MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session May 2, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, May 2, 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 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 ABSENT/EXCUSED: Mr. Morse Arberry, Jr. GUEST LEGISLATORS PRESENT: Speaker Lynn Hettrick STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Robert Allgeier, Douglas County Commissioner Mr. Robert S. Hadfield, Exec.Director Nevada Association of Counties Mr. Marv Teixeira, Mayor of Carson City/Carson County Mr. John Bartlett, Attorney General's Office, representing Taxation Dept. Mr. Larry Scott, Chief of Revenue, Department of Taxation Mr. Larry Osborne, Carson City Chamber of Commerce Ms. Mary Santina, Retailers Association of Nevada Mr. Pat Coward, Retailers Association of Nevada Mr. Bob Barengo, (AVON) Amusement and Vending Operators of Nevada Mr. Kevin Sheets, Reno Tom's Snack Sales Mr. Jim Annis, Vending Companies Ms. Kerry Schomer, Deputy Attorney General representing the Department of Taxation Chairman Stroth called the meeting to order and asked the recording secretary to call the roll. There were eleven members present and one member absent/excused. First item on the agenda was: ASSEMBLY BILL NO. 450-Clarifies provisions concerning sales tax collected for sale of tangible personal property pertaining another county. Chairman Stroth introduced Speaker Hettrick, sponsor of this bill and asked him to proceed with his testimony. Speaker Hettrick, Assembly District 39, explained this measure came out of a concern of Douglas County and some of his constituents when they purchased building materials outside of Douglas County. They were charged the tax rate of the county in which they were making the purchase even though the material was to be delivered to Douglas County. The existing law says, "the county of delivery is the county in which you must report the sale". That has a definite effect on all of the counties within the state of Nevada and has been an issue for some time. He pointed out this, in no way, affects the distribution of school or any other taxes. By passage of this measure we are asking the retailer to report the purchased items in the county in which it is delivered. There is currently no penalty in the law for not doing that. The retailer has no interest in following the law as there is no penalty and it creates a little more book work. This bill, basically, adds a penalty. He asked the members to look at an amendment he has had drafted as it significantly changes the original bill. He apologized for the late hour in getting the amendments but explained they had been working on them right up until an hour ago and we still need to do some things to adjust the language. He pointed out some of this language has a certain meaning within the Department of Taxation and a different meaning elsewhere and they want to make it clear for everyone. He suggested the committee put this bill into a subcommittee to go over amendments to make certain we get the language correct. He asked the members to look at the copies he passed out (Exhibit C) which consists of a memorandum with an attached amendment. He called attention to the section which calls for a penalty of three times the amount of the tax that should have been collected and reported or, a cap of a thousand dollars for the first and second offense. He referred to Subsection 5, wherein it says the Department may waive any penalty the first time and send out a letter that says to the retailer you should not be reporting the sales wax this way and if you do it correctly there is no problem. The point is, we are trying to get the retailers to report sales tax correctly. The law says if you deliver merchandise in a county, you have to report to which county you delivered it. The retailers are not doing that. This measure imposes a penalty for not following the law which he feels will be an impetus to do so. He volunteered to answer any questions from the committee members and suggested he would also like to serve on a subcommittee if there should be one. In response to a question by Mr. Ernaut, Speaker Hettrick explained the sales tax now is at site of where you take delivery. If you take delivery in Reno, the tax is going to go to Reno. When you buy your license plate, you pay the use tax or privilege tax or whatever the taxes are, based on county. But your sales tax is going to be where you took delivery. So if you take delivery in Reno, that is where the tax will go. Mr. Ernaut pursued his line of questioning by asking, hypothetically, perhaps someone from Gardnerville went to Reno to purchase furniture and brought a pickup to haul one of their couches home. They take delivery of one of the couches there, but the rest of the furniture is going to be delivered, where does the tax go? Speaker Hettrick interjected, if they take any part of the merchandise, in his opinion, they have taken receipt and that is the county of delivery. If they have it all delivered, the tax goes to the county in which they take receipt of the materials. Mr. Ernaut then asked, if a Douglas County Commissioner wanted to buy a car and it was very important to him that Douglas County was credited with the tax, and he asked the dealer to drive that car to Gardnerville before they give them the check, would it