MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session June 27, 1995 The Committee on Taxation was called to order at 4:00 p.m., on Tuesday, June 27, 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 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. Larry L. Spitler COMMITTEE MEMBERS EXCUSED: Mr. Pete Ernaut, Vice Chairman Mr. Brian Sandoval GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Ms. Mary Santina, Retail Association of Nevada Ms. Carole Vilardo, President, Nevada Taxpayers Association Ms. Janice Wright, Department of Taxation Mr. Mark Schofield, Clark County Assessor OTHERS PRESENT, CONT. Ms. Mary Henderson, Washoe County Representative Mr. Alvin P. Kramer, Carson City Treasurer's Department Chairman Jeannine Stroth opened the meeting, commenting the committee was a subcommittee. She requested the Committee Secretary to mark the absent members present as they arrived. SENATE BILL 452 - Authorizes local government to acquire property held in trust for use as open space without paying delinquent taxes. Chairman Stroth noted the bill was Mary Henderson's. However, she was not present because she was testifying on a water bill for Washoe County. Hence, the Chair decided to hold S.B. 452 until later. Ms. Stroth moved the course of discussion to Senate Bill 485. Mr. Zuend's explanation of the bill appears as (Exhibit C). SENATE BILL 485 - Provides credit for bad debts against taxes on retail sales. First to testify was Ms. Mary Santina, who represented the Retail Association of Nevada (RAN). S.B. 485 was a result of an interim committee on taxation and previous legislation. It was an act to provide credit against taxes on retail sales for the portion of sales price not collected. When the retailer received a payment, it was not presumed to be a sale if that payment was not any good. For example, if a check bounced on payment for a $100 blouse, the retailer was out both the merchandise and the amount of money. S.B. 485 allowed the retailer to defer the amount of tax payment due until they were able to collect the payment. At the time payment was collected, the tax became due and payable. Also, the bill would not become effective until July 1, 1997. That would allow everyone time to gear up for it, for the (Taxation) department to offset the fiscal note and the Governor to set the appropriate amount in the budget. Ms. Carole Vilardo, Nevada Taxpayers Association, provided history on S.B. 485. (It was the 20th anniversary of her lobbying on the bill!) In the 1985 session, the bill had been presented, as was a bill to allow bad debt gaming markers to be exempted: the gamers won, and the retailers lost. ( Gamers were given a credit for bad debt; retailers were not.) Ms. Vilardo thought this was patently unfair. It constituted a tax on the retailer, a tax against the income of the retailer's business for income never received! It became more than a question of sales tax, because if the merchandise sold wound up being a bad debt, the retailer was out the money and the merchandise, plus they had paid a sales tax! And they paid a tax on nothing, because the retailer never collected tax. In summary, on this 20th anniversary, and the fact this had been deferred for two years (the deferral for two years was because the fiscal note might be $2 million, it might be $1 million, it might be $2.7 million -- the notes varied), to allow enough time to not impact the state budget and to put everyone on notice that on July 1, 1997 (when the Legislature came in), the numbers would be adjusted. Another point of importance was the bill had been modified so that if the sale made by the retailer was done on a credit card (like Visa), the bad debt was not allowed. Obviously, if Nevada was fortunate enough to maintain the healthy economy it presently enjoyed, increases experienced in sales tax would more than offset any loss of revenue. It allowed everyone to plan for it. Ms. Vilardo urged the passage of S.B. 485. Ms. Santina drew attention to Section 3 of the bill. The language prohibited a retailer from, for example, holding a bad debt for two years and then writing it off. Assemblyman Maureen Brower questioned if the retailer was required to seek any and all means of collecting the monies due first before being allowed to write a sale off as a bad debt. Ms. Santina responded the retailer would write the bad debt off at the time of tax filing. Normal collection efforts would still be followed. Any payments received on the account, or if the account were to be paid in full, the taxes were due and payable at that time. Having been a retailer herself once, Ms. Vilardo illustrated a scenario of what it was like for a retailer who had a bounced check for $200; the retailer made every effort possible to collect the money! Ms. Vilardo was emphatic on the point. Co-chairman Price's assumption was, due to the projected fiscal note, the bill would probably end up in Ways and Means. The fiscal note for fiscal year 1995 - 1996 was $9.2 million. Upon hearing that figure, Ms. Vilardo demonstrated astonishment and began to challenge the number, but Mr. Price interrupted her and recited from the explanation of the