MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session June 13, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Tuesday, June 13, 1995, Chairman Jeannine 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. Michael A. (Mike) Schneider, Vice Chairman Mrs. Maureen E. Brower Mrs. Joan A. Lambert Mr. Mark Manendo Mr. John W. Marvel Mr. P. M. Roy Neighbors Mr. Brian Sandoval Mr. Larry L. Spitler COMMITTEE MEMBERS EXCUSED: Mr. Morse Arberry, Jr. Mr. Pete Ernaut, Vice Chairman GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Ms. Janice Wright, Department of Taxation Mr. Randy Day, Commissioner for Veteran Affairs Ms. Barbara G. Byington, Douglas County Assessor Ms. Carole Ann Vilardo, President of Nevada Taxpayers Association OTHERS PRESENT, CONT. Mr. James Galloway, Ph.D., NAIB Mr. Bill Bartlett, Assessor Association Mr. Michael Pitlock, Department of Taxation Chairman Jeannine Stroth opened the meeting with the first bill on the agenda. ASSEMBLY BILL 527 - Repeals certain provisions governing suppliers of certain intoxicating liquor who are required to hold certificate of compliance. First signed up to speak in favor of the bill was Ms. Janice Wright with the Department of Taxation. The department was requesting the bill because there were three provisions in the statutes at the present time that were not enforceable, had been deemed unconstitutional, and the Attorney General had advised the department no action could be taken with respect to them. The three provisions had been placed into the statute in the 1980's. What they did was tie the maximum fee that could be charged for liquor to the lowest fee charged in other states. That was a violation of the U.S. commerce clause; therefore, the department had been unable to enforce that provision for a number of years. Hence, the department was asking for A.B. 527 as a "clean-up" provision. Some of the out-of-state liquor suppliers sent affidavits that indicated the amount of fees charged in other states; however, the brands selling in the state of Nevada must be priced at the lowest price of what the other states are selling it . There were three sections tied together. One said if you violate one of the provisions, it had the enforcement procedures. All three sections that had been deemed a violation of the U.S. commerce clause were contained in A.B. 527. ASSEMBLYMAN JOAN LAMBERT MOVED TO DO PASS A.B. 527. ASSEMBLYMAN MAUREEN BROWER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** Chairman Stroth closed the hearing on A.B. 527 and opened the hearing on Assembly Bill 626. ASSEMBLY BILL 626 - Repeals assessment on gross receipts from sale of amygdalin and procaine hydrochloride with preservatives and stabilizers. Assemblyman Bob Price wondered why A.B. 626 did not say "Laetrile" and "Gerovatril." For history, he told of a man who was going to start manufacturing these substances. People had come from Mexico and other places to Nevada to buy these products because they believed it would make them live longer. He would have had them present at the hearing, but they all had died. Ms Janice Wright, Department of Taxation, had more information. She said A.B. 626 would repeal the manufacturer's charge. In the mid-1970s, it was viewed as a use drug and it became very popular. In the course of history, there were a couple of manufacturers in the state of Nevada; but now there was only one (an individual located in the Las Vegas area). He was the only person who paid the tax. The tax was less than $4,900 generated in a year. However, according to the Economic Forum's projection, it would be about $10,000 annually. It had been an unstable revenue through the years (since 1979, when it was put in place). Some years it was higher, many years it had been lower. It would effect one business currently paying the tax. The department had collected, in the current fiscal year, $4,900. Assemblyman Brower wanted to know if it cost more to collect than the state of Nevada received. Ms. Wright replied to the negative: there was not much of a collection cost. There was one individual who filed a sales tax return once or twice a year. However, if there were many who were subject to this, it might be a different story. Ms. Maureen Brower mentioned that, if it was not costing the state a lot of money to collect the tax, her general opinion was to keep taking the money. Assemblyman Roy Neighbors spoke along the same line. The tax was collected by mail. It sounded like an automatic (to some degree). Ms. Wright explained the only time a field person or anyone from the Department of Taxation contacted the individual manufacturer was if the tax