then be credited to Douglas County? Speaker Hettrick concurred, saying that is exactly the way it is done for an out of state purchase as well. You can purchase a car in California and have it delivered to Nevada and that is exactly what you would have. Speaker Hettrick pointed out he contacted all the counties in the surrounding area about this bill and, other than Washoe County, most of the counties do not feel it would be a significant amount of money. He has not had opposition from any of them that he is aware of. Only 2 1/4 % of the sales price is actually credited to the county of delivery so this is going to have minimal effect. Mr. Neighbors pointed out, going along with what the Speaker has indicated, the key is where the title changes. In most instances, it is not that the people who are making the sale intend to do it incorrectly but that they did not understand the form. Some of the retailers' employees just do not know they were supposed to do credit in another county. But it can be a big ticket item so he feels this is a good bill and volunteered to be a member of a subcommittee if that is the wish of the committee. Speaker Hettrick made one last point regarding this bill by stating there is a waiver for the first time someone is found doing this incorrectly. There is also a provision in subsection 6, on the first page of the bill that the Department shall provide notice to the retailers each year before January 1st. The waiver was purposely written in as we are not trying to punish anyone. We are simply saying, "if you continue to do it wrong, then we have to have some penalty. We have to have some motivation for the business people to do it right. Speaker Hettrick advised the committee members he had to leave but he would be happy to work with the committee of any subcommittee they may set up. Testifying next in support was Mr. Bob Allgeier, Chairman of the Douglas County Commission. He stated he concurs with the statements of Speaker Hetrrick and added several months ago their Contractors Association came to the Commission and brought this problem to their attention. It seems to the Douglas County Commission and to the residents of the rural counties who do come to the urban counties and purchase major equipment or material items in all fairness, something should be worked out. Many of the residents who live within the county are not familiar with the law, nor are they familiar with the specific provisions of the law and how it applies. The local Contractors Association brought to their attention there has literally been tens of thousands of dollars worth of construction material they have purchased, appliances delivered in the county on which tax revenue has been lost. He pointed out Douglas County is one of the fastest growing counties percentage-wise in Nevada creating a substantial construction industry and they feel this is a critical point to the county. The laws that were written should be enforced and that is all they are asking. If there is a punitive aspect to it, an individual who may continually, deliberately violate the laws as written will obviously not sit up and take notice unless he, himself, is somehow penalized for not paying attention in a remedial fashion and correcting an oversight insofar as the law, itself, is concerned. He pointed out he was in support of the legislation. He, personally, took the opportunity to look at a bill for about $10,000 worth of furniture that he purchased in Washoe County and he was charged Washoe County sales tax and the furniture itself was all delivered to his home in Douglas County. That sale, he believes, was reported properly to the state but the county of credit was obviously Washoe County. It was a major furniture company that operates in the Reno area. He urges support for the bill and volunteered to answer any questions. Speaking next was Mr. Robert Hadfield, Executive Director, Nevada Association of Counties. He advised the committee Speaker Hettrick had come to him early on with the proposed draft language for the bill which he did circulate to key people in the counties as this has been a concern over the years. They support the bill and the amendments that are being proposed to the bill and stand ready to work with any group to help work out any final language. This clearly should end any confusion among the retailer service people. He cited a personal circumstance wherein he was involved in the construction of a major hotel and found Douglas County was not being given credit for the revenue that should have, rightfully come to them. This is an area which the Department of Taxation has worked on throughout the years - that is 15 years ago -and this is just a little bit of fine-tuning that will help improve the whole process. Mr. Marvel stated he had a similar situation when the Valmy Power plant was being constructed. The material was all being delivered to Washoe County but being fabricated in Humboldt County but Washoe was given the credit for the material. Mr. Price asked if Mr. Hadfield would look at his copy of the bill wherein it says, "all taxes imposed upon the sale at retail in the county to which this sale pertains". The word "pertains" does not seem like a good word. He feels it should state something similar to "where the title changes or where it is delivered" but somehow when you talk