MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session June 6, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, June 6, 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. Morse Arberry, Jr. Mrs. Maureen E. Brower Mrs. Joan A. Lambert Mr. Mark Manendo Mr. John W. Marvel Mr. P.M. Roy Neighbors Mr. Brian Sandoval Mr. Larry L. Spitler COMMITTEE MEMBERS ABSENT/EXCUSED: Mr. Michael A. (Mike) Schneider, Vice Chairman GUEST LEGISLATORS PRESENT: Speaker Lynn Hettrick STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Nalliah T. "Raja" Rajah, Public Works Dept., County of Clark Ms. Caryn Key, Clark County Public Works Department Mr. Chuck Bosch, Nevada Department of Transportation Ms. Nancy Howard, Nevada League of Cities Mr. Bob Hatfield, Nevada Association of Counties Chairman Stroth announced A.B. 672 will not be heard today inasmuch as S.B. 519 is being heard on the Senate side and does essentially the same thing. She opened the hearing on A.B. 627 and turned the floor over to testimony from the audience. ASSEMBLY BILL NUMBER 627: Revises formula for allocation to counties of proceeds of additional excise tax levied on motor vehicle fuel. Testifying first was Mr. Nalliah T. "Raja" Rajah from Clark County, Department of Public Works who introduced Ms. Caryn Key who works with him and Mr. Chuck Bosch from the Nevada Department of Transportation, both of whom will be speaking in support of this measure. Exhibits were distributed to all committee members as follows: (Exhibits C/ Justification for A.B. 627, Exhibit D/ Testimony for A.B. 627, Exhibit E/Recommended Amendments for A.B. 627'/Exhibit F/ Map entitled Public Works 10 Year Road Rehab Projects and accompanying graph showing Expenditures on Maintenance Activities). Mr. Rajah, informing those present, this bill will modify the formula for distribution of excise tax on motor vehicle fuel. The formula currently used is one-fourth in population, one-fourth in area, one-fourth of standard road miles and one-fourth of traffic. This bill modifies the "standard road miles" and they are requesting the change to "standard lane miles". Using "standard lane miles", for instance, an automobile leaving from "point A" to "point B" you would measure the road as one mile, with a standard lane being 12-foot wide. You have lanes going and coming and this change will take into consideration those lanes. The County is asking to have their standards modified to square yards as the surface maintenance of those roads is very expensive. Clark County has about 3,800 road miles and when converted into lane miles, they have 4,600 lane miles. This legislation would give the County a little more money in terms of maintenance of roads. Right now the amount they get from gas tax is approximately $13-million dollars which comes from the formula of $0.125 cents on the one-quarter formula; and $0.235 cents based on the same formula. That is divided again on the one-quarter proportion to the cities within the county, i.e., City of Las Vegas, Mesquite, City of Henderson and Boulder City and then $0.175 cents on property valuation and $0.l cents on population of the incorporated and unincorporated areas. In total they get about $0.635 cents out of that, so they receive about $13.1 million dollars. This amount must maintain all of what Clark County has in the way of rights-of-way between sidewalk to sidewalk which is a major task. Additionally, they take care of some streets, sidewalks, street lights and traffic lights which end up as rights-of-way. In today's dollars it runs about $2.3 million. These are funds which come out of the $13 million dollars and would help in trying to meet the maintenance costs. By passage of this bill, they are hoping to raise at least one-million dollars for Clark County and a million dollars for the remaining incorporated cities. He volunteered to answer any questions prior to submitting further testimony, there being none, he called upon Ms. Key to provide information on where these monies will be going. Prior to Ms. Key's testimony, Mr. Marvel asked Mr. Rajah how many square yards of roads there are in Clark County and was advised they have not really calculated that number but it would be 7,040 times 4,368 lane miles. Mr. Marvel pursued his line of questioning by asking why the "square yards" is in the bill and what it refers to. Mr. Rajah responded they wanted to use "standard lane" miles but the bill drafter said there is no definition for a "standard lane mile". Mr. Marvel pointed out we would have a tremendous fiscal impact throughout the state of Nevada if we changed the format as everyone would have to determine what the square yards were in every county in the state. He feels that would be a tremendous imposition on all the counties. Mr. Rajah responded that his group would be happy to change the language to "standard lane miles" if that is amenable to the committee. Mr. Marvel asked if a fiscal note had been done on this bill, or if the Department of Transportation has done anything to change the language. How much money, Mr. Marvel asked, would be siphoned off the rest of Nevada just to benefit Clark County. He was advised by Mr. Chuck Bosch, with the Department of Transportation, we are talking about $24-million or $25-million statewide and with the "four quarter" formula we would be looking at about $6-million total. He pointed out Mr. Rajah mentioned the figure of $2-million total but he, Mr. Bosch, estimated it would be more in the neighborhood of $1-million. Mr. Marvel asked Mr. Zuend if he had done any analysis on this question and was advised in the