MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session May 25, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Thursday, May 25, 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. 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 EXCUSED: Mr. Pete Ernaut, Vice Chairman GUEST LEGISLATORS PRESENT: Mr. Max Bennett Mr. Lynn Hettrick STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Warren Hardy, City of North Las Vegas Ms. Carole Vilardo, President of Nevada Taxpayers Association OTHERS PRESENT, CONT. Mr. Michael Pitlock, Executive Director, Department of Taxation Mr. Henry "Hank" Etchemendy, Nevada Association of School Boards Ms. Barbara G. Byington, Douglas County Assessor Mr. John Cooper, Allied Petroleum Company Mr. John Sande, Western States Petroleum Association Mr. Daryl E. Capurro, Director, Nevada Motor Transport Association Mr. Tom Stephens, Director, Department of Transportation Mr. Peter D. Kruger, State Executive, Nevada Petroleum Marketers Association Mr. John Moore, President of Moore Marketing & Consulting Group, Inc., (representing ARCO Petroleum) Ms. Donna Wadey-Howell, Department of Motor Vehicles & Public Safety Chairman Bob Price began the meeting by requesting the Committee Secretary to roll call; a quorum was present. From the published agenda, Mr. Price announced a workshop on various bills. In an effort to assist a person who had proposed an amendment to a bill not listed on the agenda, Mr. Price invited Mr. Warren Hardy to testify. Mr. Warren Hardy, city of north Las Vegas, spoke on bonding; specifically, an amendment to Senate Bill 104 (not on the assembly agenda for discussion). He wanted to make some technical changes. The Department of Taxation pointed out the changes did not do exactly what he wanted them to do. His bond council had met with Janice Wright (Department of Taxation) and they crafted some new amendments (Exhibit C). Those amendments took care of the concerns they had. Also, he met with Ms. Carole Vilardo, President of the Nevada Taxpayers Association. He thought everyone was in agreement. The amendment set up the north Las Vegas library district the same way other library districts in the state of Nevada were set up in terms of bonding ability, i.e., going to the vote of the people, etc. SENATE BILL 104 - Revises provisions governing financial administration of municipal library district of City of Las Vegas. ASSEMBLYMAN JOHN MARVEL MOVED TO AMEND AND DO PASS S.B. 104. ASSEMBLYMEN MAUREEN BROWER AND MARK MANENDO SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ****** Mr. Max Bennett, Assembly District 14, requested to make a presentation and was recognized by Chairman Price. He proposed we amend Assembly Bill 154 by deleting the requirement to exempt all non-high school graduates, as it was written. This would cut the fiscal note by a factor of nine. In addition, Mr. Bennett was unsure of where it needed to be in the bill, but it needed to stipulate this exemption could not be taken for more than two years for any individual employee. Mr. Bennett's memorandum appears as (Exhibit D). ASSEMBLY BILL 154 - Provides for exclusion of disadvantaged employees when calculating amount of business tax due. Assemblyman Maureen Brower asked what EXACTLY the fiscal note would change to; she knew it had been sizable. Mr. Michael Pitlock, Executive Director, Department of Taxation stepped forth to speak. With the amendment to the bill, the fiscal impact was approximately $1.1 million per year. The original fiscal note was in excess of $13 million. This also did not take into consideration the money saved so the state of Nevada would not be paying out, Mr. Bennett asserted. If it passed the Taxation Committee, Mr. Bennett advised the bill would go to Ways and Means (to be "battled out again.") Assemblywoman Lambert was perplexed. The fiscal note she had showed $1.1 million in lost revenue. She did not have a $13 million fiscal note. But she was able to clarify the confusion quickly and was then in concert with Mr. Bennett. Co-Chairman Jeannine Stroth wondered if A.B. 154 would be better if it were a companion bill with Assemblyman Arberry's bill, which was heard on May 24 in Education. Then it would limit it to the people who Mr. Bennett was attempting to target, the 18-25 age group who had not graduated from high school in order to get them into construction trades, etc. Mr. Bennett said his "ego was not that big." He did not care whose name was on the bill. He was willing to work it out with Mr. Arberry. Assemblyman Morse Arberry suggested it would be easier for Mr. Bennett and himself to get together, see if they could strike a medium ground with both of the bills, and then come back to the Committee. That being decided, there was no action taken on A.B. 154. Next on the agenda for discussion was Assembly Bill 375. ASSEMBLY BILL 375 - Coordinates dates upon which certain taxes and fees are due. This bill was requested by Assemblyman John Carpenter, who was not present. Mr. Ted Zuend, Deputy Fiscal Analyst, addressed the amendments he had "roughed" out (Exhibit E), which were intended to give the Taxation Committee something to consider, but were not how the Legislative Counsel would draft the changes. Mr. Zuend elaborated upon his memorandum (Exhibit E). Co-Chairman Jeannine Stroth had spoken with Assemblyman Carpenter, who had consulted the county treasurer of Elko. While that gentlemen had been opposed to A.B. 375 as originally written, he was not opposed to the bill as it was proposed to be amended. In fact, he said it would be a great help to their school district funding to have the dates changed. ASSEMBLYMAN MICHAEL SCHNEIDER MOVED TO AMEND AND DO PASS A.B. 375. ASSEMBLYMAN JOAN LAMBERT SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ****** Assembly Bill 377 was scheduled for discussion next. ASSEMBLY BILL 377 - Exempts certain charitable organizations from responsibility of paying business tax on behalf of certain persons who participate in trade show or convention. Assemblyman John Marvel inquired if Mrs. Wright and the Department of Taxation had a chance to look at A.B. 377. Mr. Ted Zuend tried to explain the proposed amendment (Exhibit F). Basically, it did what Assemblyman Carpenter wanted it to do, except it limited it to only those organizations that held one or two trade shows or conventions during the course of the year. He stressed (Exhibit F) was his draft, and perhaps would not be the way Bill Drafting would do it. Mr. Marvel had no problem with the Lamoille Women's Club being exempt. But vendors from all over the United States might be able to escape the tax consequences: that was his concern. Mr. Zuend explained it would not