MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session February 23, 1995 The Committee on Taxation was called to order at 2:00 p.m., on Thursday, February 23, 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 Ms. Jeannine Stroth, Chairman Mr. Pete Ernaut, Vice Chairman Mr. Michael A. (Mike) Schneider, Vice Chairman Mr. Morse Arberry, Jr. 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: None GUEST LEGISLATORS PRESENT: Ms. Jan Evans STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst, (LCB) OTHERS PRESENT: Ms. Pat Smith, Executive Director, Sierra Arts Foundation Ms. Christine Orr, Program Director, Sierra Arts Foundation Mr. Michael Hillerby, Development, Nevada Opera Mr. Bob McGowan, Washoe County Assessor Ms. Janice Wright, Department of Taxation Mr. David Pursell, Department of Taxation Presiding Chairman Mr. Bob Price opened the meeting at 2:00 p.m. The roll call was taken. All were accounted for; a quorum was present. Chairman Price requested testimony on the first item on the agenda, A.B. 166, and recognized Assemblywoman Jan Evans. ASSEMBLY BILL 166 - Revises provisions governing exemption from taxation of property owned by certain nonprofit organizations. Assemblywoman Jan Evans from District 30 introduced herself. She stated that A.B. 166 referred to NRS 361.110 and the payment of property tax. Under current law, bona fide nonprofit organizations were exempt from taxation unless the property in question was used for purposes other than those of the organization, or was rented and valuable consideration was received. Ms. Evans stated A.B. 166 did not change that provision, but it allowed the named nonprofit organizations to assist other nonprofit groups by providing space for their not-for-profit activities. For example, if an organization such as those listed in this statute, rented to an individual or a profit-making business, the organization would continue to pay property tax on the square footage of the rented space. This bill only affected those situations where such space was rented to other tax-exempt (that is, the 501.C.3) organizations. It may be argued, Ms. Evans said, that such limitations would be of little consequence for nonprofit groups. But she cautioned that one should keep in mind that, by and large, those entities operated on very tight budgets. While the fiscal impact to the county's tax collections would be minimal, the tax savings would provide a financial boost for that nonprofit entity. Ms. Evans believed this was a modest but important measure of support for community based, nonprofit agencies. Stating that, Ms. Evans requested Patricia Smith, Executive Director of the Sierra Arts Foundation, and Christine Orr, Program Director of the Sierra Arts Foundation, to join her in testimony. She introduced them, and explained that Ms. Smith and Ms. Orr would go through the bill and explain more fully how their agency and others were affected by current law and why they were seeking this statutory change. Pat Smith and Christine Orr came forward to testify. Assemblyman Marvel asked Ms. Smith if she had any property in mind the Committee could identify with in the Reno area that qualified. Ms. Smith said the only property she could find was the Sierra Arts Foundation located in downtown Reno. She added that it did not mean it would not be of benefit to one of the other nonprofit organizations at some point in the future. She informed the Committee that Mr. Bob McGowan was present and could provide further explanation. Having answered Mr. Marvel's inquiry, the formal testimony for the Sierra Arts Foundation was presented by Christine Orr, who spoke in Ms. Smith's stead. (Ms. Smith was suffering from laryngitis.) Ms. Orr addressed the impact of A.B. 166 on the Sierra Arts Foundation and throughout Nevada (see Exhibit C). After their investigation of the bill, it appeared that it would only affect Sierra Arts Foundation. Unlike the other organizations listed in NRS 361.110, their mission was to support other nonprofit organizations, sometimes by providing meeting space to various nonprofit art organizations. The current law dictated Sierra Arts Foundation to pay property tax on the space rented. She emphasized that the Sierra Arts Foundation rented space as a service, not to make money! Further, it appeared to them that the original legislative intent was to provide a tax break to the nonprofit organizations listed in NRS 361.110 and assured the Committee that the Sierra Arts Foundation did not make money on space they rented out. She stressed that this service was one of the things done to be of assistance to nonprofit organizations, namely, the Reno Chamber Orchestra, Nevada Festival Ballet, and Very Special Arts Nevada. Ms. Orr pointed out that Washoe County Assessor Bob McGowan said the district attorney had advised him to enforce NRS 361.110. Ms. Smith had talked with Jim Slark, Deputy Clark County Assessor, and was told they were not enforcing the statute, but if they were, he did not think any Clark County organization listed in NRS 361.110 was renting space--for profit or otherwise. Ms. Smith had talked with Lila Clark of the Nevada State Department of Taxation who had done a sampling of other counties and found no other organization in their predicament. So, Ms. Orr concluded, it appeared that Sierra Arts Foundation stood alone in the need for clarification to be placed in law. Further, Carole Vilardo, President of the Nevada Taxpayers Association, saw A.B. 166 as a bill that "cleaned up" the statute so it could do what it was intended to do: exempt nonprofit organizations from property tax when those organizations were going about doing the business for