state agency's estimates. Ms. Santina stated her understanding the note had been readjusted to $3.6 million and, since it was out of the budget cycle, the bill did not have to be re-referred. Ms. Vilardo exclaimed the bill was a case of equity and fairness, and reiterated the fact the gaming industry had passed their bad debt bill several years ago; the retailers were still the losers. Plus, even if S.B. 485 passed, the retailers still had to wait two years for it to go into effect. Mr. Price could not recall how the percentage a retailer kept for collecting the tax was handled. When the sale was initially made, he was puzzled about how it would fit into the whole picture. He conjectured a few scenarios. Ms. Vilardo illumined Mr. Price, and explained how a small retailer handled tax was, if the tax liability was under $10,000 a quarter, it could be reported quarterly (as opposed to monthly). It was the retailer's choice. She continued to elaborate until she felt Mr. Price was satisfied. Ms. Janice Wright, Department of Taxation, explained the background behind the creation of the fiscal note. It was based upon information received from the Retail Association. Bad debts encompassed anywhere from about three-quarters of 1 percent to about 1 percent. However, since then, more information had been received from Dunn and Bradstreet. They indicated the types of sales that went bad would indicate only about a quarter of 1 percent. Estimating the adjustment based on the earlier figure, the loss would be approximately $3.6 million in a year. The nine month figure was provided to the committee on the fiscal note because of the fact it would occur in the portion of the year and only account for nine month's worth of revenue ($9.2 million). Therefore, the department's fiscal impact would be a loss of $3.6 million for a full year's worth of revenue, or $2.6 million for nine month's worth of revenue. Chairman Stroth asked for a motion. ASSEMBLYMAN BROWER MOVED TO DO PASS S.B. 485. ASSEMBLYMAN SCHNEIDER SECONDED THE MOTION. The motion was not voted upon because Mr. Eric Cooper, who represented the Las Vegas Chamber of Commerce, came forth to go on record in support of S.B. 485. After his formal announcement, the vote was taken. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** Chairman Stroth opened the hearing on Senate Bill 572. Mr. Zuend's explanation of the bill appears as (Exhibit D). SENATE BILL 572 - Clarifies provisions concerning payment of insurance premium tax for 1995 calendar year. Ms. Carole Vilardo, President of the Nevada Taxpayers Association, spoke in support of S.B. 572. She informed the bill was a "trail" bill to Senate Bill 271. The department, as it turned out, did not have the authority to provide refunds to insurance companies that had made prepayments. The bill allowed the refund checks to be processed. There was no request being made for interest. Ms. Vilardo pointed out NRS 360, which required interest and/or penalties on refunds. She wondered if an amendment was required. Ms. Janice Wright, Department of Taxation, explained S.B. 572 provided for her department the authority to issue refunds. There was about $38 million paid to the department (approximately 650 insurance companies). She was unaware of any discussion with Mr. Pitlock wherein there needed to be an amendment to the bill. There was no further testimony on S.B. 572; no action was taken. Chairman Stroth decided to open discussion on Senator Rhoad's bill, Senate Bill 546. SENATE BILL 546 - Imposes additional requirements for enactment of legislation that imposes or increases public revenue. Informal discussion transpired on the bill. Mr. Price informed the main purpose of the act was to try to provide an alternative to the "Gibbon's Initiative." S.B. 546 was an act to provide for the submission to the voters of the question of when a bill imposed or increased a tax, it must be approved twice for final passage by each house. A period of at least 10 calendar days had to elapse between the date of the first vote and the second vote. Ms. Vilardo supported S.B. 546 and explained it was the bill proposed from the interim committee on revenue and taxation as a counterproposal to the Gibbon's two-thirds initiative (Question No. 11 on the ballot for the general election). She presented a set of amendments (Exhibit E). Ms. Vilardo elaborated on the amendments. She explained the language she provided was not "bill drafter language." S.B. 546 allowed for a revenue raising measure to be passed if sine die was near: the house of origin could request a resolution to declare an emergency and a simple vote could be taken, just as was done now. The language was a safeguard, in Ms. Vilardo's opinion. Assemblyman Lambert had a concern the voter might be deceived by not having the full verbiage from Sections 1 and 2. However, Ms. Vilardo thought all the verbiage might result in a situation wherein the ballot question became very complicated. She reminded everyone of what happened with the charities. Senator Rhoads intent was to keep the language simple and the amendment Ms. Vilardo proposed (Exhibit E) would also satisfy Assemblyman Lambert's