exempt the vendors. He believed the Department of Taxation would be trying to collect the sales tax at the same time; hence, each vendor could be approached for the amount of the business license tax. Speaking next was Mr. Pitlock, who thought the concerns the Department of Taxation had were expressed earlier when A.B. 377 was first heard. He definitely viewed the proposed amendments as an improvement, particularly the notification section, plus limiting it to organizations who had fewer than two such shows. There were situations where major vendors from outside the state came in to participate in the shows and made significant amounts of sales in Nevada. "Was the mining expo. in Elko collected from?" asked Mr. Marvel. "That is a big convention!" Mr. Pitlock replied affirmatively. Assemblyman Joan Lambert stated she was on the subcommittee last session that worked on the language. It had been a real problem and quite confusing. The formula had been simplified: it was now just a $1.25 per day. However, there had been concern about the difficulty vendors had in paying for the tax, which was why the facility was paying. She questioned if anyone had checked with any facility. Convention and trade shows, for a large part of Nevada, could be called our "bread and butter." It was economic development. She would hate to do something this session to undo something that was fixed last session. She suggested we ensure the amendment would not have a chilling effect by having the vendors pay again. Ms. Stroth believed we were trying to address the non-convention facilities in A.B. 377. It was not supposed to change what was being done in the convention facilities. It was not intended to have any impact on those who were already paying the current fee for the year. Mr. Marvel returned to the Woman's Club issue, insisting they had a structured park and major vendors from all over the western United States went there. He thought Mr. Carpenter desired to exempt just the Woman's Club. Then Mr. Marvel realized there were all "these majors coming in and, evidently, they did not want to act as the collecting agent. And if the Department of Taxation were given enough notice, they could have someone there to enforce the collections." Mr. Pitlock again indicated the amendments were an improvement over the initial version. But he did not want the bill to be interpreted to apply to major convention authorities. Most conventions Chairman Price had attended had been comprised of very few of the out-of-state vendors who were classified charitable. They were mostly people who actually made a business going around from site to site. A.B. 377 would only exempt the vendors who were classified charitable. Mr. Pitlock clarified that A.B. 377 would not eliminate the tax liability for the vendor who came in; it had to do with the organization that was hosting the trade show. Currently, they were used as a collection agent on behalf of the Department of Taxation, as opposed to directly collecting from the vendor. Therefore, A.B. 377 would not relieve any tax liability to the vendors themselves. It would change the method of collection for certain entities holding a trade show. Mrs. Lambert did not want to seem unsympathetic to the Lamoille Woman's Club, and she did not want to offend anyone (e.g., Mr. Marvel), but she thought perhaps it would be easier for the Club to charge $11.25 for a booth, instead of $10.00, and pay the tax. Then they would be collecting it like every other convention facility throughout the state. Mr. Marvel asked Mr. Pitlock if there were a mechanism in place where sales tax could be collected from "these people." He inquired if they were licensed to do business in Nevada, or if they were just "sort of boot-legging?" "Some may be licensed to do business in Nevada," Mr. Pitlock responded, "but there were others who may not be." The Department of Taxation routinely eyed the major trade shows to ensure the sales tax was being collected. Assemblyman Maureen Brower wanted to know, since we had currently limited A.B. 377 to 501.C.3's, if it was certain the Lamoille Woman's Club was a 501.C.3. Chairman Price was not positive, but explained a 501.C would be charitable -- C.3 was any non-profit. Mr. Pitlock interjected at that point, saying just because an entity qualified under the section did not mean they filed under that section; hence, Ms. Brower's question was very valid. Even though the Club qualified, they may not actually be registered under 501.C.3. No action was taken on A.B. 377 and the Chair turned the focus to the next bill on the agenda for discussion. ASSEMBLY BILL 414 - Requires school districts to cover excess of tax rate to repay school bonds. Assemblyman Roy Neighbors informed the Committee A.B. 414 required the schools -- under certain circumstances -- be required to buy-down other entities in the event the bond issue went over a certain limit. For example, in his county, they had a school bond issue passed and, by the time the bond was sold and debt service rate was set to pay it off, it exceeded the $3.64 limit. The county had to buy them down. The intent of A.B. 414 was to make the school district the same as other entities. There was clarification required, Mr. Neighbors continued, and he asked Mr. Zuend to explain (Exhibit G). Mr. Zuend informed the Committee of the intent to the proposed amendment to A.B. 414. The amendment attempted to clarify the full burden of any overage -- excess tax above the $3.64 limit -- would not fall on the shoulders of the school district and the Department of Taxation was to take into consideration what had happened with other local governments, as well, that have caused a rate to over an amount. It would only apply if the increase was directly attributable to the additional levy, not if it just happened to be a debt rate. The overage would have to be directly attributable to the levy approved by the voters. The way A.B. 414 was originally drafted, the timing (and maybe this is what Mr. Etchemendy would object to) came after the certification of the rate or the approval of the final budgets. So it actually occurred prior to the meeting of the local governments to determine whether they could adjust their tax rates to bring it under the $3.64 limit. He noted in the original bill, the language in NRS 361.455 was moved into a new section and the remaining sections, which had to do with the board of county commissioners calling together the local governing bodies to try to get the combined rate within the statutory limit, came after this action. Mr. Henry Etchemendy from the Nevada Association of School Boards had testified quite a bit at the original hearing on A.B. 414. He