about the county to which the sale "pertains" if you have two counties and the sale was made in one county and it was delivered to another county you could argue it pertains to both counties. He suggested we look at providing some other wording in that section. Mr. Hadfield volunteered that was some of the work Speaker Hettrick was referring to when he stated work was still in progression on parts of the amendments. Mr. Neighbors agreed that was a good point, inasmuch as you may have more than one county and maybe in a particular county all you have is a purchasing agent who will order something from out of state. It will come in, maybe not even go through the purchasing agent, but would be delivered directly to the job site in the other county. He reminded those present, in working with the Department of Taxation, they have a newsletter they send out and if something like this is passed, they will notify everyone of the new law. Mr. Hadfield agreed and expanded on Mr. Neighbors' suggestion by adding the Department of Taxation has been very cooperative in working with individual counties on these problems. He feels, unfortunately, if there is no penalty there needs to be an incentive for people who do not get it right the first, second, third and fourth time. The Mayor of Carson City, Marv Teixeira, advised those present his board has voted to support this measure. He elaborated on that vote by explaining Carson City is in the middle and a lot of the comments that have been made are fact. This is in the law and he is definitely in favor of keeping all the dollars in the community he represents but what is fair is fair. By the same token he feels there are some of Carson City's products going to Lyon County and some products coming in from Washoe County. He feels, basically, it all balances out but he concurs with the Speaker who is trying to put a sensitivity in the business people who have a responsibility to correct the report on the tax which they should be doing anyway. He does not see this as a real negative to Carson business community; he does not feel it will stop the sales or diminish the business trade. It may be a little more work on their behalf but it will quash the issue and make the playing field level. Mr. Spitler stated he had a constituent call and ask about paying taxes on the delivery of goods because evidently the Department of Taxation requires you to pay tax on the delivery charge. If you, however, get someone else to get it for you, there is no tax on the delivery charge. He volunteered to sit on any subcommittee to discuss this measure as it seems inconsistent in terms of the public understanding. Testifying next was Mr. John Bartlett, Senior Deputy Attorney General representing the Department of Taxation. He introduced Mr. Larry Scott, Chief of the Revenue Division at the Department. Mr. Bartlett explained he is in charge of advising the Department on how to administer this statute if it goes into effect and stated he has a couple of problems with some areas. First, the language in the amendment at the moment in Section 2, refers to property sold at retail which was delivered within the county and says, "that the sale which pertains to the county, or stored, used or otherwise consumed or delivered in the county . . . . " and then when the language defines what a sale pertains to, you use the word, "the person to whom the property is sold takes possession of the item . . ". As Assemblyman Price pointed out, that terminology "possession" really is not what is typically used. The Department is trying to determine where tangible personal property is actually sold. They will look at the place of delivery as being where the sale is finally consummated and sometimes that is determined by the intent of the parties in the contract. Many times you make a purchase and take possession right there when you buy. That is where the sale is consummated when you have taken delivery. In the context of the problem we are dealing with, there is a number of retailers in Carson City that residents of Douglas County patronize. Sometimes they have items delivered to them in Douglas County and the typical transaction would be that the sale is actually consummated upon delivery to the purchaser in Douglas County. The sale is not complete until the purchaser gets delivery of the item according to the terms of the contract and that would be in Douglas County in this instance. Apparently, some of the retailers in Carson City and other counties do not recognize that little point and just report the sale as a sale in their county regardless of where they actually deliver the merchandise and that is what this bill is addressing. If you use the term "delivery", the county of delivery is where the sale is to be reported on the Sales and Use Tax return. That would clarify the transaction for purposes of informing taxpayers of how they are supposed to report the tax under this amendment. The other thing that raised a question in his mind is what actually constitutes a violation of the act? Retailers may make hundreds of thousands of sales in any one month and they may improperly report the place of sale of only a small fraction of those transactions. Some of those transactions may be big ticket items which involves a lot of tax but does that constitute one violation where they have messed up