elaborated on the components of the sales tax. The county percentage rate was paying a "little bit" to a lot of different places. It does not matter if the monies came from an out-of-state or in-state sale. There was no differential rate. (The revenue on the last page of the Statistical report demonstrated how percentages are allocated.) Mr. Neighbors said he was under the impression that use tax was handled differently. For example, if one left one's county to purchase and take a refrigerator, the county from where one purchased the item received the tax. However, if the store delivered the item, the county where it was delivered received the tax. Ms. Gonzalez concurred with Mr. Neighbors' example. Mr. Neighbors felt the problem was on the reporting form: many businesses did not do it correctly. Ms. Gonzalez concurred again. A perfect example, she said, was a gentleman who purchased something for delivery, but then decided to pick it up: the retailer was responsible to correct the tax rate to conjunct with the designation. Assemblyman Larry Spitler acknowledged that several people analyzed tax allotments, but questioned if there were analysts who did economic forecasting and reported trends. Ms. Gonzalez replied negatively; there was no staff. The Department of Taxation utilized a State demographer at the university from time-to-time. Mr. Spitler questioned where he would ascertain information on what was happening in, for example, Clark county, where the health and medical equipment percentages had radical, significant changes. Ms. Gonzalez said the numbers were developed so the percentage in that category would be seen; but the Taxation Department did not provide the expertise of what exactly was happening in that particular county or city. Ms. Stroth wondered if a list was developed for the use tax category. Was it one big definition at the discretion of whomever was interpreting it? Specifically, Ms. Stroth was surprised when audited, a use tax was to be paid on out-of-state restaurant magazine subscriptions. If the intent of the law was to keep one from buying products out-of-state, what publications in particular businesses were available in Nevada; what criteria was utilized to determine what a business would pay use tax on? For example, if one purchased an item through a catalog, like a "DayTimer", the average person would not think about paying a use tax. Ms. Gonzales replied that the use tax applied to anything that the sales tax would apply to, it was just a different transaction: one either paid a sales tax or a use tax. The use tax issue was addressed constantly, she said. A newsletter entitled "Nevada Tax Notes" was issued by the Taxation Department and would be provided to Ms. Stroth. Mr. Marvel pointed out that if a specific business was selling into Nevada, they should have registered with the Department of Taxation so taxes could be collected. Ms. Janice Wright agreed, and added that certain companies might not be registered if they had minimal business within the State. If the Nevada sales tax was not being collected--which would relieve the individual of the responsibility-- then the individual who was audited needed a receipt that indicated a Nevada sales tax was paid; without the proof, the use tax would be accessed. Ms. Stroth wondered if this rule applied to an individual who had a common magazine subscription like "Ladies Home Journal". According to Ms. Wright, the statute applied to gross receipts from any retailer or to the use of any item of personal property; it was not restricted to commercial businesses. The Department of Taxation was not staffed to access this tax on any individual; hence, the attention had been focused on commercial activity business where records are required to be kept. Mr. Marvel asked about Multi-State Compact: was it beneficial? Ms. Gonzalez replied that Nevada had withdrawn from the Compact because it passed a number of laws to benefit a manufacturing state and caused Nevada to lose money. Nevada would not be allowed to charge tax because the state that manufactured the product would charge theirs. Only a few states are not members, typically smaller states without a large manufacturing base because there was no incentive for those states to be members. However, a good relationship with the multi-state Tax Commission had been developed and Nevada participated in studies and exchanged information on an informal basis. Ms. Gonzalez pointed out that auditors are sent into states that had activity that might establish a "nexis." Ms. Wright mentioned that a number of out-of-state auditors on the Department of Taxation's payroll are physically located outside of Nevada. Mr. Marvel requested the combined audit program be addressed in the joint session on Thursday, January 26; Ms. Gonzalez agreed. Mr. Neighbors wondered how frequently audits are performed. Ms. Gonzalez said there was 52,000 accounts and a staff of approximately 50 auditors; therefore, audits on the same businesses are not in close frequency. Mr. Marvel asked about tax recoveries per auditor. The last number Ms. Gonzalez checked was $192,000 per auditor. Mr. Ted Zuend provided a brief of the Revenue Records Manual (Exhibit L ). The Fiscal Division had embellished a synopsis of various tax information for members of the Tax Committees. Mr. Zuend reviewed the contents of the Manual for the Committee, and addressed specific summaries that were particularly useful. There being no further business to come before the Committee, the meeting adjourned at 2:25 p.m. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary APPROVED BY: _________________________ Chairman Bob Price _________________________ Chairman Jeannine Stroth Assembly Committee on Taxation January 24, 1995 Page