was confident the problems had been corrected when Mr. Zuend provided the amendment. Initially, he had been concerned because "school district" was all over the amendment and it appeared as though the schools were going to be bearing the brunt of anything that happened -- no matter who caused it! However, after he reread the amendment and spoke to people involved with the cities and counties, and had talked with Ms. Vilardo, Mr. Etchemendy was more confident. As well, he listened to Mr. Zuend's comments wherein he referred to the allocation of a buy-down in the proportionate amount the school bond issue may have caused the buy-down to be necessary. In the rewrite, that was accomplished. As long as that was the intent of A.B. 414 and that was the way it was drafted, Mr. Etchemendy felt the bill was appropriate as amended. Ms. Carole Vilardo, President of Nevada Taxpayers Association, spoke next. The reason A.B. 414 was required was because school districts were held harmless with the changes made under 1981 tax shift. Special law had to be created to White Pine county last session and, because of changes in general, it was felt it needed to be part of permanent law. She suggested the minutes be verbatim as to the absolute intent of A.B. 414 for full clarity so there would be no misunderstanding the interpretation later on. She requested Ms. Lambert to address specifically what had turned out to be a very important need for the bill. Ms. Lambert talked about White Pine county needing extra tax dollars levied. There would be some tax override. It would take some of the entities in White Pine county over the $3.64 cap and there would have to be a buy-down. There would be special legislation, like they had last session, to allow that to happen, or have A.B. 414 in place. But Ms. Lambert just saw pay-as-you-go; she did not see if they had a bond issue to take it over, and was not sure if we were covering any kind of legislative authorized over-ride in this. Mr. Zuend pointed out the second line of the amendment said "or the issuance of bonds to be repaid by a levy of taxes ad valorem throughout the district." This differentiated school districts from all the rest of local governments. All local governments were always in the mix. The school district was only brought into the mix if it took some action either through the levy of debt, or through a pay-as-you- go levy that created a situation where the rate went over the $3.64 directly attributable to that government. "And this language would allow maybe 27 cents of an override the legislature would cover?" inquired Ms. Lambert. "Yes, that is the way I would interpret it," responded Mr. Zuend. "Maybe Mr. Pitlock has different comments on it." Mr. Pitlock echoed what Ms. Lambert asserted: we definitely needed either A.B. 414 or something specific to White Pine county. He believed the language included in the amendment should cover the specific situation being faced in White Pine county; however, he thought he would be more comfortable if, in addition to the pay-as-you-go reference and the issuance of bonds, (it read) "or other debt" . . . because there was a situation in White Pine county where there was a specific debt of $2.8 million that was not a bond issue, but was definitely contributing to the situation. The debt service on that $2.8 million was part of what was driving the need for additional taxes in that area. To be perfectly on the safe side, Mr. Pitlock requested even more generic language be added in terms of "or other debt" to be clear so the repayment of the $2.8 million could be covered. Mr. Neighbors referred to paragraph 3.(a) of A.B. 414. "Reduce for the fiscal year the amount levied pursuant to NRS 387.3285 or 387.3287, or both, if the proceeds of the levy are not already committed for debt service . . ." Mr. Neighbors was concerned about the phrase "for the fiscal year," because there had been school bond issues that ran one district over the limit for about four years in a row. "Was it just a one-shot deal? Or was it for each year where you would look to see what portion of the school debt..." Mr. Pitlock interjected, saying, "I would interpret this would be done on a yearly basis. You would look at each specific year to determine what was contributing to the tax rate, because the debt service can fluctuate over time." "That is true," agreed Mr. Neighbors. "In other words, it would be a balancing act at that time based on the existing debt on the last school bond issue." ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS A.B. 414. ASSEMBLYMAN LAMBERT SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** The amendment was to include Mr. Pitlock's suggestion. Chairman Price decided to take up Assembly Bill 416. ASSEMBLY BILL 416 - Revises provisions for tax assessment and depreciation of sites designated as historic. Ms. Carole Vilardo referred to an advertisement for a home in Douglas County; the home was going to sell for $289K (Exhibit H). One of the selling features of the home was the property tax would be $359. That was quite an eye-opener! (The assessor from Douglas County, Barbara Byington, was present; Ms. Vilardo thought it would be appropriate for her come forward to testify.) Carrying on, Ms. Vilardo called around to see how that could happen and the first phone call was to the real estate agent to see if it were true; she thought maybe it was a misprint! It was not! What it involved was the fact that on most historic properties, it already went down to full depreciation and then wound up with a depreciation on top of that (a DOUBLE depreciation). To correct (DOUBLE tax break) was the intent of A.B. 416. With reference to the historic district in statute, it was available only to those counties or areas that had adopted an ordinance which specifically created and set boundaries for a historic district. The historic district statute was created before the tax shift in 1981, which then added the depreciation. Originally, it was to allow a form of benefit to those districts and those houses so they would be restored. Then, when the tax shift was done, and in property tax valuations land and buildings were given depreciation, they were then given a DOUBLE benefit. In conclusion, Ms. Vilardo stated, "The policy decision is yours to make as to whether you think there should be a double benefit on these." Mr. Neighbors asked Ms. Vilardo if she thought it was good tax policy, to which she replied, "As it exists right now, no I do not." She continued to say, "One thing happened and then 1981 came along and it ended up being a double." It concerned her that it would leave open the historic district provision and some other entity might