negative. Mr. Zuend pointed out the only thing he has looked at is Clark County's share now which is 20% more or less of the total. That figure would raise so Clark County is currently receiving $1.2-million of that $6-million, plus. However, he agrees with Mr. Bosch it will not be $2-million inasmuch as it is only one-fourth of the formula, therefore, it would be something less than that. He pointed out Washoe County would benefit as well from that change. Mr. Rajah interjected, when he testified the amount would be $2-million, he was giving an estimate, only. The amount would be $1-million plus for Clark County and the rest will be going directly to the remaining cities within Clark County. Mr. Neighbors stated he would like to echo the sentiments of Mr. Marvel. He wanted to see what the fiscal impact would be on every county in the state. If Clark County would be getting one or two million dollars or whatever, that is a `take-away' from the other counties based on the current formula. He stressed to the committee members, there are six different formulas in the state of Nevada for dividing up taxes. This one from Clark County is not very attractive. He questioned the use of the one-quarter formula in proportion to the total area from one of the bigger counties. In respect to population he feels every year you would be getting more taxes due to the growth, the quarter percent portion to road and street mileage and vehicle miles traveled on the roads. We do need some roads to get into Clark County as well and he feels he would like to see the fiscal impact as he feels we are trading dollars somewhere. He asked where this bill originated and was advised it was a Clark County bill. He is concerned that if this passes, the rural counties would take a real hit money-wise on this after a while. Mrs. Lambert relating to the quarter, quarter, quarter proportion, explained she was of the opinion, when you talk about the vehicle miles traveled, this was the allocation for having more lanes in the road and that it dealt with the problem of urban roads being used more. She asked Mr. Bosch if he knew whether the last quarter was for the urban areas not only that the lanes were used more but also because there were more lanes and you could fit more cars on the road. She referred to the bill, subsection D on line 10. She feels this would allow a "double dip" on areas that have more cars and therefore more lanes. Mr. Bosch agreed but he does not feel there is a direct correlation, however, he can see where Clark County is coming from. He pointed out the Nevada Department of Transportation has nothing to gain or lose with this measure. They collect the necessary data to make these distributions, supply it to the Department of Taxation and that Department distributes the money back to the counties. While he concurs with what Clark County is doing in this measure, he is unsure of how this will affect the rural counties. He pointed out there is a problem in the definition of which roadways we are considering. The current law defines the roadways as Non-federal Aid Primary Roads and Intermodal Surface Transportation, however, the Efficiency Act of 1991 did away with that designation. Now we basically have two systems. We have what is referred to as the National Highway System which includes the Interstate system and a majority of what used to be primary roads. All roads other than the national highway system that are classified above a local or rural collector are now eligible for federal funding under what they call the Super Transportation Program. To make the language and the statutes match what is in the federal law, they would recommend changing the designation whereby all streets and highways that are not included in the national highway system would be eligible for funding under the Surface Transportation Program. That aligns itself very closely to what we had before but still would not include the local, typical urban collector. It would be like streets and roads within a subdivision. Speaking next was Ms. Caryn Key who wished to respond to the question by Mrs. Lambert. She explained, essentially, the language in the bill now does not address urban arterials. If it did they would not be asking to change the distribution formula. The reason being, they are looking at how a vehicle gets from point A to point B, but not how many lanes of traffic is involved in that transfer from A to B. In other words you may have one lane of traffic going from A to B and in Clark County, they may have six lanes of the same traffic going from A to B and it is their intention to get revenues for all six of those lanes. This bill is not addressing the urban areas but it is not serving the purpose in Clark County to address urban roadways. After general discussion and questions it became obvious the members of the committee felt additional information was necessary prior to making any decisions. Mr. Price suggested it would be best to obtain some actual figures of what amount would be going to each individual county as any time there is a fixed amount of money out there and we start changing the formulas then you are going to be taking money away from one county and giving it to someone else. He warned against processing a bill unless we have those dollar figures. Several committee members voiced their support for the statement by Mr. Price. Mr. Bosch, after hearing the concerns of the committee, suggested the committee delay action on this bill for at least a year inasmuch as there would be no chance of getting a fiscal note during this session. Testifying next in support of