on only one out of a thousand transactions in any particular month or does that deminimize this and we should not penalize someone for that. There is really no definition of what a violation is in that kind of context. He explained there are various ways of looking at this concept and enumerated several instances of how problems could arise through interpretation of the bill. These questions will be debated when they go out and start auditing these people. One final point in response to a question raised by Mr. Marvel, the Department of Taxation does go out and audit businesses in Nevada for the proper county of delivery and the reason is if you have a retailer in a county with a higher tax rate, and are reporting it in the low tax county, they have underreported the tax and the Tax Department will be interested in picking up the difference. Mr. Ernaut stated as a suggestion in the penalty phase of this, we may want to have a provision for "knowingly and willfully" violating this act in the event it is an accounting error or an oversight. He is not certain we want to leave this wide- open without specifying what we are trying to address. Mr. Neighbors elaborated on the audit he previously alluded to where there must have been over 200 errors; none of which were intentional. He feels the members today have brought up a good point that it has to be intentional but most of the employees just were not paying attention and pushed the wrong button. Mr. Larry Scott, Chief of Revenue Nevada Department of Taxation spoke next pointing out he has heard an array of conversation alluding to the department and what they have done in the past and to let there members know what the Department is up against. They have a publication called Nevada Tax Notes in which they do notify taxpayers concerning important tax issues. This is one issue they have historically notified taxpayers over. The problem arises when you have a retailer located back east where his main offices are and he has someone filling out the return and the clerk does not know what county is what. She puts it in the wrong spot. To avoid that, they put out a publication, it is by zip code as well as by county and everyone who registers with them receives one of those so they have no problem in determining where Imlay or Battle Mountain are. They can certainly look it up and determine what county it is in. Speaking next was Larry Osborn, Executive Vice President of the Carson City Chamber of Commerce who explained he was here to express the Chamber's opposition to this measure the way it was introduced. They also just received copies of the amendments that Speaker Hettrick has been working on and some of the amendments make this a much more palatable bill but they still have some reservations and concerns. These have been expressed to Assemblyman Hettrick but they have also volunteered to work with him and a subcommittee to try to revise these issues. The members of the Chamber understand the purpose behind this proposal and they see there can be some potential problems to some of the different counties. The thing they have a concern about is, if the incorrect reporting is being done, it is obviously not always intentional on the part of most business people in this state. He disagrees with the statement there must be a penalty before the retailer would have any interest in doing the right thing. Most retailers and business people, are good, upright citizens of the community and of the state. If there are those situations that Assemblyman Hettrick brought up, that is a willful and flagrant violation of Nevada law and there should be a penalty for someone who repeatedly or flagrantly disobeys Nevada statutes. A couple of things they are concerned about is where the bill says, "for the first or second violation in any calendar year this would carry a penalty of three times the amount of the tax due, or a thousand dollars whichever is less". The retailer, or businessman is not pocketing any money on this; it is not something where they are out to defraud the government or the tax department. What they would like to see is an amendment that said, for the first violation, it would simply carry a reprimand or a letter from the Department of Taxation informing them of the violation. As they understand the provisions of this bill, further into the bill it says the Department may waive the penalty. The problem they have with that, is it now makes the penalty discretionary and arbitrary upon the Department of Taxation. Who determines who is going to get the penalty and who is not? He suggested we try to inform the business people and the retailers they are making mistakes and how to correct it. Businesses generally have a high turn-over of sales people or even management and maybe the new manager was not aware of that particular provision. What they would like to see is the Department of Taxation, in either a monthly or quarterly billing, send a notice out to all retailers informing them of the law and reminding them if they do violate it, they must correct it and not let it happen again. If there are repeated or willful violations, that is where the penalties should come in. He pointed out they have heard people testify the provisions in this bill are going to make more work on the part of retailers by way of additional accounting procedures