which they had been established. That was what the Sierra Arts Foundation did, and that was why they asked the Committee to clarify the statute by passing A.B. 166. Further, as property tax would be out before July 1, they felt it would be appropriate to amend line 17 to read, "This act becomes effective upon passage and approval." In addition to NRS 361.110, Assemblyman Neighbors believed that two other statutes (361.157, which had to do with exempt property that was real; and 361.159, which had to do with exempt property that was used in the business conducted for profit) contained some of the language that had to do with personal property. He wondered if there was a conflict between those statutes. Each of those, 361.157 and 361.159, had some exemption. He recalled that 157 had to do with airports; 159 gave some exemptions. If someone were only requesting one exemption, would it be listed under 361.157 or 159? His concern was we taxed a lot of exempt property when it was used in business conducted for profit, and he wanted to make sure those exempt agencies were spelled out. Chairman Price requested enlightenment from Dave Pursell or Janice Wright, both from the Department of Taxation, who were present in the audience. Mr. Dave Pursell stepped forward; he identified himself as Chief of Division of Assessment Standards at the Department of Taxation. To answer Mr. Neighbors' question, he did not believe there would be conflict: 361.110 was specific to the entities that were named in that statute, while 157 and 159 were what they referred to as `possessory interest' statutes that had to do with dealings with contractors at the test site, or at Fallon Naval Air Station that were using what would otherwise be exempt because it was federal property. He did not think the proposed change to 110 would affect 157 and 159 at all. That was the main thing, Mr. Neighbors stated. He noted that 157 and 159 covered a lot of county property, too. For example, the parking at John Ascuaga's Nugget under the bridge..., other land, etc., Mr. Pursell concurred. Assemblyman Spitler did not realize the Nevada Institute of Contemporary Art paid property tax. He wondered if all other 501.3.C paid property tax with the exception of those listed in the section. Mr. Pursell responded that, if one looked at the exempt statutes, many were specific to organizations. He did remember one being named specifically; it may fall under 361.140, the exemptions of certain charitable corporations. If it was not specifically named in one of the other statutes, it could fall under 140. So, surmised Mr. Spitler, traditionally 501.3.C's were exempt from property tax. But Mr. Pursell replied he did not necessarily say that...he could not say that. Then the fiscal note, continued Mr. Spitler, was related specifically to the answers currently being discussed with the Sierra Arts Foundation...is that what the fiscal note would reflect? Mr. Pursell addressed the fiscal note that reflected $128. That fiscal note was done by appraisers at the Department canvas, the county assessors, to see if they could identify any on the tax rolls. And they could: the only one that came up was very special arts. The only way the assessor had for discovery on this was statute 361.155, which talked about exempt organizations that had a one-time filing to get the exemption. The statute further stated that it was their (the exempt organization's) responsibility to report changes (such as renting to another entity) to the county assessor. The Washoe County Department of Taxation researchers showed that the Sierra Arts Foundation was the only one in the entire state that was on the tax roll that anyone was aware of. And, continued Mr. Spitler, since he had not read the other chapters...the other sections of 361...the purpose of his question was: did this mean that one of the organizations listed in Section 1 could build a building and pull a lot of other 501.3.C's that may not be exempt and rent space to them. He asked if there was potential for a larger fiscal note, was it possible or was it improbable? Mr. Pursell replied that he supposed it was possible, but his Department was NOT seeing that...there was NO indication that was currently happening or would happen in the near future. Mr. Price mentioned there was standing room only in the Las Vegas committee meeting on nonprofit organizations and sales tax. There were two bills being listened to. The Assembly's version of the bill tied-in 501.3.C organizations, which basically said organizations that had 501.3.C exemptions would not have to do various things on the sales tax. There were a lot of organizations that testified and Mr. Price remembered that Senator Washington talked about his church. It seemed to Mr. Price that other organizations besides churches said, though they were nonprofit organizations and provided various services to the community, they had not become 501.3.C. organizations -- mostly due to the expense. How Mr. Price read this was if one of those organizations wanted to rent space, they would not apply under this bill. Mr. Price wondered if there should be other language besides the requirement of the 501.3.C. He knew there were quite a few other people in the Las Vegas Committee meeting room who had indicated they represented various organizations and who were not 501.3.C. Further, Mr. Price recalled hearing complaints about the filing cost -- the cost of the attorneys' preparing the paperwork was quite a bit more than the application fee with the federal government! So that was one of the reasons they were not 501.3.C. Mr. Price wondered if it made any difference if those entities were 501.3.C or not as