this bill was Mr. Bob Hatfield, Executive Director of Nevada Association of Counties, who stated this bill deals with all of Nevada's counties and he cannot report we have a consensus on what the impact of this bill is. He, personally, has received a number of phone calls from county leaders asking what the specific impact is. Everybody appears to be clear that it would redistribute the funding. He concurs with the committee that, in the absence of those numbers, it is very difficult to comprehend what this measure does. He recalled when they did the $0.2357 gas tax, they put an additional kicker in the measure requiring the counties, in order to get the additional money, to levy the optional gas taxes available to them. At that time, it was a $0.04 option and if they levied only one penny, they would get 25% of the revenue they would otherwise get. They used that measure to essentially encourage everybody to go to the maximum local levies before they could access the state funds. It was a very complicated proposal but it accomplished what they were trying to do and provided some balance and, to make certain that in an area like Clark County where they do in fact levy all the optional taxes available to them, other communities that did not approve the levy would not be deriving a benefit out of the $0.235 gas tax. These are complicated formulas and, he explained, they have always been very defensive of the various formulas involved. They took a long time to develop due to the changing areas in the state, where you have a formula that works now but it may not work in another part of the state. He wanted the committee members to know the rural counties are very concerned about this proposal. They have been relying on a set amount of numbers for many years and at this point, their budgets are all finalized and they are ready to go. He volunteered to work with Mr. Zuend and anyone else to assist in getting the fiscal note on this. A bill explanation, prepared by Mr. Ted Zuend and included as (Exhibit G) was distributed to those present. Speaking next was Ms. Nancy Howard, representing the Nevada League of Cities, who explained they have received many comments from rural cities in Nevada expressing their concern about what impact this might have on them. They are very concerned about the loss of gasoline tax revenues. Mr. Price had mentioned the County Option Tax which is the $.04 cents the counties have if the county commissioners approve it and put that into effect. The Nevada League of Cities had proposed a bill this session to allow the cities the same opportunity if the county commissioners chose not to put that in. The proposal is not going to go anywhere but that shows where the rural Nevada cities are in their need for revenue. There being no further testimony on A.B. 627, Chairman Stroth closed the hearing and opened the hearing on A.B. 607. ASSEMBLY BILL NO. 607: Makes various changes concerning payment of property tax. Prior to beginning testimony on this bill, a bill explanation (Exhibit H) prepared by Mr. Zuend was distributed to the committee. Speaking first was Speaker Lynn Hettrick, Assembly District #39 who advised the committee this bill is composed of two totally separate issues. The issue addressed first came to him from a constituent who had torn down a house he owned in preparation for building a house on the same site. When the house was torn down they still received their property tax bill for the house even though it no longer existed. They were not satisfied nor pleased as they felt, since the house had been down for part of the year, the taxes should have been prorated. After hearing of this problem, Mr. Hettrick had this portion of the bill drafted to address that issue. Since that time, he has had a good deal of input from assessor's offices and has found this to be a more complicated issue than he initially thought. He cautioned the committee we will be hearing a good deal of testimony on this, therefore, he wanted to leave this measure to the committee's good judgment. This proposed bill says you can prorate taxes on property if, for some reason, the assessed valuation of the property changes. He called attention to a totally different issue contained within this bill, included on the back page of the bill under section 3. These issues happen to be in the same section of law and that is why the two are in the same bill. Speaker Hettrick explained two years ago he received a call from a constituent who indicated they had received a penalty on their property taxes because they did not pay their taxes. They went back and started reviewing their taxes and found they had never received a notice for the period involved. It turns out these folks traveled part of the time and, through an error on the part of the post office, they never received the tax notice. They went to the county treasurer or assessor who said there is no provision in the law that allows us to waive the penalty. The provisions in the law say you must charge a penalty and no matter what you do, you cannot receive a waiver. Mr. Hettrick explained he, personally, fought with the treasurer's office for a month and finally gave up. When he submitted the bill draft, Mr. Weaver from the Carson City Treasurer's Office and Ms. Byington from Douglas County Treasurer's Office brought in a copy of NRS 364.19 saying their Departments may, for good cause shown, waive or reduce payments of interest, penalties or taxes which are owed to the state or county by any person. What happened is the treasurers were never informed of the problems these people were having