MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session April 11, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, April 11, 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: Ms. 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/EXCUSED: Mr. Bob Price, Co-chairman Mr. Morse Arberry, Jr. GUEST LEGISLATORS PRESENT: Assemblyman John Carpenter STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Tom Skanky, Las Vegas Convention Authority Mr. Joe Cain, Reno-Sparks Convention Authority Mr. David Howard, Reno-Sparks Chamber of Commerce ASSEMBLY BILL 377 - exempts certain charitable organizations from responsibility of paying business tax on behalf of certain persons who participate in trade show or con- vention. Chairman Jeannine Stroth opened the hearing on A.B. 377 and asked for testimony from Assemblyman John Carpenter, sponsor of the bill. Mr. Carpenter, Assembly District 33, explained this bill is a measure to correct a problem he became aware of in the Elko area. Whether or not it is happening statewide he does not know. He pointed out during prior legislative sessions they held discussions about convention centers and how the state was going to enforce the business tax when the center put on a trade show or some type of similar activity. It was his feeling the language was put in the bill in the event the convention or trade show did not catch the small, nonprofit organizations. The Lamoille Womens Club is a group of ladies that put on the Lamoille Country Fair or Art-in-the-Park each year. His understanding is the Department of Taxation is requiring them to pay the business tax just like they would the Elko Convention Center when they had a trade show. He feels the nonprofit organizations should not have the responsibility of paying a business tax, inasmuch as most of those participating are selling crafts they have made in their own home and realize a very small profit. He relied upon the Counsel Bureau to draft this bill after telling them what the problem is but he has since been informed that Section 501 (c), which is included in the language, is not the proper terminology for a nonprofit organization. It has since been suggested that maybe the bill needs to reflect section 501-C3 of the Internal Revenue Code. If this is correct, the Legislative Counsel Bureau could make that correction. His reasoning is not to take the Elko Convention and Visitors Authority out of paying this tax, but to give the nonprofit, charitable organizations an exemption from having to pay the business tax. Ms. Lambert had two questions; first, if the school PTA has a craft sale at the school should they pay this business tax? Mr. Carpenter stated that is the interpretation he understands the Department of Taxation was promoting in the Elko area. Mrs. Lambert then asked if the Lamoille Womens Club has a 501 (c3) tax exempt status or is it just nonprofit? Mr. Carpenter stated he asked if they had a nonprofit exemption from the Internal Revenue and they said they did. He does not know whether they have a 501-C3 exemption but they have registered as a nonprofit. Mrs. Lambert stated we have many definitions of nonprofit, many of which are easier to come by than the application process for 501-C3 and they apparently are confusing to a lot of people. Mr. Manendo asked what kind of fiscal impact this would have on the budget explaining he realized this question should be directed towards the staff rather than Mr. Carpenter. Mr. Carpenter responded that when he asked for the bill draft, the Counsel Bureau sent him a form asking whether he wanted a fiscal note. He signed the form and sent it back, however, so far, there has not been a fiscal note available. Mr. Manendo interjected he is looking at what impact this would have on the budget if it becomes law, i.e., are we going to lose revenue and if so, how much? Mr. Carpenter advised he did not have any figures on that but he did not think it would be a significant amount. Mr. Neighbors stated he thinks the language he is looking for is contained in another bill but he agrees with Mr. Carpenter that Kim Morgan, the Legislative Bill Drafter can clarify that for us. A question was raised by Mrs. Brower as to whether this applies only to the business tax. That is the business tax on employees and, if so, how many employees does this group have. Mr. Carpenter replied she was right regarding the application of this business tax and pointed out the last time this tax was discussed, it was written to apply to the convention centers that do have trade shows and the exhibitors that are coming in from all over the country. He feels the business people in Las Vegas and other areas were saying, "these people can come in from out of state and do not have to pay our business tax". They were the ones who wanted some type of tax on the people who were coming in. They can either pay the $5,000 per year like the Las Vegas Convention Bureau or, as it is provided at the bottom of this bill, you could calculate the amount at $1.25 per booth. He admits it is fairly complicated, but feels Mr. Ted Zuend, our Deputy Fiscal Analyst can explain it. The reason this bill is being considered today is to get the tax dollars from people coming into the trade shows and conventions, etc. He does not know whether the convention centers actually