and, to a business person, that is an extra expense. He urged the committee to find a way to correct the problems while making certain it is done correctly and in a manner in which the law states. He urged the members to stay away from hammering the business person with a penalty for an honest error or mistake. Representing the Retail Association of Nevada was Mary Santina who stated they had similar concerns as those expressed by the Chamber of Commerce on this bill. They have also talked to Speaker Hettrick on his intentions. They find it is very similar in circumstance and consideration to a Federal case called the Bellis-Hess Case where catalogue sales are not going to the right states. They have supported that bill all along, trying to make certain that catalogue sales get to the state where the sale is actually made and the goods are delivered. She agreed with Speaker Hettrick that "willfully and knowingly" is an integral part of this legislation but there has to be a way to assist in getting the tax dollars where they should be. She thanked the committee for their interest. If the Retail Association officers can lend a hand in the process and come out with a bill that is equitable, they would like to participate. There being no further testimony, questions or comments, Chairwoman Stroth appointed Mr. Neighbors as a one-man subcommittee and asked that he work in conjunction with the Department of Taxation, Mary Santina and Mr. Osborn. Submitted as part of the record was Exhibit D prepared by Mr. Ted Zuend, Fiscal Analyst for the Legislative Council Bureau. ASSEMBLY CONCURRENT RESOLUTION NO. 17 - Directs Department of Taxation to review and revise regulations governing collection of taxes on retail sales of food prepared for immediate consumption. Chairman Stroth opened the hearing on ACR 17 by asking the first witness signed in to testify. Speaking first was Ms. Kerry Schomer, Deputy Attorney General who stated her client is the Department of Taxation. She advised they held several meetings with the vending machine industry and have written up a set of regulations on the food exemption. The regulation concerns the amount of food preparation that is involved. When the Department is satisfied that the regulations work, they plan to meet again with the vending industry. They will want to suggest some proposed language to ACR 17 at that time. Mr. Larry Scott, representing the Department of Taxation, asked to be heard and stated the Taxation Department concurs with Ms. Schomer's statement. He indicated they have met several times with the industry in an attempt to make this as simple as possible so they do not have to question the customer as to what the use of the product is going to be. They can then set up their registers and they will know immediately whether their item is taxable or not. That is the message that came through loud and clear with the industry. They do not want their clerks to be in the position of trying to determine taxability of an item and they are doing everything possible to achieve that goal. Testifying against ACR 17 was Ms. Mary Santina, Retail Association of Nevada who explained this actually came to light during the interim studies at a meeting in Elko when they first started to get involved with it. They have had round table discussions with members of all segments of the industry they could get in touch with. Some of their representatives were not able to attend but they support the Department of Taxation's position. She requested the committee to consider their amendments to this resolution. Mr. Pat Coward, representing the Nevada Grocery Association, pointed out they are echoing what Mary Santina said. They have spent considerable time with the industry representatives in working with the Department of Taxation and have come to agreement on new regulations currently in the process of being written. He feels that will be ready very soon. Mr. Robert Barrango, representing the Association of Vending Machine Operators of Nevada, stated his clients are in support of this resolution. They would like the committee and/or the Department of Taxation to have them look at some of their ideas. A lot of the food sold through the vending machine is immediately consumed and yet they must pay sales tax on it. There was a hearing on S.B. 189 of last session that addressed this same issue. At that time they were told there had been previous discussions on this. The merchandise can be consumed immediately yet what is the intention of the purchaser. Their prices continue to go up, plus they have to add the sales tax. It raises the price to the consumer which is not necessarily fair to them. He added all the machines collect sales tax but yet the foods in them are immediately consumed. He and the clients he represents would like to have that addressed as well. He asked to be included in any discussions with the Department of Taxation. Mr. Kevin Sheets spoke next representing Reno Tom's Snack Sales a local vending machine company. He reiterated some of their concerns and pointed out with the rapid growth of our state and community the vending machine industry is also a rapidly growing business enterprise and is definitely here to stay. He pointed out we have some machines in the legislative building. It is obvious these provide an excellent service for employees and