return did not come in on a timely basis. As long as the returns were timely, there was not much of a cost associated with it. It was receiving the money, processing the check, and depositing. If there were a number of manufacturers in the business, and if they were consistently delinquent, then there would be a cost associated with the department trying to collect that. Assemblyman Larry Spitler agreed with Assemblyman Brower, who could not understand why the committee would repeal something that cost nothing to get. It then became a windfall to the manufacturer. He would not support A.B. 626. It seemed like such a small amount to Mr. Price and he had a conceptual problem with having only one person being taxed for a special item in the state of Nevada. It did not seem to him we should have a tax for one company, particularly when it was that small. ASSEMBLYMAN ROY NEIGHBORS MOVED TO INDEFINITELY POSTPONE A.B. 626. ASSEMBLYMAN MAUREEN BROWER SECONDED THE MOTION. THE MOTION CARRIED BY ALL THOSE PRESENT, WITH ASSEMBLYMAN PRICE OPPOSING. ******** There being no further discussion, the hearing on A.B. 626 closed. Chairman Stroth opened the hearing on Assembly Bill 656. ASSEMBLY BILL 656 - Extends exemption from taxation for veterans of Persian Gulf Crisis to all veterans who served on active duty during crisis. Ms. Stroth mentioned there was another bill, which had been heard by the Senate, to extend the exemption for the Persian Gulf Crisis to those who had served on duty. Testifying in favor of A.B. 656 was Mr. Randy Day, Commission for Veteran Affairs for Nevada. He informed Chairman Stroth that Senate Bill 354 called for the same measure being considered by A.B. 656, but it also increased the exemption from $1,000 to $2,000. Mr. Day urged the committee to consider favorably A.B. 656. He found it confusing and discriminatory for the Persian Gulf war time veterans to be treated differently from other war time veterans. They had to have been outside the United States to qualify. Mr. Day felt anyone who was in the military during war time support of the effort (should be eligible). A person could have become mobilized or activated during that period and still not have gone into the war zone, yet he would qualify because it would be reflected on his discharge. It became rather confusing if one looked at another group of individuals who served outside of the United States, but had been in prior to the call up. This fact would not be reflected on their discharge (papers). This would be very confusing. In conclusion, Mr. Day remarked it was a small benefit the state was offering and it should be offered to all veterans of all wars. Ms. Barbara Byington, Douglas County Assessor, added to Mr. Day's testimony, explaining a problem the assessors had. When someone came forward to ask for the $1,000 exemption they had to request paperwork to prove they actually served during the time of the war. The assessors were not for or against the exemption, it was just it was difficult to work because some service forms stated what they did and where they were; conversely, some paperwork did not. Therefore, it was very difficult to ascertain who served and who did not. Often, they had to request additional paperwork to prove they were in the Persian Gulf war. She agreed with Mr. Day: it was VERY confusing. Mr. Price wondered if it were different from other veterans, i.e., World War I and II, Korea, and Vietnam. Yes, it was different. If they served during that war time anywhere, it did not matter if they were in the actual fighting or not. The law only looked at the DATES of the war, rather than where one served. In contrast, the Persian Gulf exemption was available to only those who were physically in the Persian Gulf at the time. Testifying in behalf of the Department of Taxation was Ms. Janice Wright. She talked about language in the bill. A.B. 656 stated anybody who was on active duty during the time frame of the war was eligible. The way the rule worked previously, the person had to serve outside the United States: that was the language that was different than all the others. So now, under A.B. 656, they would be entitled to exemptions. Ms. Carole Vilardo, Nevada Taxpayers Association, opposed A.B. 656 -- as well as the Senate version of the bill (which extended the same provisions to widowers, also). Ms. Vilardo contended these exemptions, in effect, amounted to gifts. They were not for a social program. As we grew, she was concerned this exemption would cost more and more money. In fact, it started to cost a fair amount more in 1983 with the Attorney General's ruling stating the way it was worded