charge these people more for the use of the booth but it was to get income into the state from the exhibitors coming in from out of state who were, in fact, not paying our business tax. Mrs. Brower pursued her line of questioning by asking when it comes to a convention is the tax actually calculated on the number of employees? Mr. Carpenter responded that is not correct and went over the formula as contained in the measure. Mrs. Brower asked what other types of groups this would apply to besides that particular type of nonprofit group. She explained she felt a fiscal note is very important on this inasmuch as once you move the impact out of the small communities you might be talking about some large organizations that may be taking advantage of the situation meant to help small groups. She feels the fiscal note would be very important on this. Mr. Marvel asked Mr. Carpenter what the Lamoille group paid in the way of tax and was advised that he was never informed as they were still trying to work the fees out with the Department of Taxation. Mr. Marvel explained his concern was related to, when you have a group like the Lamoille group with everyone contributing, who do they actually construe as who the employees are and what the tax was based on. He added he had received the same letter from the women's group, therefore, he was equally concerned with this problem. Speaking next was Mr. Tom Skanky representing the Las Vegas Convention and Visitors Authority who explained he was not speaking either for nor against this measure. Chairman Stroth asked Mr. Skanky to clarify a question the members of the committee have and that is, how the tax is paid. Do you have a choice as a convention center of paying a flat fee of $5,000 annually or a $1.25 per booth per day? He indicated that is correct. He specified they are neutral on the bill but if they can provide any assistance to the members of the committee, they are anxious to do so. He explained this bill does not affect the Las Vegas Convention Center. He has spoken with Mr. Carpenter regarding the 501-C3 provisions and this does not affect his organization. The reason it does not affect them is that they currently pay the $5,000 yearly fee so anyone using the convention center is covered under that fee. In response to a question from Ms. Stroth, he concurred that the $5,000 annual fee is the same in both the northern and southern sections of the state. Mr. Joe Cain, representing the Reno-Sparks Convention Visitors Authority, echoed Mr. Skanky's remarks. His clients have no problem with this bill and they would be happy to assist the committee if further information would be helpful. Mrs. Brower asked if the other hotels in Las Vegas and Reno that also have convention centers of their own, are paying $5,000 per year and then any nonprofit that comes in is covered under that? Mr. Skankey responded he was not familiar with that but he understands the hotels pay a business tax and if those conventioneers come into the hotel they are leasing that space from the hotel. He is not certain whether they pay the hotel the business tax or whether they pay that business tax separate. Perhaps someone from the Department of Taxation could answer that. Representing the Department of Taxation and speaking next was Ms. Janice Wright who explained, with respect to the most recent question, the answer is "yes, the hotels do pay the $5,000". We have 70 organizations in the state of Nevada which operate a convention facility. Some of those are private hotels, some are visitors and convention authorities. Of those, 17 pay $5,000 per year; those are the major ones. The other 53 chose to pay $1.25 per business; it is not calculated on a head count as business tax would be. With respect to the statements made by Mr. Carpenter, the organizations that he is trying to exempt from this bill are already exempt under Chapter 364 (A). There is a current exemption when you define "business" that already exempts those organizations. They do not have to pay if they are the nonprofit organizations that he was discussing. However, the way this bill is drafted, and what it is designed to do by the language that is provided is say only those organizations who are considered charitable and operate a convention facility are going to be exempt from paying a tax for the vendors who come from out of state to display their wares and do business. So what that means is the Department of Taxation right now uses the promoters or operators of the facility as the responsible party and they do not know from one day to the next how many vendors are coming in or going out. The promoter or operator says," that is okay, give me the information and I will do that for you", and that is why some have chosen to pay the $5,000 and some chose to pay on the $1.25 formula. If this bill were enacted, what it would do is cause the promoter or operator of the trade show facility, the convention center to not be the responsible party, then the Department of Taxation would go in and deal individually with each vendor. They would charge $1.25 per business, per day for transacting business as a vendor. That is what the language is going to do and is a little different than what Mr. Carpenter indicated his intention was. Those nonprofit entities are already exempt under NRS 364 (A), they