and the property owners never bothered to look at this section of law. What he is proposing to do is request a new sub-section 7. There are six sections in the statutes telling you how you must apply the penalties and what they will be. He is asking, through this bill, to add a section 7 which simply says, "the person requesting the waiver of a penalty must be informed they may appeal to the Department of Taxation for a waiver of the penalty set forth in this section for the late payment of taxes". This bill says they may appeal and we are going to make certain they will be informed they have the right to apply for a waiver. It is that simple. Mr. Neighbors and Mrs. Brower proposed several questions to Speaker Hettrick regarding the circumstances of the parties he used as examples, which had nothing to do with the structure of the bill but had been used as a point of reference. Speaker Hettrick advised the posers of the questions to hold their questions for the people waiting to speak as they are the experts in this matter. Testifying next on A.B. 607 was Ms. Carole Vilardo, Nevada Taxpayers Association, who is supporting the bill. Ms. Vilardo pointed out property gets on the rolls as improvements are done or through new construction and there are instances in time when, through no fault of the owner, something happens such as the circumstances mentioned by Speaker Hettrick. This proposal is allowing enabling legislation by intent and allows the Department to set the rules and standards for when the waivers would be allowed. You are not giving blanket authority and saying that everyone must be granted once you do it. Her group feels this is a good balance in law and if you need some technical changes in this legislation that is fine. They support the intent as they feel a balance is needed. Mr. Kit Weaver, from the Carson County Treasurer's Office, representing the Assessor's Association of Nevada, testified in opposition of the bill. He pointed out they are opposed to the two sections addressed in the bill but they have looked at the amendment from Speaker Hettrick and they agree with that amendment. Calling attention to the issue at hand, is whether there should be a refund granted when the improvement ceases to exist on a piece of property. He explained they close the roll around January 1st of each year and they tell each taxpayer, through a first class notice, what the value will be on their property. If they build something on that property between that January 1st and July 1st date, they will add that to the assessment. That is the only way they can change the assessment unless something ceases to exist. If anything ceases to exist before the July lst date they can take it off the roll. Their biggest concern is there are hundreds of improvements that are taxable and the Department of Taxation wants them to account for every improved piece of property, sidewalks, driveways, barbeques, everything, you name it. When the Legislature says tax everything that contributes value to each piece of property they try to follow that directive. The assessors can envision the property owner coming in and saying, "the wind blew down my fence last week therefore, I want a tax break". He suggested that would cause a great deal of problems. Right now, the taxpayer receives a bill on July 1st and that is it - there are no other bills. The treasurers and assessors have discussed provisions in this bill and they do not think it would work. It would be very difficult administratively to issue refunds for a few dollars to hundreds or thousands of people every year. In addressing the provisions setting up waivers, Mr. Weaver conceded that nobody likes to pay taxes but even more, people do not want to pay penalties and they have all kinds of alibis for not paying them. They have forgotten, they have overlooked them, they did not have the money, etc., and they ended up with a penalty. The people who vote are going to go in and ask the treasurer or assessor if they will remove the penalty or threaten they will not vote for them any more. The system we have now works beautifully. The offices have a notice at the front office warning people if they do not pay their taxes on time, they will be penalized. It is not a punitive thing but if they do not pay on time, the treasusrers and assessors have to go out and try to collect the taxes and there is a lot of effort expended in costs trying to let the property owners know when they do not pay their tax bill or there will be a penalty. We also have another statute (NRS 360) which says you can appeal to the Department of Taxation and if it is a reasonable request they will instruct the treasurer to issue a refund. For those reasons, he believes if the committee would put the language from NRS 360 into NRS 361.483 it should handle the problem. There were no further witnesses nor questions on this bill, therefore the hearing was closed with no action being taken. ASSEMBLY BILL NUMBER 668: Proposes to amend Sales and Use Tax to continue exemption for gross receipts from sale of tangible personal property by certain organizations and prohibits collection of tax unless question is defeated by voters. A bill explanation, included herein as (Exhibit I) has been prepared by Mr. Ted Zuend, Fiscal Analyst and distributed as part of the record. Chairman Stroth opened the hearing on A. B. 668 and asked the sponsor, Assemblyman Tom Fettic, representing Assembly District #40 to begin. Mr. Fettic began by pointing out his measure deals with sales tax and is an issue that was passed last election. Since it has been in effect, the