MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session March 14, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, March 14, 1995, Chairman Stroth 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 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: Speaker Joe Dini STAFF MEMBERS PRESENT: Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Robert Seale, State Treasurer Gaylyn Spriggs, representing Rayrock Mines Bob Hadfield, NAW Henry Etchemendy, NASB Dave Horton, Committee to Restore the Constitution Dr. John Zimmerman, Self Mr. Dave Purcell, Chief, Division of Assessment Standards Carole Vilardo, Nevada Taxpayer's Association Joe Guild, Santa Fe Pacific Gold Corporation Chairman Stroth opened the hearing on A.B. No. 257 and asked Speaker Dini, as chief sponsor to begin. ASSEMBLY BILL NO. 257 - Directs issuance of Nevada Silver Gaming Tokens. Speaker Dini initiated his testimony by explaining that different versions of this bill have been `floating' around the Legislature for many years. He explained in the last session, Mr. Price and the Taxation Committee took the `coining' bill and amended it to the `gaming token' bill. He read into the record his written comments on A.B. 257 and included herein as (Exhibit C). He added this is a bill that will help our economy by providing revenue for the state. The profit comes from the difference between the cost of minting the coin and what we can sell them for which will go into the State treasury. A section was left out in the redraft and is now an amendment to the bill see (Exhibit D). Section 4 of the amendment stipulates the proposed silver gaming tokens are not legal tender and spells out how they may be used. Mr. Dini went through the amendment and volunteered to answer any questions. There being none he thanked the committee for hearing the bill and urged favorable action. Mr. Ted Zuend, Deputy Fiscal Analyst, distributed a brief summary on the provisions of A.B. 257 included herein as (Exhibit E). Speaking in opposition to A.B. 257 was State Treasurer Bob Seale who read into the record his statement with an accompanying letter from the Department of the Treasury . (Exhibit F). Mr. Price asked what would be wrong with issuing a `limited coin' edition similar to what California developed as script during their recent budgetary problems. He understands the constitutional challenge but feels this is basically the same thing as what California did. He ventured a guess that people in California have purchased that script and are holding on to it as collector's items and he is confident that would be true in Nevada as well. Mr. Seale explained the most significant difference between this proposal and California is the script was issued at face value. What we are talking about in Nevada is issuing a coin that has a value greater than its intrinsic value. In effect what California was doing was issuing an IOU. What we are talking about is a completely different issue. In California many banks have discontinued their acceptance of the state's IOU because it was no longer of any interest to them, however, he believes this is a different situation. He is not against a token that is being used for non-monetary purposes but he is concerned because this token can be used amongst multiple casinos and can be used to pay a debt or purchase other items. He pointed out in conversations with U. S. Treasurer Withrow, she indicated her department would embark on a vigorous campaign to prevent Nevada from using such a coin. Mr. Seale projected Nevada would be required to spend vast amounts of money to defend ourselves in light of the constitutional arguments, in light of the federal regulations at the IRS level and in light of some of our own regulations in the state. This bill does not address some of those issued and he feels we should provide the protection we need to make certain we are not violating any of our own regulations. It may be a little more problematic addressing some of the changes and regulations with the IRS but he volunteered to work with the committee should they desire. Ms. Brower asked about the necessity of constructing a mint in order to have the coins made. Mr. Seale explained there are any number of people who make coins and/or tokens who would contract with the state for that purpose. Hiring it done would not be a difficult situation. He has estimated the cost of making the coin would be approximately $1.50; that is, the cost of silver itself is $1.10 plus $.40 to produce the token. That is probably close to the actual cost which would be farmed out. Chairman Stroth indicated that, due to time constraints she would be temporarily closing the hearing on A.B. 257 and open hearing on A.B. 272. We would return to the remaining testimony at the conclusion of the hearing on A.B. 272. ASSEMBLY BILL NO. 272 - Abolishes use of estimates in taxing net proceeds of minerals. Addressing the committee first was Assemblyman John Marvel, chief sponsor of the bill. Mr. Marvel explained this bill was an attempt to get back to the actual payment of net proceeds of taxes. Not many people are aware of the hardships brought to our local governments particularly to the school districts, due to the method of payment we currently use; Humboldt County probably is one of the outstanding examples. They are impacted by having to pay their tax share back to a mining company that was sold and the school district had to make a refund. That method of payment probably hurt Humboldt County by $100,000 and the Humboldt County School District by $125,000 which left them hard pressed. They are a very rapidly growing community and, like southern Nevada, they are opening one school after another and have has to use the net proceeds money in their operating budget. He explained after negotiating with