the public, therefore, we should provide legislation that can make management of the business more efficient. He called attention to the language on line 10 where it talks about changes. On line 13, the key word for him is "fairness" and "fair treatment" to his industry. He pointed out his business and similar businesses in the industry pay their sales taxes and are honest about their obligation. They are taxed 7% on everything that is sold through a vending machine whether it is candy, soda pop, cold foods, prepared food ready to eat, etc. He pointed out, however, you can go into a 7-11 or any convenience store and buy a candy bar or soda pop and not pay sales tax. He feels that emphasizes the inequity of the current situation. He stated he was here when A.B. 450 was being discussed and comparing that measure with the provisions in this bill, emphasized this is a similar issue. Several weeks ago they had a National Automatic Merchandisers Association convention at the Reno-Sparks Convention Center, which is a very large convention and they discussed the changes in the industry and the problems different states are involved with. There were concerns expressed about the small businesses where they are forced to watch their nickels and dimes. He, as a businessman understands the purpose of the legislative process in trying to help the state and the community with ideas to better enhance our society. He and the other vending machine companies feel they have been unjustly over- taxed since they have been in this business. He emphasized they do not object to paying sales taxes, and he does not mind helping but he is asking for fairness and equality. He urged the committee members to look through this bill with the idea of giving his industry a shot. He added in any governmental facility whether it is a library, fire department, or police station where they have vending machines 12% off the top has to go to the Department of the Blind. He agrees with the general public that $.80 vending machine price seems quite high but it needs to be that high in order to pay their costs which includes taxes, etc. Right now he cannot get an $.80 price for a can of pop. His charge is anywhere from $.50- to $.75 for a can of pop at the most. He elaborated on the ongoing costs and asked for help from the committee as the current method of taxation has one business paying sales tax and the other business not being required to pay it for, basically, the same service. Mr. Manendo interjected he has a concern with this measure and does not feel we need to study sales tax on food. In his district his constituents are against this. He stated emphatically he would have to see what amendments are going to be brought up but as of now he would not support any study committee. He does not feel the public wants a tax on food, regardless of how much revenue can be brought in. Mr. Ernaut pointed out to Mr. Manendo and the other committee members that this provision is already on the books. We are just clarifying it. The problems they ran into was the definition of food for immediate consumption, For example, if you have a water vending machine on the outside of a supermarket the water there is not taxed. If the vending machine is inside the store, the water is taxed. So they had to have a study committee to clarify what exactly is meant by immediate consumption. He elaborated on various examples of what we are trying to clear up and, he reminded the members, this is an attempt to try to clarify it. We are putting our vendors in a position where they had to make policy decisions at the cash register and that is what they are trying to avoid. He does not feel we have much of a choice on the "immediate consumption" aspect. Mr. Price entered the discussion and explained he was here when the Legislature took the sales tax off food. At that time we had excellent help from a former legislator by the name of Darryll Tanner who gave the members forewarning about the problems we would be facing with different taxing methods. He brought up the problem of having delis in supermarkets where you can purchase items and pay a sales tax but if you purchase food items to take home within the store itself, there is no tax. They had a hard time imagining it at that time but his predictions are coming true. He concurs with the statements of Mr. Ernaut on this proposed legislation, and reminded those present several other states are going through the same problem. Mr. James Annis, owner of High Sierra Vending, testified they are a full service vending company and he shares the views expressed by the previous testimony. He added that in the real world, their competition is not with each other but with convenience stores, the"roach coaches", little espresso coffee places. Those are the real competition that the vending machine industry is currently fighting with. Mr. Spitler asked if the way this resolution is written, is it asking the Department of Taxation to make the decision or do they go back and review all this information and bring it back to the legislature to put a stamp of approval on their actions? Ms. Schomer, who spoke previously, responded by advising the Department of Taxation has been directed to draft up some regulations. They have a rough draft of those regulations and are asking this committee, after they have reached