girl scouts, churches and similar charitable organizations seem to be having a lot of problems with the provisions therein. Mr. Fettic explained there is a similar bill coming from the Senate side but the primary section he wants to address in A.B. 668, is contained in Section 11. In that section, it states, "upon the effective date of this section, the Department of Taxation shall cease to collect the sales and use tax and gross receipts for religious, charitable and benevolent purposes". When he first got this bill it was accompanied by a letter from the legal division of the Legislative Counsel Bureau which said, in their opinion, it would be unconstitutional for the legislature to overturn a vote of the people. The reason he is pursuing this bill is the fact that he received over 4,000 signatures from interested people. Many people are very disturbed by this tax and they want to see this bill passed. In his opinion, there is a strong movement throughout the state against what occurred during the election last November. When this proposal was first brought to him, he was reluctant to have a bill drafted inasmuch as we would be overturning the vote of the people, however, he became convinced when the voters voted on the ballot question, they did not understand the impact that vote was going to have. He admitted it was difficult for him to sit before this committee as an elected official and say that 68% of the people in the state of Nevada cannot understand what they read, but during his own mini- research he learned that many of the people who voted on this did not understand what they were voting on. He advised the committee members there were several interested parties wishing to testify on this bill as well and turned the floor over to them. Speaking first was Mr. David Horton, representing the Nevada Therapy Support Group, who addressed the question of overturning a vote which, apparently, was brought out in the letter from the LCB. He called attention to the findings on page one of the letter which points out why there could not be a vote reflecting the will of the people unless it was clearly expressed so they could understand it. Mr. Horton pointed out, if you look at the ballot question on the 1994 ballot, even today, you have to know the background of the issue and that was not stated on the ballot. You had to figure out how to vote if you want to protect agencies such as the girl scouts with their cookie sales, etc. It was also identified as a constitutional amendment in the preliminary ballot that went around to the voters which caused a lot of people to vote against it as most people vote against all constitutional amendments. The voters voted no and then were surprised to learn they just taxed the sale of girl scout cookies. This was not a clean read of what the voters were asked to do. He proceeded to give a little background stating the Nevada Constitution, as originally drafted, placed all legislative power in the state legislature. The constitution also provided that each bill should have but one subject that is briefly stated in its title (Article 4, Section 17). This protection is a safeguard to help insure that legislatures, in exercising legislative power, are not misled or deceived in how they vote. When Article l9, Section 1 of the Constitution was adopted to allow for the voters to vote directly on legislative measures there was an implicit requirement that a referendum in the hands of the voters be protected by the requirements of Section 4 just as the same protection applied to legislators. In other words there should have been a clear expression of what was intended by the bill stated in the title, which was not. When the sales tax amendment was presented to the voters, no plain description of a single subject appeared on the ballot question. Instead, the ballot referendum was incorrectly described as a constitutional amendment and, thereby, induced many voters to vote against it on that ground alone. In addition, the lengthy explanation confused many voters because they were told that a "no" vote would "retain the Act as currently written" thereby leaving voters to vote no in order to retain the practice of exempting charitable sales from sales taxes. As a result, the people exercising their legislative power directly on question 7, were misled into voting to abolish a tax exemption on charitable sales. He pointed out there are other recitals in Section 1 that are also significant, for example, there was an actual proposal to continue an exemption from the payment of sales and use tax on sales of tangible personal property by certain organizations created for charitable purposes. Most voters were aware that the Department of Taxation had not been collecting the Sales and Use Tax on sales made by these organizations in the past. Since the explanation on ballot question 7 stated that a "no vote retains the act as it is currently written" many voters assumed that a no vote was a vote to continue the exemption that those organizations had been enjoying. Taxes were not collected on these retail sales under the existing statutes for more than thirty years, which created an expectation on the part of people of this state that these sales would continue to be exempt if the proposition were disapproved. The wording of the explanation on question 7 was ambiguous and, therefore, this is basically the crux of A.B. 668, and how it differs from the Senate effort. You are not undoing a vote of the people, you are undoing a situation that prevented the voters from getting a clear read as to what the vote was. Since