at that time was incorrect; it had to apply to ANYBODY. At that time, there was a residency requirement. She realized it was very unpopular to oppose the bill, but thought there was no foundation for the exemption. Assemblyman Roy Neighbors respectfully noted the gift of freedom was certainly a good base to start from. Ms. Vilardo did not object to that. She asserted, though, if we are going to make it a gift, then we should make it a gift and do it one time -- or make it grading. It had started in 1953 and accommodated the WWI and WWII veterans, and then the veterans of the war in Korea. Every time we had a war, she felt a great debt of gratitude to those people who served in them. Her opinion was she thought we should give the veterans a gift and say, "Okay, we are going to exempt all of your licensing for this year, or your property taxes for one year, to say THANK YOU." Instead, we kept giving veterans exemptions that went on forever. As the state continued to grow and we have had these exemptions, it further eroded the amount of money the state brought in. For a matter of equity, though, Ms. Vilardo thought Nevada would have to do that and extend it. "When you say the exemption is forever," interjected Assemblyman Neighbors, "that is true. But some of those people lost their lives out there, Carole, and that was forever, too." Ms. Stroth asked Janice Wright if she had the numbers we would be adding by including the Persian Gulf, and asked if Vietnam was included already. Ms. Wright affirmed yes, Vietnam was included. An estimate of the numbers was ascertained by contacting the Bureau of Veteran Affairs, the Nevada State Library, and the state demographer. The department found there were 1.7 million nationally who would be eligible and the estimate of those in the state of Nevada was between 6,800 and 7,600; hence, the Department of Taxation estimated 7,000 would be eligible. If all 7,000 owned property in the state of Nevada and were able to receive $1,000, it would result in about a $200,000 loss. However, Ms. Wright cautioned the committee to recognize that many who did not own property would choose to take the exemption on their vehicles. If they received the vehicle exemption, it was worth more: it was up to $40. However, if they took it on their property tax, the average state tax was $2.80. Therefore, it was only worth $28.00 on their property tax. In summary, the $200,000 represented the amount of property tax if all 7,000 veterans chose to take the exemption on their property tax. Ms. Wright did not have an estimate from the Department of Motor Vehicles. Chairman Stroth noted Senate Bill 354 had not come before the Assembly Taxation Committee yet, which expanded the deduction from $1,000 to $2,000; perhaps the Committee should talk to their Senate counterpart and find out where they were going on the bill. ASSEMBLYMAN ROY NEIGHBORS MOVED TO DO PASS A.B. 656. "If it is okay with you, Mr. Neighbors, we would like to talk to the Senate side and find out if they are increasing it (the exemption) from $1,000 to $2,000," interjected Ms. Stroth. With that, Mr. Neighbors withdrew his motion. Mr. Price stated a problem he was aware of: the Senate had been indicating some of the Committees were going to start shutting down a little sooner. Some of the chairmen had indicated they were not going to consider any bill after June 19. There being no more discussion on A.B. 656, Chairman Stroth closed the hearing, reiterating they would get in touch with Senate counterparts in Taxation. Therefore, no action was taken on A.B. 656. ASSEMBLY BILL 671 - Provides exemption from property tax for certain tangible personal property used in business. Speaking for A.B. 671 was Ms. Carole Vilardo, who disseminated (Exhibit C). Sheet one was "Instructions for Complying with Nevada's Personal Property Tax." She provided extensive background information on the form. Four years ago, Nevada Taxpayers Association had started working with the assessors on property tax. A brochure called "Understanding Nevada's Property Tax System" was ultimately published. What they attempted to do in that was to standardize the procedures amongst the 17 counties on the provisions for appealing to the county boards of equalization. When the project was finished, in a continuing dialogue with the assessors, they asked for more input. Ms. Vilardo informed them of problems with the business personal property tax. They had found there were multiple forms, different instructions amongst the counties, and that was a concern to some of the larger retailers and banks who did business in multiple counties. But, unlike