agreement, if they can come back with ideas on the legislative intent, perhaps add concepts, and add some legislative authority to the regulations. Mr. Spitler pursued that explanation by asking if they would have to bring back their regulations for approval and was advised in the negative. He then asked if all the meetings have been held in open public forum where they have discussed this issue. Ms. Schomer replied all the meetings were held at the Airport Plaza. Mr. Spitler asked, specifically, if the meetings were properly noticed so anyone such as vending machine companies, deli companies, etc., could come forward and share their ideas. Was it a publicly-noticed meeting? Responding to Mr. Spitler's question was Ms. Mary Santina who stated the meetings were held at her organization's request which did not require public notice. The vending machine companies were invited but their representatives were out of town. She volunteered to give the committee members a list of the invitee and the number of meetings they had as it was done over several meeting times. Ms. Schomer stated the legislature is requiring the Department of Taxation to try to clarify their regulations. Mr. Spitler asked if they will take the information they are receiving here and go to public meetings, put out a draft of what their interpretation is going to be and receive further comment? Ms. Schomer responded they are required by law to give 30-day public notice before they can adopt regulations. Mr. Spitler asked, once again, if the public had the opportunity to come and speak and was it done statewide? Ms. Schomer explained the Tax Commission is the body that can adopt regulations and they meet in Las Vegas and Reno, and they are required by law to have open, public hearings. Mr. Spitler pursued his questions, once again, by asking if they really needed this resolution to adopt regulations and was told, "no", however, there is so much confusion, they wanted some direction. There was a statement of legislative intent when the exemption was set up and that statement is outdated. The statement specifically says they are not exempting vending machines; the legislative intent was vending machines and caterers are specifically not exempted. Mr. Spitler suggested perhaps we should be looking at the statute rather than the resolution. Ms. Schomer said that would take a vote of the people if they wanted to make any changes in the statute. Mr. Ernaut interjected, referring to the interim study on this subject, if you look at lines 5 through 12 of the resolution, that basically was the policy statement portion. It was the prevailing feeling of the committee that the people best qualified to make the decision, because of its very technical nature, was the tax commission rather than the legislature. This decision was made from the standpoint of not having the expertise or perhaps many localized biases of what should and should not be. This is, basically, a policy-driven decision and a very technical decision. Also the Tax Commission has representation from all over the state so that was where the thought process was. They felt this was a decision that was best left in the hands of the Tax Commission and that commission serves at the pleasure of the legislature to a certain degree and the Governor, even though the legislature makes most of the provisions by which they live. In his opinion on that committee there were so many differences of opinion throughout the legislature, some not based on much expertise. It was going to exacerbate the problem. This is why it has gotten to this point in the first place. Ms. Santina explained during the interim study there were two subcommittees with Chairman Rhoads on one and Charles Garner in charge of the other. Chairman Rhoads' committee voted not to address this issue and not to have a bill draft. The other chairman voted to have a bill draft and do it as a resolution and at the time her group assured the committee they would get their people together which they did, and invited the restaurant association as well. Mr. Ernaut suggested Mr. Zuend, Deputy Fiscal Analyst, provide some information whereby Mr. Zuend concurred that Mr. Ernaut was correct in his previous statement in regard to the background of the resolution. There was a great deal of discussion in the interim committee whether to adopt this at all as the Department of Taxation has the right to amend regulations. He feels what the Department was grasping for was a little bit of legislative impetus in particular in the area of legislative intent. In the original bill, the legislative intent can be confusing and depending on whether you want to focus on immediate consumption or prepared food there are differing opinions. This, he feels, is to give the impetus for the Department to work with the industry and come up with a solution that everyone can live with. The interim committee eventually adopted this approach as a catalyst to the process itself. He submitted Exhibit E explaining this bill. Mr. Spitler explained that is the impression he gets when he looks at lines 10 through 13. He does believe that modern marketing techniques have changed in how goods for immediate consumption are much different from the way they were in 1979. He verified he has a great deal of confidence in the Department of Taxation but what he has