the responsibility of protecting the legislative power of the state still reposes in the hands of the legislators, it is entirely appropriate for them to make legislative findings dealing with a question such as this. The bottom line is that the vote caused a tax to be imposed that had not been imposed for over 30 years. Mr. Horton went on to address the responsibility of the legislature in this as well as many other aspects dealing with the laws of the state of Nevada. He strongly urged support and passage of this bill and volunteered to answer any questions the committee may have. There being none, Chairman Stroth invited testimony from anyone else wishing to speak. Speaking next was Ms. Virginia Orcutt, representing the Republican Women's Group, who stated she keeps hearing it would be unconstitutional and illegal to reverse this statute, but she feels the illegal issue was to put the question on the ballot in a misleading way. Leading people to say that a "no" vote is a vote to disapprove the exemption was confusing and people voted no. She feels the legislators have a responsibility to clear up this misunderstanding and protect people. She admitted she voted the wrong way and suggested when we next put something on the ballot, the language should be simple enough to insure everyone understands the question. Mr. Monte Fast, Executive Director of FISH (Friends in Service Helping) was present not to, specifically, argue this bill but to address some of the provisions therein. Due to the extremely short period of time left in the session, this bill could "fall through the cracks" and we would be stuck with this provision forever. He urged the committee to take whatever action they deem necessary. Regardless of which bill is passed, no matter what we believe about the issue itself, the first priority as legislators is to get this back on the ballot so the people can vote on this. He assured the committee members the non-profit groups throughout the state of Nevada will make certain the voters in Nevada will understand what the "yes" or "no" means. He believes in the mandate of the voters. Mr. Manendo made the statement he feels there are enough people in the community who have expressed that they misread the question and he too would like to see this back before the voters. But to ultimately change what has already occurred would be irresponsible. During his campaign, he ran into a lot of people who stated they knew exactly what they voted on and they voted that way for their own reasons. He feels to go back to the constituents and say, well some of you made a mistake would be totally irresponsible. He reiterated he would like to see this go back on the ballot with the proper language. Chairman Stroth announced Senate Bill 144 will be coming over from the Senate side and when that does, we will be addressing this issue again. She felt it might be helpful for the committee members to know what is in S.B. 144 while we are discussing this similar bill. Pursuant to a suggestion by Mr. Zuend, Chairman Stroth asked Mr. John Bartlett, from the Attorney General's Office, to give a brief rundown to those members present. Mr. John Bartlett, Senior Deputy Attorney General representing the Department of Taxation, explained a group on the Senate side provided some amendments to the original bill in order to satisfy not only the concerns of the charitable organizations but the Department of Taxation. They tried to better define charitable organizations, religious organizations and what kind of organizations does the legislature want to exempt from the sales tax on their purchases and sales. Additionally, how these organizations must go about obtaining an exemption, the procedure they would have to follow, etc. The bill, as it now stands, contains a much better delineation of those organizations, which is what the legislature wants. The Department of Taxation will have to consider exemption requests and provide the specific procedure for these organizations to follow. It will be necessary to get an exemption letter so they can purchase tangible personal property from vendors free of sales tax. This measure also places a five year limitation on each exemption so they have to reapply after five years which gives the Tax Department a little more control over the ongoing activities of these organizations. This will allow them to find out if they are still operating, if they are still in the exempt category, etc. Periodically they would have to reapply and that is basically what the bill now contains in the form the Assembly will receive it. In response to a question by Chairman Stroth, Mr. Bartlett advised the issue would go to a vote of the people again, however, there has been a great deal of discussion as to how it will be presented to the people. The language that will be on the ballot question was worked out so it simply refers to "do you want certain charitable, education or religious organizations to be tax exempt from sales tax on their sales and purchases". The language that is going to be presented is going to be short and simple. Mr. Marvel pointed out to Mr. Bartlett we did have an opinion from our own legal counsel that ignoring the collection as we have in the past would be unconstitutional and he asked what would happen if we enacted something legislatively to put us back where we were. Would the Department of Taxation be compelled to follow what the legislature does or would they still rely on the vote of the people. Mr. Bartlett pointed out several years ago his opinion was that we should follow the language of the statute which does not