centrally assessed properties, they had all kinds of forms to comply with. Therefore, the association began working on trying to develop a brochure on understanding Nevada's business personal property tax (which had a target completion date of December of 1995). The goal was to get a standardized set of instructions that all 17 counties would use. In two years, the goal was to get a form that was identical or had the same sequence of order of the information to be listed. Ms. Vilardo requested the Committee refer to (Exhibit C) and look at the item called "Consumable Supplies." Now they had come to what A.B. 671 addressed. Consumable supplies were defined as things like paper clips, pencil boxes, toilet paper, coffee filters and cups, et al. Most consumable supply lists were often five times what fixed asset lists were! Not only that, it was not depreciable more than 35 percent, unlike fixed life assets which had short, average, and long life. Furthermore, Ms. Vilardo discovered the form (Exhibit C), was not uniformly applied. This area within business personal property tax was very burdensome to comply with and difficult to administer. Next, Ms. Vilardo referenced the second sheet of (Exhibit C); specifically, item 1 and item 5. There were some guiding principles of taxation she felt should be observed. The principles were from Adam Smith and had stood the test of time. She asserted exemptions had to have a good justification and foundation. The Nevada Taxpayers supported A.B. 671 and urged for its passage. Mr. Bill Bartlett, an assessor who represented the Assessors Association, testified regarding the difficulty of getting people to declare consumable supplies. It was difficult to be uniform. He commended the Taxpayers Association for helping them standardize their instructions, but even they did not know quite what to do with consumable supplies. As Carole Vilardo had pointed out, rubber bands, paper clips, business cards, and so forth were difficult to monitor. It was hard to monitor who was reporting and who was not; therefore, there were variations and problems with administration. Mr. Bartlett was not for or against the bill, but all of the assessors felt the current rule was very difficult to adhere to. Testifying in favor of A.B. 671 was Dr. James Galloway, who spoke as a small business owner. He had half full bottles of solvents and cleaning materials; he had sanding belts, grinding wheels, etc. It was a real problem reporting these consumable supplies. "What are we talking about here?!" Dr. Galloway exclaimed. "If I have a sanding belt, what am I doing with that? I am sanding the product! If I have a grinding wheel, I am using it to make the product. It is of no use for any other purpose. It is not a piece of office equipment. Once you use it, it has no resale value. So, you want to look at this as not a matter of giving somebody an exemption, but as a matter of equity. The cost of that grinding wheel is just as much a cost of my making that product as is the metal that goes into the product. The metal is inventory. And the grinding wheel should be exempt. There is no clear place where one could draw the line between what actually goes into the product and what was a piece of equipment. A grinding wheel is a useless piece of equipment, except for making that product. So is a sanding belt and so are certain solvents." He had to guess at the value of his supplies. In his business, there was no way to do what Carole Vilardo stated; to try to do so was "ridiculous." He asserted he could do the rest of his taxes in less time than it would take to do that! Furthering his argument, he used the following example: "What if I had taken the pieces of grinding wheel, boxed them up, and used them as balance weights? Now it would be part of the product and would be exempt." As an example of a small business, Dr. Galloway reaffirmed how much trouble it would be to do it any other way than just make a rough estimate. The fiscal impact was asked for by Chairman Stroth. Ms. Janice Wright stated the Taxation Department had contacted the county assessors to find out what types of items were considered consumables. In addition to office supplies, other items included repair parts, blankets, pillows (primarily in hotels); glassware, tableware, janitorial supplies and cleaners, chemicals, uniforms, exhibit and retail supplies, law library books, publications, et cetera. They had been able to determine from the major counties there were about $30 million in these items currently subject to tax. However, they also discovered mining properties had a considerable amount of consumables. They used