decide to take it and then the double benefit would have a greater impact. Mr. Marvel informed the law had been instituted for the mansions in Virginia City. It was a considerable investment for those people (to restore historic sites). "That was it," concurred Ms. Vilardo. "I think you wanted to have historic properties benefit. That is why the law was put in. If you had established the historic districts, then you would have given them an adjustment on property taxes so they could afford to bring the houses up to code. They are so old! Code was off on plumbing, electrical wiring, etc." She again referred to the 1981 and 1983, where Mr. Price had made some of the most impassioned arguments for the fact we had to have the depreciation to allow people who were in (historic) homes to maintain and keep-up their homes. In effect, what was being done was the owner of a historic property was given a tax break for a 50 year residual and another tax break for owning a historic property. "I think on this particular property," Ms. Vilardo stated, "we figured there was a residual tax value of 11 percent -- just way, way lower than anybody envisioned or planned!" Mrs. Lambert drew attention to the fact there was no testimony like Ms. Vilardo presented when there was a room full of people. There had been a lot of opposing testimony! All the people left the room thinking sure the bill was dead. "Does it seem fair," Mrs. Lambert questioned, "when people take the time to come to the Legislature, say their piece, and remind us of the requirement in Carson City for people to come through their houses on tours a couple of times a year, and then suddenly have the proponents come to testify at another time, and we pass the bill when nobody is looking?!" Ms. Vilardo totally agreed! She had not heard the opposing testimony. She had been told there were at least 15 people present that day who opposed A.B. 416. If they left thinking the bill was defeated, it would not be right for them to have walked out, thinking they had done their job, and the bill was killed. "At the very least, if you wanted to consider this further, maybe A.B. 416 should have another hearing," declared Ms. Vilardo. She was unable to attend the meeting when the bill was first heard. And she suggested A.B. 416 be re-posted for another hearing. Ms. Vilardo further proposed we contact all those concerned citizens -- even asserting she had no problem in contacting them herself! She had no problem saying, with them in the room, what she had just said. As Assemblyman Price knew, she had no problem taking the only opposing position on an issue. Mr. Marvel directed a question to Ms. Barbara Byington, the Douglas County Assessor. "What do you do now when these houses are sold? Do you pick them up again at..." "When they are sold, we first have to notify the new buyers they have the opportunity of either reapplying, or we will be taking it out," interrupted Ms. Byington, anticipating Mr. Marvel's question. "When we take it out of the historical (classification), no back liens need to be paid. However, if you had the property as a historical home and then changed it to a bed and breakfast, then it could be due and payable." In the case Carole Vilardo illustrated, the new owner of the property in question did not request having the historical (destination) and therefore paid regular taxes. "If they change from a historical home to a bed and breakfast, how far back do you go?" asked Mr. Marvel. The reply was seven years. Co-Chairman Jeannine Stroth was still trying to get a fix as to the percentage of increase the people might be paying if A.B. 416 were to pass. Ms. Byington replied (and the following is a verbatim testimony, as had been requested), "On this position here, I am showing you here that if they did the normally assessed, it would be $532.27. If they get the historical value, then they only owe $393. So, in this case, it was about $140. But, depending on the size of the house and that type of thing, it would be different. But in this case, that would be the difference. And, as Mrs. Vilardo said, there are only Douglas and Carson City who have this. When it was first put in, they assumed that probably Nye and Eureka and all of those would put it in because they had so many old homes. But because they could see what it would do to their tax base, most of those counties didn't and the only two that did approve it were Douglas county and Carson City. And I think that when Kit and I discussed it, we were down to about 47 people who are getting the exemption." ASSEMBLYMAN MARVEL MOVED TO INDEFINITELY POSTPONE A.B. 416. ASSEMBLYMAN LAMBERT SECONDED THE MOTION. "May a witness ask a question on this motion?" Ms. Vilardo laughed good- naturedly. "I wonder if, as Barbara said, most of the other entities have not done it because of the potential problem you would have to the tax base (with this double), if there would not be a way of putting in a provision where you allow the people right now who have it to keep it. Grandfather them in and exempt the other provision out so it does not exist." Chairman Price thanked Ms. Vilardo for her interesting idea. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** The next bill on the agenda for discussion was Assembly Bill 450. ASSEMBLY BILL 450 - Clarifies provisions concerning sales tax collected for sale of tangible personal property pertaining to another county. Assemblyman Lynn Hettrick, District 39, handed out an amendment to A.B. 450 (Exhibit I); a letter from the Carson City Chamber of Commerce (Exhibit J), wherein Larry Osborne, Executive Vice President, stated they "withdrew their opposition to A.B. 450 as amended;" and a report from the Department of Taxation (Exhibit K), which showed that A.B. 450 did not effect Southern Nevada at all. There were about eight to 10 counties effected in the north. The net effect of the entire issue appeared as follows: Washoe County would lose about $58,000; the rest of the counties in the north would gain various amounts, based on the study the Department of Taxation did with seven retailers. Those retailers indicated they had fixed it or were either in the process of fixing it. They did not seem to have a problem with A.B. 450. Mr. Hettrick thought the amendment handled everyone's concerns. It was his belief nobody would be opposed to A.B. 450 as amended; everything seemed to be worked out. ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS A.B. 450. ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION. Chairman Price wanted to discuss the effect the bill would have on Clark county and asked if anybody had figures on that. Mr. Michael Pitlock, Executive Director with the Department of Taxation, did. Problems seemed to be centered in northern Nevada. There would be no one-time effect on Clark county as there was in the northern counties. Ms. Stroth had a question about small amounts. She knew there was probably not much food delivered across county lines, though there were a lot of delivery services. However, she provided an example of buying an item at Macy's and having it mailed to her. Small purchases: that issue needed to be addressed. There would be no "insane" penalty, Mr. Hettrick assured her. Even if somebody had not been audited and for seven years had done their taxes absolutely wrong, and after it was all added up they owed a fortune, it would be waived. The first time around -- NO MATTER WHAT -- they would get a warning in writing. The second time around, it would be three times the amount of the tax only -- up to $1,000. The third time around, however, it would be three times the amount of the tax misreported up to $5,000. Mr. Hettrick thought Ms. Stroth posed a good question, one that had been talked about. For example, Mr. Larry Osborne of the Carson City Chamber of Commerce realized when they sold information to other counties that was mailed, technically they had to pay the tax. That is the current law! It had nothing to do with what A.B. 450 did, however. Ms. Stroth pondered if there were virtue in eliminating small purchases from having to report in the other county where it was delivered -- like purchases that were under $200, for example. Mr. Hettrick did not want to put words into the Department of Taxation's mouth, but he thought they would not agree with that. But it would be so minimal, and Ms. Stroth thought it seemed like a paperwork hassle for a few cents. However, Mr. Pitlock stated once the retailer had the system in place to accurately report the sales, to then make an exemption for a small sale was what would cause a problem. So it was the opposite of what Ms. Stroth's concern was. Ms. Lambert felt compelled to say she was glad this "fair share" bill was in excess of $16 million hitting Washoe county at its $58,000. She remembered back to those "unfortunate days of fair share," the L.L.S.T. was reported where the sale occurred; and the B.B.C.R.T. and the S.S.C.R.T. were reported where the goods were delivered. Did that make it so the L.L.S.T. was now reported where the goods were delivered? "No, we had been very careful in crafting the bill. That was one of the questions asked immediately and we were not redistributing "fair share" on A.B. 450," confirmed Mr. Hettrick. If you have an item delivered to a different county from where you purchased the item, the tax was at the point of delivery. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** Chairman Price announced that Assembly Bill 415 would be discussed next. ASSEMBLY BILL 415 - Revises provisions relating to impositions and collection of tax on special fuel. Ms. Stroth refreshed the Committees' memory banks. The last time A.B. 415 was heard, the Committee had received the second amendment draft (Exhibit L) from Mr. Daryl Capurro of the Nevada Motor Transport Association. At that point, all parties had agreed upon A.B. 415 as amended in the second draft. Mr. Sande had submitted another amendment, which added a statement about the purchaser/transporter. And the Committee had been waiting for the Department of Motor Vehicles' amendments. Just as she announced that, Mr. Zuend began passing out the D.M.V. amendments to A.B. 415 (Exhibit M), and a chart from the D.M.V. (Exhibit N). Ms. Stroth read the new subsection D.M.V. requested. It was Ms. Stroth's belief the second draft was the correct one; however, now other changes were being presented. She elaborated on the changes and explained the changes as she understood them. She questioned the D.M.V. amendment, saying it did not specify who the Department could impose an administrative fine upon -- the $2,500. In A.B. 415, the terminal people were exempted from being liable if the wholesaler had not paid them the diesel tax. The Department of Motor Vehicles would be going after the wholesaler for that tax. The administrative fine of $2,500 needed to be specified as the wholesaler. Since the wholesaler would be liable for that tax, and the 2 percent seemed to be the item which could not be resolved and since the wholesaler was going to bear some liability and a possible fine if they did not apply, plus the fact the terminal was doing all the work (i.e., preparing the reports to be turned in with the taxes), it was thought to be fair to split the 2 percent between the two parties since there was the liability on one side and the responsibility on the other. However, another proposed amendment from the Nevada Petroleum Marketers Association (Exhibit O) was disseminated to the Committee. No one had the document before the work session; it was not signed and there was a lot of confusion as to who the author was. Mr. John Cooper stepped forward to testify. He stated he testified a few weeks ago, along with John Haycock. Mr. Cooper thought there was confusion within the group who was basically supporting A.B. 415. The way the bill was originally written, there may be confusion on terms at the rack level. The Nevada Petroleum Marketers supported it. He also served on the board of directors of the Nevada Motor Transport and Nevada Petroleum Association, who supported A.B. 415. Mr. Cooper spoke for Mr. Peter Krueger, who represented them. Mr. Krueger was under the impression `rack' meant the wholesaler of the product. They had no problem with it being at the wholesale level. Messrs. John Sande and John Moore concurred, confirmed Mr. Cooper. Speaking next was Mr. John Sande, representing the Western States Petroleum Association (a trade association, which included major oil companies). The big controversy on A.B. 415 was the 2 percent collection allowance for whoever paid and collected the tax. Currently, the tax on diesel fuel was collected at the retail level; what A.B. 415 proposed was to move it to the rack level, where it was imported into the state by the pipeline. In most cases, that would be the major oil companies; that would be the importer who would pay the tax. The problem with the bill as it read now, was the 2 percent collection allowance. Mr. Sande's clients said they had no problem collecting the tax if that was what the state wanted to do, BUT if Nevada law was going to require them to collect it, they felt they should get the 2 percent collection allowance. That caused a dispute among the refiners and so-called "jobbers" who took it from the rack to sell it out. He stated their position again: there was a split amongst his group of how