long as they were legal nonprofits. Janice Wright was in Las Vegas, Mr. Price noted, and she heard some of the testimony. He hoped that perhaps Ms. Wright would shed some light on the matter. Mr. Pursell said that from the property tax aspect, 361 specifically named what the exempt entities were, and 361.140 certainly stated what a charitable organization was, so it was easy to administer if the entity should get the property tax exemption or not. But he could not answer the question on the 501.3.C., if those were the only ones that Mr. Price wanted to get the exemption under 110 or not. Obviously, Mr. Price would have to define that differently if he wanted it to apply to others. Mr. Price thanked Mr. Pursell, and requested Janice Wright to come forward. Mr. Price added that he was of the opinion that the Committee should start looking at a lot of the exemptions but, until it was done as a whole big picture, he thought as much as possible should be done to make the system currently in effect work for those people who were using it. Ms. Janice Wright with the Department of Taxation confirmed she was in attendance at the Las Vegas meeting. She thought the conflict was in the sales tax statutes in Chapter 372; the entities were specifically defined that were to be exempt from sales tax as religious, charitable, or eleemosynary, which meant charitable, essentially. Nowhere in the statutes were the definitions of what was religious, what was charitable, or what eleemosynary was; it had been the Department of Taxation's policy to examine each of the entities that applied. First of all, if they had 501.3.C that was fine; typically, they would be considered exempt if they also could demonstrate to the Department of Taxation that no part of their net earnings inured to the benefit of one individual or only a small segment of the population. Something different was done in the property tax statutes, explained Ms. Wright. The property tax statutes specifically named several organizations. Ms. Wright thought the problems in Las Vegas at the Taxation Committee meeting had to do with an entity coming forward and saying, "Wait a minute! We view ourselves as a religious organization and, because of the separation of church and state, we do not believe that we have to file for the tax exemption status for the I.R.S. under 501.3.C." It was expensive, Ms. Wright agreed, and sometimes it was a time-consuming process to file for that. The conflict was they were not required to file for 501.3.C in order to be tax exempt under the sales tax statutes. To clarify this, Ms. Wright continued, there needed to be a master definition of what was religious and what was charitable. Was it always going to be 501.3.C, or only 501.3.C? Or was it going to include several other organizations, as well? So far, the statutes did not have that definition in them for sales tax or property tax, just these listings for property tax. Mr. Price thanked Janice Wright and inquired if there were any other questions. Mr. Neighbors did not have a question, but wanted to clear the record on what he had said previously. He was talking about government-owned land that cars are parked on under the freeway, not the bridge! (He whimsically noted he wished we had more bridges; there was a need for them in Nevada.) Mr. Michael Hillerby was recognized by the Chair. Mr. Hillerby opened by saying that, as a long-time member and volunteer of Nevada Opera Association in Reno, they were very happy to support the bill. They used the space available at Sierra Arts Foundation on a fairly frequent basis for their children's chorus rehearsals on the weekends and for auditioning adult chorus education and outreach performers. Space was available to them at the price of $25. To give the Committee an idea of what that compared to, to use space in the theaters they rented for main productions, the cost was $200 a day and up! Obviously, the Nevada Opera could not afford that. If the Sierra Arts Foundation was not there, plus a few church basements, they would be hard-pressed. And, continued Mr. Hillerby, in answer to Mr. Spitler's question, one would NOT be able to get 501.3.C status if one's business was to build a building and rent out space for profit. If someone did that after getting it under another guise, they would LOSE it! SO NO ONE COULD DO THAT. The Chair thanked Mr. Hillerby and asked if anyone else would like to speak on the issue. Mr. Bob McGowan, the assessor in Washoe County, Nevada, came forward to inform they were the only county that had somebody doing that through the check the State made. Also, they called around. The only reason this was picked up was because they had been made aware of it. They felt at that time they did not have a choice: since they knew it, they HAD to do it. Right now, that was the ONLY one in the WHOLE state, hence he did not think we had to broaden it out so much. The law being discussed addressed SPECIFIC groups. And if one of those special groups rented to another, they lost part of their tax exempt status. He did not think that was the intent of the law when it was passed. He was not sure it had to be as inclusive as was being discussed. That was the main point Mr. McGowan wanted to make: there was ONLY ONE IN THE WHOLE STATE OF NEVADA after all this time. ASSEMBLYMAN JOAN LAMBERT MOVED TO AMEND AND DO PASS A.B. 166, THE AMENDMENT BEING EFFECTIVE ON PASSAGE AND APPROVAL. ASSEMBLYMEN ERNAUT AND SCHNEIDER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. There being no further business to come before the Committee, the meeting adjourned at 2:55 p.m. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation February 23, 1995 Page