found happens is these kinds of things pass and they do the regulation and the legislature has never approved it, they, as any other agency it would fall back on, said they had a legislative mandate to do that. And while that was true, and they did have a legislative mandate to look at it, he is not sure the mandate is to change completely when the intent probably should have been looked at again this legislative session. Ms. Schomer pointed out what she is looking for in this statement of legislative intent is to come back before this body and say, " this is what we think will work". She asked if the legislature could draft some language in the statement of legislative intent directing them in that direction. Mr. Spitler asked if she was referring to line 7 and was advised that she would change that statement. She pointed out you always strictly construe an exemption; that is nothing new. That is the way it is always done. As an example, she suggested they make a regulation that says how much handling of the food will determine whether it is taxable or not. Then she would like to come back to this committee and ask if they could amend this resolution and add language about preparation so they can have some guidance to protect them in the event of a lawsuit. The committee would not give them that language if they did not agree with it. Mr. Price, referring back to the previous discussion about the notification on the hearings, stated it did not sound like they were operating under the provisions of the open meeting law. He has been doing some research and is inclined to think that with the consideration of adoption of regulations those types of hearings should be conducted under the complete auspices of the open meeting law. Just by looking at citations under Section 241, it seems to him that any consideration should have all the proper notices of the open meeting law. He asked if they can put to rest his concerns about that. Ms. Schomer explained that at the time they had these meetings, they were not certain whether they were going to get regulations together. They were sounding out the industry but they were not in the process of writing regulations or adopting any. They did not know if they could get an agreement enough to write some. Mr. Price pursued his line of questioning by asking what type of individual was at their meetings and was advised the Chief of Revenue, Yolanda Gonzalez was at one and Ms. Schomer stated she was there. Mr. Price elaborated on his questions by explaining he was in the legislature back in 1975 when they adopted what is pretty much the current law now and the whole concept was to have the public available with all hearings open and being informed of the deliberations and decisions going on. He then read into the record from the law, referring to Section 2 under "Definitions", it says, "except as otherwise provided in this subsection, a public body means any administrative, advisory, executive or legislative body of this state or local government which expends or disperses or is supported in whole by tax revenue or which advises or makes recommendations to any entity which expends or disperses or is supported in whole by tax revenue including but not limited to any board, any commission, any committee, any subcommittee or any subsidiary thereof including any educational foundations as described in subsection 3 . . .". This enabled the public to see the process from point one to the final step. Ms. Schomer volunteered to provide that type of notice for any future hearings. Mr. Ernaut interjected his feelings about the open meeting law inasmuch as he and Mrs. Lambert were both on the committee, he does not think the meetings that we are characterizing here have taken place. Basically, this resolution gives the motivation to have the meetings that Mr. Price is describing. He feels the meetings they were having were more along the lines of `brainstorming'. If this bill does not pass, it would be a moot point and he does not feel there was any implied violation of the opening meeting law. None of these groups have the authority to take that step unless this bill passes. Ms. Lambert pointed out that state agency administrators are not under the open meeting law as they are not considered an administrative body so any agency or staff, as the law is currently written, can meet any time or as often as they wish. Mr. Neighbors explained he agreed with Mrs. Lambert. As former county manager during the staff meetings, fact finding, etc., they were not obligated to be under the open meeting law. He pointed out, even with the Department of Taxation, when you got down to the regulations themselves you had to go before the Tax Commission who certainly would provide notice of the meeting. When the final decision is made, it would have to be open. Chairman Stroth announced there did not appear to be any other representatives from agencies wishing to testify. She then appointed members to serve on a study committee with those appointees as follows: Ms. Schomer, Mr. Larry Scott, Ms. Mary Santina and Pat Coward. She asked if they would get together and report back to the committee as a whole on legislative intent for this bill. There being no further business, the meeting was adjourned at 2:45 pm. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation May 2, 1995 Page