concern for the voters to know exactly what the intent was of the legislation. Ms. Vilardo urged the passage of S.B. 546 with the amendments tentatively drafted by Ms. Erdoes, and left it to the committee's choice if they wanted to include the additional language (Exhibit E). Assemblyman Larry Spitler avowed he always supported issues going to the vote of the people, but he denounced S.B. 546 as "laughable." He could not even get a resolution to hold the general appropriations bill for three days out of the Senate! It had now been amended to one day. He did not understand why sine die was more important than closing the session "the right way." It was bothersome to him the Senate had sent S.B. 546 to the lower house when they would not vote for a three day, on-the-floor of the general appropriations bill. Further, Mr. Spitler felt there should not be an escape clause on taxes; he did not think there should be an emergency resolution to avoid waiting the required 10 days. He thought it was deceitful to the public when the legislators did not "play by the rules" in place and created "escape clauses." If poor planning resulted in committees not knowing what the revenue needs were 24 hours before sine die, Mr. Spitler foresaw the "emergency resolution" being used every session. He argued passionately against the emergency provision and contended there should be a 10 day wait period. He reiterated that he found it "amazing" the Senate would not approve the general appropriations resolution in the rules but now wanted to pass a bill like S.B. 546. Mr. Spitler charged it perplexed and confused the public when they saw different ways to vote on different issues. In addition, in the particular amendment being proposed on S.B. 546, he guessed the majority of the public did not even know what sine die meant, yet it was being proposed to be used in the language for a ballot question. Ms. Vilardo argued S.B. 546 came out of the interim committee and would not have passed with the escape clause. She declared, "I would rather see us spend against the revenue which we had planned to receive, than spend and have the revenue suddenly have to meet the expenditure level . . . which is what we normally do . . . and I think is a disservice to the public (sic)." Hence, she did not disagree with Mr. Spitler. But on behalf of Ms. Vilardo's board, there was a major concern about a constitutional change of two-thirds. Her board preferred "this type of mechanism, although they wanted the full 10 days." She was concerned if there was no counterproposal. She concurred with the statements Mr. Spitler made and offered to work with him next year to correct both situations. Mr. Price was under the impression, because of conversation with former legal counsel, the legislature could not put a question to the people to be voted on, passed, and enacted; that "we could only do advisory questions." The constitution of Nevada only provided for an initiative petition and the legislature should enact laws. Assemblyman Mike Schneider questioned the language in the bill where it stated ". . . increases the tax, assessment, rate, or any other public revenue to be considered . . ." He commented the legislators voted frequently for diminutive rate increases on boards, licenses, and fees. Ms. Vilardo cited an amendment she had passed out at a previous meeting in Taxation. The bill had been voted "that way" on the Senate floor, but, because of discussions, Senator Rhoads declared he would ask the Assembly for an amendment that would remove the term "other revenue and tax rate." He had removed the word "fee" from the original bill draft request. Thus, the first reprint of the bill said, " . . .tax, assessment, tax rate, and other revenue . . ." In the Senate floor discussion, it had been determined "other revenue" would probably mean "fees." So, even though "fees" had been removed, it went broader to include surcharges (which had never been discussed before the interim committee). That was the reason for the proposed amendment to remove ". . . tax rate and other charges . . ." And leave it strictly to ". . .taxes and assessments . . ." It acknowledged that frequently, there were fees that needed to be raised 25 cents. Ms. Stroth wondered if everyone had a copy of the amendment on S.B. 546. She reviewed the first amendment (Exhibit F) in detail. Chairman Stroth asked if there was anyone else present who wanted to testify regarding S.B. 546, or if there were any more comments. Seeing none, she closed the "work session" on S.B. 546. There was no action taken. Ms. Stroth asked for Assembly Bill 672 to be discussed. She refreshed the members with a summary of the bill. ASSEMBLY BILL 672 - Exempts certain property from taxation. Mr. Mark Schofield, Clark County Assessor, testified on A.B. 672, saying he concurred with the language. He thought it did exactly what was previously discussed. The Chair asked for a motion. ASSEMBLYMAN PRICE MOVED TO DO PASS A.B. 672. ASSEMBLYMAN SCHNEIDER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** For the record, Ms. Stroth announced Assembly Bill 702 had been heard on the floor this date. The motion was to amend, do