are not defined as a business responsible for paying this tax. The Lamoille Womens Club is not responsible for paying that tax if they have an organization and people come in with arts and crafts, etc. They are not designed to have to pay the business license tax as they have no employees. Mr. Marvel reiterated his understanding is that they actually have had to pay the tax and this came from the Department of Taxation. He suggested someone from the staff is not getting the right information. Mrs. Wright concurred and volunteered to look into the matter and refund their money. She asked either Mr. Marvel or Mr. Carpenter to provide her with a copy of the letter from the Lamoille Womens Club and she will take the steps necessary to correct the problem. Mrs. Wright was then asked by Mr. Marvel for the fiscal impact in the event this bill was passed and she stated currently there would be no fiscal impact as the entities we have been talking about are already exempt. There would be no loss to the state based on what Mr. Carpenter's intentions are. However, this language does not do what the Assemblyman had in mind. There might be an impact if you were to exempt all of the people who operate a convention and visitors center and have trade shows. If they are no longer responsible, the state could miss some vendors who come in and go out unless they have an individual representative of the Department there all the time. Typically the operator of the convention and visitors center charges the vendor $l.25 a day more to rent the space that they set their booth up in, and that is how they collect the business tax. And, that is why they do not miss them because they are on the premises and can immediately collect the rent. Mrs. Lambert asked Mrs. Wright to refer to lines 3 thru 4 of the bill where Mr. Carpenter spoke about the Art in the Park having to pay the taxes. If they hold that event just once a year, that is not one or more trade shows a year. She stated she does not understand what is happening in Elko with this tax. Mrs. Wright responded that the Department of Taxation representatives in Elko may have given out some information that is not correct, however, she volunteered to look into it. Mr. Marvel asked if we really need this legislation and was advised by Mrs. Wright there is currently an exempt for nonprofits in the business tax. If you wanted to make the operators of the convention facilities exempt then you would need this legislation, but the nonprofits are currently exempt from paying the business license tax. The other thing this would do is not exempt the out of state vendors who are coming in to put on a display or selling their wares. It would just mean that the Department of Taxation could not use the services of the promoter or the person who is operating the trade show facility to help collect the tax from the vendors. So if that is the legislative intent, they would not be responsible for assisting in collecting the tax and the Department of Taxation would have to have a representative of the Department go to each of the trade shows and calculate the tax due and collect the money. That would be difficult for them to do. Mrs. Wright explained the Nevada Tax Commission was charged with the responsibility of collecting the business license tax in 1991, however, in 1993 they found problems with the trade show and convention center business and it was very difficult for the Department to administer the business license tax due to the reason she previously outlined. Therefore, they reached the compromise whereby the major organizations are currently paying the $5,000 which means they are free and clear, they are done and have no further obligation to submit any paperwork, etc. She reiterated under the current law, under Chapter 364 (A) an exemption already exists for those individual entities that Mr. Carpenter is discussing. There being no further questions or comments, Mr. Schneider suggested holding this bill in order to give Mr. Carpenter an opportunity to meet with Mrs. Wright and Mr. Marvel, find out what happened in Elko and come up with a recommendation. If there is no need for the bill there is no point in going on with the discussions. Chairman Stroth agreed adding that it would be her request that Mrs. Wright get together with Mr. Carpenter and Mr. Ted Zuend to work out a solution. It is noted the members received a copy of the explanation on A.B. 377 as prepared by Mr. Zuend. (Exhibit C) Prior to closing the hearing, Mr. David Howard, representing the Reno-Sparks Chamber of Commerce, pointed out that two years ago, the legislature dealt with a number of exemptions to the business tax and it was the general consensus at that time, that if there is no compelling reason for revising the business tax, it would be best to leave it alone. He suggested there are still two or three other bills coming along that will be asking for exemptions and it has always been the Chamber's position "no exemptions whatsoever". They do, however, understand what Messrs. Carpenter and Marvel are saying and they do support that. There was no further discussion, therefore, the hearing on A.B. 377 was closed. There being no further business, the meeting was adjourned at 1:55 p.m. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation April 11, 1995 Page