the mining industry, the Governor and county government it was generally agreed we return to the actual one time payment of the net proceeds. During their discussions on this bill, they have worked out a proposal with Mr. Llee Chapman from the Barrick Goldmine and Mr. Sam McMullen (Exhibit G). He added this compromise will probably rewrite the bill as he presented it, but he feels it is workable, manageable and headed in the right direction, insofar as getting back to the actual net proceeds. He asked Mr. McMullen to explain their proposal. Prior to hearing Mr. McMullen's testimony, Mr. Ernaut asked Mr. Marvel if it was not true that this bill really does not affect the mining industry. It is a local government bill. Mr. Marvel responded that it does effect them. It will affect their cash flow because with that 90% penalty provision in there they are probably going to overestimate on their taxes. This has happened in many instances and the credit is taken, but it will have an impact on cash flow by making these overestimates. It is probably more detrimental to local governments and school districts than it is to the mining companies. Mr. Ernaut reemphasized his point is that the mining industry has to pay this one way or the other. We are just delineating when they are going to pay it, not if they are going to pay it. Mr. Marvel reiterated this bill makes a better budgetary tool by getting the taxes back to the actual amount due than by estimating the way it is right now. Humboldt County estimated their net proceeds to be around $140- million in 1991-92 and when it finally came down to the moment of truth, it was down to $80-million. This meant they were shorted that much from the Distributive School account because that constitutes their local support. Mr. Ernaut advised Mr. Marvel there has been some talk that this bill was to help the mining industry. Mr. Marvel responded it was initiated solely by him; no other person or corporation has been instrumental in having this measure brought forth. Mr.Neighbors reminded the committee members that Nye County also took quite a hit on this method. He feels the two issues are that mining companies, if they underestimate, will get hit with quite a large penalty. Also, they are on the New York Stock Exchange and that would not be a very good picture to present saying, in effect, "we are going to lose a lot of money this year". If there is some way to resolve that problem, it will certainly help. Mr. McMullen, representing the Barrick GoldStrike Mine as well as the Mining Association on this issue explained the memorandum (Exhibit G) which outlines their proposal comparing the current system of payment with the suggested compromise. Basically, the mining industry wanted to be revenue neutral and have no real fiscal impact on the counties or the state. The point being they wanted to make sure it did not look like they were deferring the taxes or getting a break by this legislation. Mr. McMullen went over the memorandum on a point by point basis. The goal of the compromise worked out by all interested parties is to pay taxes on the actual amount on the year in progress as opposed to estimating the year in progress. This measure should meet all the goals, should make sure they pay all the money that they committed to and keep everything on an even keel about any real material fiscal impact on the counties or the state. Mr. Marvel asked Mr. Ted Zuend, Deputy Fiscal Analyst and asked if he had any questions or input on this proposal. Mr. Zuend distributed a synopsis of the fiscal impact of the measure, (Exhibit H) however, he volunteered to wait until all questions had been addressed as he does have several questions himself. Mr. Spitler stated he was curious as to why there is no credit given for overpayment or refunds. He pointed out (reading from the bill it says "in February, overpayments are not credited nor paid back". Mr. McMullen explained there is a credit given against the coming tax year. Mr.Marvel interjected in response to Mr. Spitler's question, that if a mine does change hands and they have made a payment, they are entitled to a refund. There have been instances where mines have closed down, or gone bankrupt, and refunds were made. It has been a terrible hardship on some of the smaller counties but it was paid. Mr. Zuend gave a brief summary of the fiscal impact of this measure and provided insight into how it will work. He suggested the committee obtain assistance in the way of information from Dave Purcell, from the Department of Taxation, as there are some variables that must be addressed prior to passage. He added he had a very brief conversation with Dave Purcell and Perry Comeaux, Budget Director and they both have some questions on the provisions in this measure. Mr. McMullen agreed we need further work on this and offered to work with the individuals involved to write up a compromise. There were no further questions for Messrs. Marvel and McMullen. Speaking next was Mr. Dave Purcell, Chief of the Division of Assessment Standards, the Department of Taxation. He responded to several questions that have been asked during this hearing. Mr. Marvel asked if the bill, as drafted, would present any administrative problems to his department and was advised it would not. Mr. Zuend pointed out one issue missing in the statute now is there is no specific time frame for making payments to local governments except on the final reconciliation payment due August 1. In fact it is silent on the original estimated payment. As a matter of routine, the Department has been making payments to local governments at the same time it collects state payments. The statutes are written for the state to pay the local share within 30 days after the state receives these payments as well. The cash flow