the 2 percent allowance should be divvied up. Several companies said they wanted the entire 2 percent; at least one wanted to give up a little bit if it could be worked out. Mr. Sande was neutral. As an industry, though, if A.B. 415 was not processed, there would be no problem with that. If it was moved to the wholesaler level, as long as there was no responsibility for them to collect and pay the tax, they would not expect to get the collection allowance. Ms. Lambert remembered the original purpose of A.B. 415 was to get more fuel tax to fix Nevada's roads. She supported that idea and assumed we would get more fuel tax because there would be less possibility for evasion. She wondered how many wholesalers we had in Nevada and if we would reduce the possibility for evasion if we collected at the rack. Mr. Sande could not answer her question. There were fewer wholesalers than retailers. If it were moved to the importing level, there were not as many importers as there were "jobbers" or wholesalers. He guessed it would be a balancing act. Obviously, if it was moved to the rack level, it would be done to try to stop tax evasion. Mr. Cooper contended there was confusion between gasoline and diesel. It was the diesel fuel tax being discussed, not gasoline. There was no problem with the gasoline part -- right now it was being done at the wholesale level as opposed to going to the rack level. It made sense to make it go to the wholesale level on BOTH of them because it would be uniform. The comparison between Montana and Nevada kept being made. In Montana, the tax collection was at the wholesale level, not the rack level. Mr. Neighbors referred to an earlier bill draft he had tried to pass so the tax would be collected at the rack, which he felt would save the state a lot of money. At the time, he had been advised by the interim committee that a bill had been drafted for introduction. Basically, Mr. Neighbors wanted to be sure the tax was collected at the rack. Speaking next on A.B. 415 was Mr. Daryl Capurro, Managing Director of the Nevada Motor Transport Association. He assured Mr. Neighbors that A.B. 415 put the tax collection at the rack. Mr. Capurro pointed out that in July of 1995, California will be moving their tax to the rack level; Florida just passed a law to move taxation to the rack level; Indiana, Missouri, etc., have also taken that direction. It consolidated the tax collection function at one level -- it made little sense to collect diesel tax and gasoline tax at different levels. It removed, or eliminated a great portion of the tax evasion problem. Mr. Capurro reminded the Committee of the study by the Federal Highway Administration (done by the Department of Transportation) which dealt with moving to the rack level; they indicated there was as much as 25 percent evasion of the diesel tax (while there was an estimated 5 percent of the gasoline tax). At the present time, Mr. Capurro -- in conjunction with others he had met with -- felt it was inappropriate to move gasoline to the terminal rack level because there were county taxes involved. Nevada was one of only four or five states that had county-option taxes. Per the request of Chairman Stroth, Mr. Capurro and his group provided more amendments to A.B. 415, (Exhibit P), which might be the THIRD draft. It became unclear to Committee which amendments were which, because nobody's names were on the many amendments before them and none were dated. The "Second Draft Amendment to A.B. 415" had been disseminated by Mr. Zuend (Exhibit L), yet Mr. Capurro had referred to his exhibit as the second amendment; hence, it is not certain what amendments were whose and which came before which. The bottom line for Mr. Capurro, no matter whose exhibits and amendments were whose, was going to any level less than the terminal rack would NOT produce the same results. With that, he asked for the positive consideration for the amendments he proposed. Assemblywoman Brower asked what the difference was between the "rack" and the "wholesaler." She pointed out she had four sets of amendments and was a little confused; she asked him whose were whose. Mr. Capurro defined the "terminal rack" as the oil company, the first importer into the state of the fuel. For example, in the Reno area, it was the Southern Pacific Tank Farm off of B Street in Sparks. Arco and Texaco were the terminal rack suppliers. (The rack is basically the device off of which the fuel is drawn.) The "wholesale distributors" are the individuals who purchased fuel from the terminal rack (oil companies) to sell to service stations, truck stops, etc. For example, Haycock Distributing, Allied Petroleum, etc. Mr. Capurro pointed out that since January 1, 1994, there was a federal requirement to dye fuel. So off-highway fuel was dyed, on-highway fuel was clear. The Committee began talking amongst themselves as to which amendments were which and whose were whose. Ms. Stroth pointed out the D.M.V.'s handout (Exhibit N), a chart survey on the point of taxation of special fuels. It was a state- by-state breakdown of where tax was collected, etc. She found it to be extremely helpful. Mr. Cooper indicated there were problems for him if the collection were at the rack level because there was billing, refund, and other paperwork problems with the major oil companies, his suppliers. He thought paperwork hassles would be further compounded for them. Further, by "moving it one step further up," he foresaw not much more tax coming in. Mr. Cooper declared his company as bonded; if there was a problem, you would exercise on the bond. They were in Nevada, so they could deal with local people. Ms. Lambert referred to the letter from the Nevada Petroleum Marketers Association (Exhibit O). There was a sentence that said "...the supplier (major oil companies) would bear no risk of loss due to collection." Ms. Lambert then referred to the second draft amendment, "...permit the supplier to deduct from their tax payment to the state the amount not paid to them by the purchaser...further, it comes the responsibility to the state the amount not paid to them by the purchaser..." Ms. Lambert inquired if that were truly what the amendments to A.B. 415 did. Mr. Capurro explained that, if the individual became an approved purchaser and received the right to defer the payment of the tax, he would not pay the tax at the terminal rack level until the 25th day of the following month, at which point the wholesale distributor would be required to remit the tax to the terminal rack facility (the supplier), who would then transmit it to the state of Nevada. The intent was that if the wholesale distributor did not transmit the tax to the terminal