exempt sales by charitable organizations. The Department has been following the wrong advice for thirty years and on a prospective basis, they have changed their policy simply to follow the language in the statute which is ultimately what they were supposed to do. Based on the current statutory language, which cannot be amended without a vote of the people, he would continue to rely on the language to determine the scope of the exemption. He would not suggest, in the circumstance, a legislative declaration that we go back to the way it was. Mr. Marvel pursued his line of questioning by suggesting we could enact it legislatively and asked for Mr. Bartlett's reaction, whereupon Mr. Bartlett suggested we could amend Chapter 374 which would affect all of the 2% without a vote of the people. Mr. Marvel concurred, stating that would be some relief. Mr. Ted Zuend was called upon to explain the ballot question as proposed in S.B. 144. He stated the question would read: "shall the Sales and Use Tax Act of 1955 be amended to provide an exemption for the gross receipts from the sales, storage, use or other consumption of tangible personal property sold by or to an organization created for religious, charitable or educational purposes as determined pursuant to standards adopted by the legislature/ Yes or No". Ms. Stroth asked anyone else wishing to testify to please come forward. Speaking first was Ms. Bobbie Gang representing Planned Parenthood of Southern Nevada and the Nevada Women's Lobby. She explained they are in favor of seeing a ballot question pertaining to this and she has worked very closely with Paula Berkeley and her client and also with Ms. Lucille Lusk from Nevada Concerned Citizens (NCC). She has been asked by Ms. Lusk to relay her support for this as well. She is unable to be here today due to a conflict with meeting schedules. In concept, they agree with everything that has been said, fully support S.B. 144 and would like to see the question back on the ballot. They have worked for months trying to draft language which will satisfy everyone and still be a simplified ballot question. They asked the committee to include in this bill (A.B. 668) a provision to delete the sections that pertain to the ballot question which would be sections 2 thru 10 and retain Sections 1 and 11 which deal with the possibility of ceasing to collect the tax until we go back to the ballot for another vote. She explained the rationale for doing that, in light of everything we have heard about the questionability of the constitutionality, is due to the expense to the Department of Taxation in implementing this for the period of time between January 1st of this year and the next election. The committee may want to consider postponing it until the time that the ballot question is decided. There is one additional section the committee might want to look at as far as a deletion and that is Section 11, subsection 2 where it requires the Department of Taxation to compute and refund the taxes to those organizations that have been collected, following the law since the ballot question, and that might be too much to ask of the Taxation Department. Ms. Paula Berkeley, representing Girl Scouts, and United Way, both north and south, testified her clients are happy with what has been happening with S.B. 144 and feels it is good to have A.B. 668 serving as an independent bill. That way, there is no worry about having one or both pass or be defeated. They would like to be exempt from the tax and, according to her information, there are thousands of non-profits throughout the state who share that feeling. She urged the committee to pass the bill. Representing the Department of Taxation was Mr. Michael Pitlock, Executive Director, who explained this is one of the first issues he got involved with when he came over to the Department of Taxation and it has occupied a considerable amount of his time in the past few months. As some of the earlier speakers have indicated, a lot of work has gone into S.B. 144 and the Department supports that piece of legislation for a number of reasons. Primarily due to the fact that it gives some clear guidance to the Department on how to evaluate which organizations should be granted an exemption and which should not. Because they thoroughly support S.B. 144, Mr. Pitlock suggested A.B. 668 unnecessarily complicates this issue. He added they had been talking to many different attorneys over the last few months to figure out if there is some way to get around the vote of the people. Everyone keeps telling his agency what they want to do is find some way to get around the vote and the attorneys, very consistently, tell them it just cannot be done. He feels to put the Department in a position where they have the legislature passing a piece of legislation that basically directs them to do something they believe is unconstitutional puts them in a very difficult position. Continuing his testimony, Mr. Pitlock, pointed out a suggestion was previously made about taking the reference to the ballot question out of A.B. 668 and retain the direction to stop collecting the tax. In other words, direct the Department to stop following the statute because it is something that is going to happen down the road anyway. A lot of people who support this legislation are assuming when this ballot question is put to the voters again that somehow the result is going to be different. He added, from most of the people he has talked to, he is not convinced the result would be different. If we follow the last suggestion of putting a halt to collecting the tax now and waiting