for locals is consistent with the cash flow to the state and that is not currently addressed in the statute. Ms. Gaylynn Spriggs, representing Rayrock Mines spoke next in support of A.B. 272. The Rayrock Mines are in Humboldt County and their purpose in supporting this legislation is to help the school districts and the counties. She feels this measure would provide the necessary relief, as you would be paying taxes on actual taxable proceeds rather than estimates. That would eliminate the final `truing up' unless, of course, you failed an audit. The counties will be able to count on keeping the revenue rather than having to return it at a later day. She testified this measure does not make any difference to the mining companies, but their support is an act of cooperation with the counties. Representing the Nevada Association of Counties was Mr. Bob Hadfield, Executive Director, who urged favorable action on A.B. 272. He pointed out that the net proceeds of mines is a major source of revenue for county government as well as school districts. However it has been a very contentious problem for counties since the change in the law when the state was able to generate a little additional revenue. The proposed changes in the amendments corrects some serious problems in the system whereby they would be subject to what he called a "double estimating" process. The Nevada Association of Counties supports the proposed changes and would like to help work out any additional corrections or additions that may be required. He added some estimates of the proceeds over the years have varied rather frequently to the tune of $300-thousand to $400-thousand per year. Of that amount, the school districts typically get 55 to 65% of that hit. The NAC is in favor of any change that would assist in eliminating that. As was stated by Mr.Zuend and Mr. Neighbors, this bill will not take care of the problem of estimating for budget purposes but that is a common problem we all have. The mining industry and local governments work very well together and this can help eliminate a contentious problem they have had to deal with. He urged the committee to make changes to the collection estimating process for net proceeds of mines and urges the committee to establish a subcommittee to work out the fine details. Speaking in behalf of the Nevada Association of School Boards was Mr. Henry Etchemendy, Executive Director who pointed out they would like to thank Mr. Marvel for bringing this issue forward by providing a vehicle that will eventually resolve the problems and issues that are before us. The school districts problems have already been discussed, however, there have been several cases where the school districts have had to repay substantial amounts of money in the following fiscal year because of these estimates going awry, and that hurts. There has also been another problem wherein the estimates have not been high enough and in the fiscal year, beyond the fiscal year where the net proceeds were earned, they were actually paid as kind of a lump sum or bonus; that is, unexpected money. What has happened in a couple of cases is that all of a sudden here is all this new money in one year and in employee negotiations it is gone. It is spent and the problem then is this becomes an ongoing commitment in those budgets that you are going to have to meet year to year after that. He volunteered to provide any information with respect to the necessary amendments and asked to see those amendments as they are being developed. He advised the committee there are half a dozen school district superintendents around the state who are very familiar with this process and can give valuable input as this is being developed. Ms. Carole Vilardo, Nevada Taxpayers Association was next stating she feels the committee has heard most of the compelling reasons why her group supports this bill. It takes care of one-half of the estimating problem and that is the payment of revenues. It has been the opinion of the Taxpayers Associations' we should not prospectively collect taxes as it compounds future problems. Therefore, she urged the committee to favorably consider and pass the bill with the proposed amendment. In support of the bill was Mr. Joe Guild representing the Santa Fe Pacific Gold Corporation, who stated his company first became aware of this problem in 1993. They pledged to the county officials with whom they were dealing to help them solve this problem. As a Nevada company and the largest single employer in Humboldt County they know this problem is out there. They applaud Assemblyman Marvel's efforts to solve that problem as well as all the parties testifying today. He feels once the amendments come forward, the committee members will be able to see how A.B. 272 will be changed for the better. There being no further testimony or questions, Chairman Stroth appointed a subcommittee to handle the details of the amendments. The chairman to be Mr. Marvel working with Mr. Neighbors. She asked for the cooperation and assistance from several members in the audience to work with the subcommittee. The hearing was reopened on A. B.257 regarding the silver token proposal with Chairman Stroth requesting testimony by Mr. David Horton representing the Committee to Restore the Constitution. He explained he feels some of the confusion that has been represented by the opposition should be reviewed from a little different perspective. He explained he has previously spoken with Mr. Seale asking him specifically if he opposed the Nevada silver token bill and was told "no"; he now says he has changed his mind. Mr. Horton suggested we review some of the problems that are concerning Mr. Seale as he does not feel they are really substantial. Mr. Arberry interjected his concern on this measure is what is the