rack as of that date, then the supplier would only pass on to the state the tax collected and would report to the state that "XYZ" wholesaler DID NOT pay the tax on the fuel. The Department of Motor Vehicles would then go to the wholesale supplier and say, "You have not paid the tax. Where is it?" "On the purchaser's side, if someone they sell gas to does not pay the bill, they were stuck with the tax," hypothesized Ms. Lambert. "Why did we not just do it cleanly and have them pay at the rack -- just as the wholesaler is asked to do? If you want to collect the maximum amount of tax, it seems that is the best way to do it!" Mr. Capurro concurred. However, the problem of collection allowance and the problem of float needed to be corrected. Under current law, the purchaser is not required to transmit the tax immediately. They can do it at the end of the month (following the month in which the fuel was purchased). Therefore, A.B. 415 was drafted to preserve the float to the wholesaler/distributor so he was not required to transmit the tax until nearly the same period of time as he is now. Ms. Lambert still did not understand why, if we were giving the rack the 2 percent allowance (of which part of that was for when people did not pay their bills and you got stuck with paying the tax anyhow), the rack was not responsible for the tax . . . whenever they were supposed to get it paid, i.e., a bad debt to them was not a bad debt to the state; they still had to pay the tax. She did NOT necessarily think it was right to make somebody else be a state tax collector, but that was generally the way it was done with all the other taxes. Hence, she could not understand why there was an exemption this time. But Mr. Capurro contended it was the state that determined whether or not the individual could be a preferred purchaser and defer the tax payment. The supplier had no control over that. So if the man showed up with a preferred purchaser license that allowed him to purchase fuel without paying the tax, there was no way to control whether or not the tax got paid. There was a provision in A.B. 415 that said if he did it once, he would no longer be allowed to defer the payment of the tax and would pay C.O.D. In addition, there was a provision in A.B. 415 that said if the wholesaler/distributor was on C.O.D. with the supplier, he would also have to pay at the rack. The oil company said, "If he is on C.O.D. with us, you better not have him on credit with the state!" Part of the problem was that, once he left the terminal rack, to require the supplier to collect the tax when the state had issued a license that said the man could defer the payment of the tax would be carrying it a little far! Ms. Lambert surmised the portion of the 2 percent that now was sometimes considered to deal with bad debt, the rack would not have to worry about because they would either get it C.O.D., or the state would go and collect the tax. So that portion would not be an expense to the manufacturer/rack. "Understand," Mr. Capurro cautioned, "the way A.B. 415 is drafted, two-thirds of that 2 percent goes to the wholesale/distributor and the terminal rack supplier retains the one-third percent. We stayed away from that in the amendment because we had anticipated the suppliers and wholesalers could work out what that split should be." Co-chairman Jeannine Stroth requested clarification on the collection tax. She compared it to her (restaurant) business: when she sent in her sales tax on time, she got a 1.5 percent discount. Basically, Ms. Stroth saw the provision as the state's way of paying you for collecting their taxes and obviously, it would be more advantageous if the terminal could collect the fuel tax right then, right when the fuel was sold. This was a way of compromising and providing extra time and extra float for that money. The way the fuel tax law presently reads, the wholesaler had a bond that was posted to the state. At any time they did not pay the bill, the state could collect on that bond. The state was guaranteed to get their money. But with this, the state would run the risk of losing that if the wholesaler did not pay. Another issue: some of the product was exported into California because the Sparks terminal was close to California. That created a lot of extra work for D.M.V. in making those changes -- those were other considerations. Mr. Tom Stephens, Director of the Department of Transportation, felt the whole point was "getting lost." The point was to get $4 million dollars more a year for the highway fund by moving the point of taxation. The 2 percent collection fee, whether you got to keep the tax money and use it was a windfall for being involved in tax collection -- he did not think the point of any tax collection system was to allow the collectors to make more money than it actually cost them. If you do not collect the tax, then you do not incur any tax. If you do, you should be compensated for that. As far as getting to keep the money for a while before it was sent in was a bonus. However, Mr. Stephens did not think the whole issue should boil down to how much the collection was or who got to keep the money. The point was to determine the most efficient way to collect the tax. He agreed Nevada could use a bond and go after the tax evaders; however, if you could figure out where all the tax evasion was, you would not need bonds to get the money. There were other penalties (i.e., courts, etc.) to make people pay. There were about 1,300 people the Department of Transportation was collecting taxes from; there were about 200 wholesalers. If they went to the wholesale level, that would reduce the 1,300 to 200. Mr. Stephens understood two terminals sold 80 percent of all of the gas. So the problem was a much smaller problem in terms of audit, enforcement, eliminating evasion, etc. As far the compromises on the float, splitting of the fees, and all that, Mr. Stephens said they were willing to do that to get support for the bill. Obviously the bill was sitting there struggling with what most people hoped was less than 30 days left in the session and, as one person had remarked, they did not mind if the bill did not get passed. "Well, that is exactly what is happening," declared a frustrated Mr. Stephens. "We are getting bogged down in the details. We are coming down to the wire. We have a bill to raise $4 million more a year in revenue without raising taxes and it is getting bogged down here! We need to move it!" Ms. Stroth confirmed that she, too, was becoming perplexed about the bill. When it was heard earlier, the intention of the two parties was to get together, compromise, and return to Committee and the bill would go! "Now we