pass, and re-refer to Ways and Means. She did not elaborate. The Chair returned to S.B. 452 and asked Ms. Mary Henderson, who represented Washoe County, to testify. Ms. Henderson explained the bill was from Washoe County's Comprehensive Planning department. They had a very extensive open space planning function. They did not want to pay the delinquent tax to themselves when they got land. It was not a "takings" of property. The bill would eliminate the paperwork and accounting function to "pay themselves." Mr. Al Kramer, Carson City Treasurer, stated his outlook on S.B. 452. He argued it WAS a "takings." Mr. Kramer did not think that suddenly someone just decided not to pay their property taxes. He alleged most people were in positions where they were going to lose their property because they could not pay their taxes! It was not a question of somebody walking away from their property and not caring. There were people on fixed-incomes, for example, who could not pay the taxes. Their equity was taken away at the same time as their property was taken. He argued it was not right for people who lost their property because they could not pay their taxes to lose the equity on their property, as well. Mr. Kramer did not personally agree with any type of takings -- whether it was for schools, streets, parks, low cost housings -- where the property was not sold and the property owner had some chance of getting some of their equity back. It was unfair. He vigorously opposed taking property without the people getting some of their equity back. Regarding special assessment or redevelopment districts, Mr. Kramer discussed bonds and what they were based upon, i.e., so many parcels, what the taxes were going to be, rates, etc. When the situation arose where not only could you "forgive" a couple year's back taxes on a place, but also put it into the public sector where there would never be any more taxes assessed against the parcel, the credibility of the special assessment district was damaged as far as bonding. It could actually affect the bond rating for that district or county. Mr. Price agreed with most, if not everything, of what Mr. Kramer stated. He asked him to explain the bill and asked if he was testifying against the bill or if he was testifying against the practice. "Yes!" exclaimed Mr. Kramer. "Both!" He quoted from Section 1, Paragraph 4 of S.B. 452. Mr. Price pointed out Mr. Kramer was opposing existing language, the current law. Mr. Kramer agreed, but argued the bill was now adding one more reason why that could be done: for open space. Other bills had tried to address it for low-cost housing. He confirmed he was against the language in S.B. 451, as well as opening it for one more reason. Mr. Price wanted an example of when property would be taken to be used for open space. Mr. Kramer deferred to Ms. Henderson. Ms. Henderson stated it would have to be an undeveloped parcel. Mr. Price probed further, wondering who requested the bill draft and why; he was very curious about the genesis of the bill. Ms. Henderson repeated it was the (request of) Washoe Comprehensive Planning department. Washoe County had a very active open space program to keep as much of the valley from being developed to retain the view shed and keep land open for public purposes, e.g., hiking trails and passive recreational uses. There were areas they tried not to maintain, but the public did have access to them. It was just to accommodate that program. One of the ways Washoe County acquired property for open space was through tax delinquencies. When that occurred, they ended up paying the property tax delinquency to themselves, as Ms. Henderson understood it. Assemblyman Schneider shared the concern of Mr. Kramer. Somebody could owe a few thousand dollars in back taxes. If that property were to be ceased and was worth $10,000 or $20,000, it did not seem fair the owner would lose all their equity in the property. But Ms. Henderson argued a forfeiture was a forfeiture, for whatever reason the delinquent property tax was not paid. There was a process adhered to on delinquencies: it was not just a county tangent, where someone determined, "Oh gosh, you are two weeks behind on your taxes!" There was a whole process laid out. Ms. Stroth surmised the bill was not introducing whether there was a right to take the property. S.B. 452 eliminated the duty to pay the delinquent property tax after the process and procedures had been followed. It was adding another definition. Ms. Henderson concurred, and commented it was currently being done for sewer and drainage. There was no further testimony regarding S.B. 452 and no action was taken. Chairman Stroth announced other bills would be heard on the floor. She articulated she had thoroughly enjoyed working with Mr. Price and thanked him for providing her the opportunity to share his wisdom and knowledge. She expressed her appreciation for all of the help he had given her. With those words, one of the last meetings of the session for the Assembly Committee on Taxation came to a close at 6:00 p.m.. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary Assembly Committee on Taxation June 27, 1995 Page