state going to gain. Is the state going to make any money and if so, where. Mr Horton responded in the affirmative and gave a rather detailed explanation on the merits of this proposed silver token emphasizing this proposal is something with which the state can make a profit. For example, the difference between the $1.40 or $1.50 figure to manufacture the token and the price you sell it for is a legitimate source of non-tax government revenue. This is very attractive insofar as a revenue source is concerned and the fact it involves the state of Nevada in protecting against a form of intrusion that has developed recently into Nevada casinos. He suggested we all remember when you could take a casino chip in any community in Nevada and use it throughout the businesses there. You could buy a beer with it, get a haircut or whatever and there is nothing intrinsically immoral or unlawful about that. But there has since developed regulations between the Gaming Control Board and people who want to restrict what a private corporation can do with a gaming token and this is no longer the case. Mr. Arberry, once again, brought up his question as to who would be buying these coins; the average person might buy several, but only the casinos would be in a position to purchase large amounts and, as he understands it, the casinos are against it. Mr. Horton feels you should look at the proposal from the standpoint that we will be making money on it, as well as publicizing the state not only as the silver State but a gaming Mecca. Additionally, you would be giving tourists a choice when they decide to take money home to depart with whatever is left in their pocketbooks in the form of having a $5.00 federal reserve note or have a $5.00 Nevada silver token. He anticipates these tokens eventually becoming a collector's item. In addressing the issue of opposition of the gaming industry, he explained the proponents of this idea were working with the gaming lobbyists last session and when this identical bill passed two to one they had no objection to it. If there has been something since then or if they are thinking about the legal tender aspects of it, which is not involved in the silver token bill, we need to get into that and find out what the basis of their objection is. We are talking about a Nevada silver token and not a Nevada silver coin. The casinos' participation would indeed be voluntary, however, they have a little inducement in the $.25 discount per token. For every one of these coins they succeed in getting a tourist to take out of town they get a couple of things: they get the $.25 credit on their gaming license fees and, in addition to that, because the State has just made $3.25 cents on that one transaction, they provide about 40% of the state revenue. By generating a new form of non-tax revenue, the demand for increasing the casinos' taxes, or the demand on their facilities to provide revenue for the state is lessened. Mr. Arberry questioned who was going to pay for this. He felt it is a risky proposition and he does not see anything concrete or tangible. He wanted to see some proof and an explanation of who was going to pay for 50,000 or so of these coins to be printed up. Is the state going to have to pay for this and wait for someone to come in and buy them. Mr. Horton explained that one of the versions of the silver token bill provided for the treasurer to accept advance subscriptions, however, it was left out of the bill. When discussing the bill with the former State Purchasing Director, Terry Sullivan, he indicated there were sufficient funds in state purchasing to start it. This is what would be necessary to get it started and you do not necessarily strike a lot of them until you see what is needed. Some people feel this would be very popular due to t he small amount of silver used in the token. To demonstrate the appearance of such a coin, Mr. Horton passed around two coins for the committee's perusal; one demonstrated coin is known as the "Maui" coin. He explained it is important the amendment distributed to the members expressly provides this is not legal tender and it would not be legal tender unless it was expressly made legal tender. Legal tender is a form of compulsion. The reason a $5.00 bill can be used to pay a debt even though the recipient of it might not like federal reserve notes is because it is legal tender. The proposed Nevada silver five dollar toke is not legal tender and its employment by the gaming industry would be entirely voluntary. Next question from the committee came from Mr. Spitler who asked if there was any write-up on the "Maui" coin distributed by Mr.Horton. It says on the back, "good for one dollar in trade from participating merchants", which seems like a coupon and he wondered why they do this. Mr. Horton responded that it is similar to what he has seen done in a number of communities, some of which have been done by Chambers of Commerce and they are changed every year. Mr. Spitler then asked Mr. Horton to respond to Mr. Seals's testimony where he said one or more licensees might attempt to purchase a sufficient number of tokens so as to eliminate their own license fee obligations and then dump such universal tokens on another casino, redeeming them for the full $5.00 state enforced value. He asked for a response on that possibility. Mr. Horton explained a lot would depend on how the casinos go about doing it. If you were running a casino and another casino was trying to run that proposal on you, he would have to come into your casino and play your tables. Mr. Spitler pursued that line of questioning by stating if he owned two casinos he could do that to himself. Mr. Horton commented that supposition is covered in the amendment, (Exhibit D, above) in the new section 4, "the State Treasurer shall