have had two more meetings and there is still discussion!" cried a thwarted Ms. Stroth. "We have a letter from Mr. Haycock (Exhibit Q) describing why he thinks his side should get the 2 percent collection fee not because it is a collection fee, not because of the paperwork involved, not for the basic intent of collection fees, BUT because of their bad debt ratio!" She did not think that was any reason to give a new mind set or a new purpose to the collection. She believed we should stay consistent to what collection fees were about. The reason Ms. Stroth thought it was fair to split it was because the two parties could not agree. She contended if one party was going to do the paperwork and be responsible for the collection and the other party bore some liability when they did not collect, and since the parties could not agree, Ms. Stroth's logical compromise was to split the 2 percent. "I want to see this bill moved!" Ms. Stroth exclaimed. Chairman Price asked Mr. Pete Kruger if he had anything to add. Mr. Kruger, the State Executive for the Nevada Petroleum Marketers Association, confirmed that Messrs. Cooper, Moore, and himself all agreed the collection of the diesel tax should be moved to the wholesale level. Proclaiming there were more than two terminal operators (there was Arco, Chevron, Texaco, etc.), Mr. Kruger clarified we were not talking about two tanks. There were two farms, but more than two entities involved! Mr. Kruger did not want the bill to put collection at the terminal rack level. He wanted the collection at the wholesale level. If diesel tax collection was consistent with where it was at gasoline, the 2 percent would not be a problem. The wholesalers were doing the collecting and then processing on diesel tax. Regarding the float, if the out-of-state major oil companies have the float -- which is sizeable, and I am talking millions and millions of dollars -- then fine, move it to the rack, do away with the float, and they have it all! We might as well not be in business!" "We can capture the money we need by moving it to the wholesale level," promulgated Mr. Kruger, as he reminded the Committee that "when we moved it down to the retail level, there was a tremendous revenue increase to the state." In his estimation, we were not going to see if it was $4 million, or $8 million, etc.; he did not think we were going to see that kind of money (by moving to terminal rack). "Where is the evasion? It is truckers that are coming in at night, unregistered! This bill will do nothing to capture that money. There was also some evasion by `jobbers'. As far as the ranchers, farmers, and contractors: BIG IMPACT! I do not think this Committee is aware of, the people who are going to be responsible when they buy clear product and use it for an off-road use are going to have to apply to the state for a refund. They do not do that now. We do that!" "This is a very complicated issue," exclaimed Mr. Kruger, "and we agree if money is to be captured it should be moved to the wholesale level. The 2 percent issue goes away, the float goes away, and we capture more money for the highway fund." Testifying next was Mr. John Moore, who represented ARCO Petroleum. They supported A.B. 415 with a change of moving the 2 percent collection fee to the supplier. He suggested the maintenance and housekeeping cost 1.78 percent of that. They wanted to retain that if possible; if not, they would support moving it to the wholesale level. (See Exhibit R, submitted by Mr. Moore.) Mr. Capurro added to his testimony after a puzzled Assemblyman Marvel uttered a question about how the state could benefit the most. "Economic policy tells us, Mr. Marvel, the higher up the chain you collect the tax, the less possibility there is of evasion." While Mr. Capurro stated he could appreciate Mr. Kruger's remarks, he stressed they wanted their people to pay their taxes. If someone in his industry was evading the tax, they wanted them to not only pay, but be punished. But that was NOT where all of the evasion was coming from! He described for the Committee what was called "daisy chaining." That was a `jobber' purchasing the fuel from the terminal rack, selling it to another `jobber,' going out-of-state, coming back in, etc., so the trail of the fuel movement gets lost. He was not trying to point the finger at anybody, he was simply saying economic policy tells us the higher up the chain the tax is collected, the less chance there is for evasion. Mr. Capurro agreed with what Mr. Tom Stephens said: we were getting lost in the minutia of the thing . . . dealing with the issue of collection fees. California did not even allow a collection fee; the feds did not pay a collection fee. He was not advocating they were not entitled to it, he was simply saying he hoped that did not hold up the passage of a bill important to all of us. When someone contended it may not be $4 million, all Mr. Capurro could say was this: "Montana picked up $12 million going only from retail to wholesale. Now to say Montana only collected $1 million per penny; Nevada collects $1.5 million per penny! I will not say that it is $18 million, but I am sure as heck going to tell you it is going to be $4 million or better!" Mr. Marvel asked if it cost 2 percent to collect, but Mr. Capurro could not answer that question. But for off-road use, many ranchers and farmers were already using a second tank. They were using a tank for the dyed fuel, which was used for off- use and for farm-use and the like. Refunds were less of an issue when the `feds' went to a dyed fuel situation. "See, I never had it for diesel," informed Mr. Marvel. "I had it for gasoline and it was an 80/20 split..." ASSEMBLYMAN STROTH MOVED TO AMEND AND DO PASS A.B. 415, USING THE THIRD DRAFT AMENDMENT AND THE AMENDMENTS THAT WERE REFLECTED BY THE DEPARTMENT OF MOTOR VEHICLES, LEAVING IT A GROSS MISDEMEANOR IN LIEU OF FELONY AND SPECIFYING WHO THE ADMINISTRATIVE FINE COULD BE IMPOSED AGAINST AND ALSO SPLITTING THE COLLECTION FEE EVENLY AT 1 PERCENT BETWEEN EACH PARTY. ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******* The last item on the agenda was Senate Joint Resolution No. 14. SENATE JOINT RESOLUTION NO. 1 4 - P r o p o s e s t o a m e n d N e v a d a c o n s t i t u t i o n t o a u t h o r i z e l e g i s l a t u r e t o p r o v i d e f o r a b a t e m e n t o f t a x e s o n p r o p e r t y u s e d i n m a n n e r t h a t c o n s e r v e s w a t e r . ASSEMBLYMAN BROWER MOVED TO DO PASS. ASSEMBLYMAN STROTH SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** There being no further business, the meeting adjourned at 4:00 p.m. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation May 25, 1995 Page