items such as cyanide in consuming to produce their product; that totaled over $34 million. The total impact was about $64 million in value of property. If they were to apply the state property tax rate to that for the exemption, they came up with about $1.8 million. Ms. Vilardo reasserted there were very few who actually collected consumables because they never had it as part of their definition. She contended that in Elko, because of their computer program, consumable supplies were not listed at all. Even if they were reported, and Ms. Vilardo contended they were not, there was not a loss of revenue in that county. The greatest loss of revenue would be in Clark county. Last year, it was $6,047. To put it into perspective, the revenue was split amongst school districts, cities, and the county. The cities and counties were allowed to receive 106 percent of revenue from property tax received over the prior year (6 percent increase). In Clark county, $1.8 million was received per penny. Last year's collection was $647,000. The growth in revenue had exceeded that. Mr. Mark Schofield, Chairman of the Assessors Association, was supportive of A.B. 671, announced Ms. Vilardo. As well, it was not something easy to audit: it was an honor system, a "trust me" tax. Assemblyman Brower noted the wide dollar discrepancy between Ms. Vilardo's figure of $650,000 and Ms. Wright's figure of $30 million. She asked Ms. Wright to elaborate on her answer. Specifically, was $30 million the amount that had been actually collected in the past on the tax. "No, the dollar loss is $200,000," replied Ms. Wright. "The value of the property of expense items that are consumable is $30 million. The VALUE of them, NOT the dollars in tax. The fiscal note is $200,000 in loss; $64 million is the value of the total two categories of property and $34 million is the value of the mining consumables, and $30 million is the VALUE of the office supplies and other lists that I read you." Ms. Vilardo argued her position. Clark county had provided the number they listed as consumables as that amount of money lost to them. She did not have the numbers with her (Assessor Mark Schofield's numbers). But Ms. Wright announced the Department of Taxation had contacted Mark Schofield and it was he who had provided them the figures. The figures, unfortunately, did not agree with Ms. Vilardo's. Ms. Wright pointed out the department's numbers were less than the Taxpayers Association's numbers. Ms. Vilardo wondered if she had misunderstood Mr. Schofield, as she preferred Janice Wright's numbers, and said she would call Mark again. Nevertheless, the point was that, even if it were a million dollars, it was like the "sliding camper shell" story: it was not easily administered. It was a totally inconsistent tax. A dollar figure debate and lengthy general discussion, reiterating all of the points, ensued. The hearing on A.B. 671 closed, with no action taken. Chairman Stroth announced to the Committee that Senate Bill 272 had been sent back. Discussion on this bill was not on the agenda. SENATE BILL 272 - Establishes fee for issuance and renewal of certificate of compliance to suppliers of liquor located outside of this state. Ms. Stroth explained the Assembly Committee had changed the liquor fee from $25 to $50. The Senate did not like the Assembly's amendment and had requested for the Committee to recede. Someone suggested having a conference committee. Mr. Michael Pitlock, Executive Director of the Department of Taxation, was not sure that was the reason the Senate asked the Assembly Taxation Committee to recede. When the bill was heard on the Senate side, there had been a discussion about possibly using the funds in order to provide funding to the Department of Taxation to hire a third budget analyst for the local government section to help them with situations like White Pine county. The problem was, that in order to generate enough money to do that, the fee would have to go to $75.00, not $50.00. ASSEMBLYMAN BROWER MOVED TO NOT RECEDE ON AMENDMENT TO S.B. 272 AND FOR IT TO GO TO CONFERENCE COMMITTEE. ASSEMBLYMAN SCHNEIDER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** Ms. Brower, Mr. Schneider, and Mr. Manendo volunteered to serve on the conference committee. Chairman Stroth requested Mr. Manendo to withdraw his name to serve on the committee, which he did. Ms. Stroth replaced Mr. Manendo to serve on the conference committee to discuss S.B. 272. There being no further business to come before the committee, the meeting adjourned. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary Assembly Committee on Taxation June 13, 1995 Page