accept Nevada silver gaming tokens in payment of any taxes, dues or fees at the $5.00 face value except that tokens given in payment by a person who purchased them pursuant to section 3, that would be a licensee, must be accepted at face value of $4.75". That is so the licensees would not be able to manipulate them by buying them for the value of $4.75 and redeeming them in payment of taxes at $5.00. Last session Mr. Horton spoke with both Senator Sue Lowden and Assembly Speaker Joe Dini on how they felt this token would be received in Nevada. He was advised by both individuals it would be beneficial both from a large casino standpoint as well as a smaller one. Questions were brought up by various members of the committee all of which were discussed at length with responses by Mr. Horton. Questions were raised by Assemblymen Sandoval, Schneider and Manendo. Testifying next was Mr. Bill Bible, Chairman of the State Gaming Control Board who explained the current practice, under Regulation 12, deals with chips and tokens. It is a comprehensive set of regulations that specify inscriptions, what has to be on the tokens, size and dimensions, where they can and cannot be used. The regulations were codified and adopted in totality in 1987. The Board the Commission and the Department of the Treasury worked in concert on those particular regulations. He briefed the members on provisions within the regulations and, in particular, how the subject of tokens are handled. He added there is not a big demand for $5.00 slot machines, which is what this measure calls for, but if there were such a need, it would be at the $1.00 level. He informed the committee he had discussions probably two or three years ago with officials from the Department of the Treasury to see how they view this issue if we expanded the idea of issuing tokens into restricted areas and they indicated they would take a fairly dim view of that. He was surprised, however, to find a an official in the Bureau of Mint, Department of Treasury that understood all the nuances of Regulation 12, monitored activities in the state of Nevada and is as conversant as anyone in the state of Nevada with our regulations in terms of token and chip issues. He was very surprised to find that level of knowledge and sophistication of our gaming regulations. If the purpose of the bill is to set up a challenge with the Federal Government over the right for coinage he would be concerned. The Treasury Department expressed a similar concern that this might invite further intervention into the token areas causing the government to revisit some of the agreements we have made in the past in terms of use of tokens. He does not think that would be to the state's advantage. He understands the economics of the bill and how the bill would work but he does have some very serious reservations about the viewpoint the Federal government would take. He pointed out our the State Treasurer distributed written documentation he had received including an unsigned letter from the U. S. Treasurer indicating the reservations she would have. He suspects if we implement a program like this, if the token were used widespread as tender throughout the casinos and was used interchangeably amongst the casinos the federal reaction would be fairly swift. A question was posed Mr. Ernaut as to what the procedure would be by Gaming Control if this measure would pass, i.e., what would his agency have to do. Mr. Bible replied if this is deemed a token he assumed the same regulations that applied to tokens prohibiting them to use in certain areas would apply. He detailed some of the mechanical areas accruing to the state if this were to pass, and suggested, if the committee were serious about pursuing A.B. 257, they should provide more detail as to who will make the tokens, the types of controls you will have insofar as the manufacturing aspect, type of tokens you will have, amount of tokens that can be manufactured, etc. The bill as written provides no specification as to who does what. For example, who does the minting? Does the state do it? The state has struck coins in the past at the old mint and coins for the State museum but he does not have any idea what the capabilities of that press are. He summed up his testimony by explaining he would also like to know how the token will be used; the bill currently does not specify that. Is it is going to be used as legal tender, used to redeem gaming debts, only be used for gaming purposes, can you use it in restaurants , etc. He understands there is a potential amendment which will allow you to pay your tax bills with it. There needs to be much more detail in the bill before serious consideration is given. Chairman Stroth invited further testimony on this bill. There being none, she declared the hearing on A.B. 257 closed with no action being taken at this time. She asked Mr. Ernaut to introduce several bill draft requests for the committee's consideration. Mr. Ernaut submitted each BDR and read the summary to each. BDR 1-1744 APPROVED FOR COMMITTEE INTRODUCTION UPON MOTION BY MR. SPITLER, SECONDED BY MR PRICE AND CARRIED UNANIMOUSLY. BDR 32-707 APPROVED FOR COMMITTEE INTRODUCTION UPON MOTION BY MR. SPITLER, SECONDED BY MR. PRICE, AND CARRIED UNANIMOUSLY. BDR 32-1197 MOTION FOR COMMITTEE INTRODUCTION MADE BY MR. PRICE, SECONDED BY MS. STROTH. MOTION FAILED WITH MS. LAMBERT, AND MESSRS. MARVEL AND ERNAUT VOTING NO. A MOTION WAS MADE TO REQUEST A BDR FOR COMMITTEE INTRODUCTION REVISING THE FEES AND COMMISSIONS PAID FOR THE SERVING OF PAPERS BY THE SHERIFFS. MOTION MADE BY MR. SPITLER, SECONDED BY MS. BROWER AND CARRIED UNANIMOUSLY. There being no further business to come before the committee, the meeting was adjourned. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation March 14, 1995 Page