for the next vote, then you really have a situation of vacillating back and forth which is not good. If you are really concerned about the potential fiscal impact on the Department and confusion on the part of the taxpayers, that would confuse them more than anything. He believes that S.B. 144 is the best solution that can be found to a very difficult and controversial issue and the legal problems seem very obvious to him. You are put in a situation where the legislation is going to ignore or find void this vote and this is very troublesome to him, especially when we have another very reasonable alternative. Mr. Marvel asked Mr. Pitlock about the criteria for a "charitable organization" and was advised, at the time, there are not many good ones that is the reason they spent so much time coming up with language for S.B. 144. They needed something that would give his department some type of direction. He then called attention to Section 10 of S.B. 144 wherein it sets forth criteria for three broad categories of organizations: religious, charitable and educational. They have tried to categorize the type of activities that would fall into these categories and, he emphasized the language appearing in that section is the result of a great many long negotiating sessions, and a lot of compromise on the part of all concerned. There was a very vigorous debate about how broad or how narrow this exemption should be and to put this in relative terms, there is currently a list of 3500 entities that at one time or another have had an exemption. He speculated that if the standards contained within S.B. l44 were applied to that list there would be considerably less than 3500 entities. The general direction was to narrow the scope of the determination of what would fall into the exempt category. Mr. Marvel asked Mr. Pitlock to speculate, if this were passed today, what the fiscal loss would be to the state of Nevada and was advised it would be difficult to gauge that. As Mr. Bartlett indicated, for a lot of years, the Department was following the wrong advice and was not collecting any tax. His department is collecting that tax now but we have had such little experience in dealing with this issue, that he feels the information generated so far would not give the members a good, solid basis to project that into the future. Pursuing that line of questioning, Mr. Marvel asked to whom the benefits would enure; would they have to define that as well. Mr. Pitlock responded it really does not deal with who is the beneficiary of the charitable donation. It really has to do with the transaction between the organization and individual who is making the contribution and only with those situations where tangible personal property changes hands. A simple donation that is not accompanied by some item of tangible personal property in return does not create a tax liability. It is when they sell something. Mr. Pitlock called attention to Section 10, subsection 3 where they address charitable organizations, subsection 2 deals with religious and they set forth the general standard that would be applied which would determine whether or not an organization was established for charitable purposes. The next witness to testify was Ms. Carole Vilardo, representing the Nevada Taxpayers' Association, who explained they can empathize with the problem that has been expressed by the charities but they are opposing this bill as it has been presented. The Department sent out notices in December and there was a great deal of confusion about the notices. The majority of people who called her office did not understand what was going on. She went on to state she does not feel the legislature has the right to say the vote of the people does not count because it was misunderstood. She reminded those present S.B. 144 is still coming over from the Senate and she was one of the parties who worked on it. She feels that is the vehicle which should be used. It is unfortunate things happened like they did. Her Association cannot support this bill. Last to testify was Mr. Joe Delnado, representing the Carson County Republican Party as well as being the Chairman of the Board for the Sertoma Club and an Elder at the First Presbyterian Church in Carson City. He told those present his members support the bill although they all concede this probably has to go to a vote of the people again. He explained he represents the lay people affected by this bill and they have some 500 to 600 people who belong to his church with elderly citizens doing bake sales, etc. Although they are confirming the laws of the state now, it is a lot of effort whether it be the church or the service clubs, these people are doing this work on a volunteer basis. When they understand the nickels and dimes they are working for must be taxed, it is a deterrent for people to support these organizations. He urged the committee to place this question on the ballot for the next coming election. Mr. Manendo reiterated his feelings that this question should definitely go back on the ballot to fulfill the responsibility to the people of Nevada. He suggests we have all learned a lesson that you just cannot take things for granted when you go into the voting booth. There being no further testimony on this bill, the hearing was closed. Chairman Stroth announced we would not be taking testimony on any additional bills today but the remaining bills will be rescheduled. There being no further business, the meeting was adjourned at 4:15 p.m. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary Assembly Committee on Taxation June 6, 1995 Page