MINUTES OF THE JOINT MEETING OF SENATE COMMITTEE ON TAXATION AND ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session February 13, 1995 The joint meeting of the Senate Committee on Taxation and the Assembly Committee on Taxation was called to order by Chairman Sue Lowden, at 6:10 p.m., on Tuesday, February 13, 1995, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. SENATE COMMITTEE MEMBERS PRESENT: Senator Sue Lowden, Chairman Senator Kathy M. Augustine, Vice Chairman Senator Ann O'Connell Senator Dean A. Rhoads Senator Randolph J. Townsend Senator John B. (Jack) Regan Senator Ernest E. Adler ASSEMBLY COMMITTEE MEMBERS PRESENT: Mr. Robert (Bob) Price, Co-Chairman Mrs. Jeannine Stroth, Co-Chairman Mr. Peter (Pete) Ernaut, Co-Vice Chairman Mr. Michael A. (Mike) Schneider, Co-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 GUEST LEGISLATORS PRESENT: Mr. John C. Carpenter, Assembly District No. 33 Senator Maurice E. Washington, Washoe County District No. 2 Ms. Genie Ohrenschall, Assembly District 12 STAFF MEMBERS PRESENT: Lisa Clearwater, Committee Secretary Kevin Welsh, Deputy Fiscal Analyst Ted Zuend, Fiscal Analyst OTHERS PRESENT: Janice Wright, Deputy Executive Director, Department of Taxation Michael Pitlock, Executive Director, Department of Taxation Myrna T. Williams, Commissioner, Clark County Board of Commissioners Gunda Bristoll, Spring Valley Assembly of God Pastor David Childers, Spring Valley Assembly of God Garth R. Winckler, President, United Way of Southern Nevada Sister Diane McGuire, Variety Day Home Monte C. Fast, Executive Director, Friends in Service Helping Ed Fend, Lobbyist, Chair, American Association of Retired Persons Brett Organ, Nevada Concerned Citizens J. William Starmer, President/Chief Executive Officer, Young Men's Christian Association (YMCA), Southern Nevada Patricia Miller, Executive Director, Frontier Girl Scout Council Harry Mortenson, Member, Board of Directors, Nevada Dance Theatre Suzanne Le Blan_, Executive Director, Leed Discovery Museum M.J. Harvey, Nevada Symphony Orchestra Paul Beams, Boulder Dam Area Council, Boy Scouts of America Anita Gant, Concerned Citizen Major Jim Sullivan, The Salvation Army Lucille Lusk, Lobbyist, Nevada Concerned Citizens Reverend Merrill W. Karouse, Director, United Methodist Social Ministries Cynthia Watson, Principal, Echoes Christian Academy Eddie Watson, President, African Americans for Energy Awareness Renata Cirri, Executive Director, Community Action Against Rape Mike Montandon, North Las Vegas Stake Latter Day Saints Church Candace Ruisi, Women's Development Center Janice Brooks, Junior League of Las Vegas Dennis Hetherington, Executive Director, Clark County Pro Bono Project John Hiatt, Red Rock Audubon Charles Collenberger, Families of Murder Victims John Agular, Victory Outreach Ministries International Luann Day, Concerned Citizen David Pool, Concerned Citizen Bob Tretiak, Concerned Citizen Angie Wallin, Nevada Association for the Handicapped David Parks, President, Board of Trustees, Aids for Aids of Nevada Chairman Lowden opened the joint taxation hearing on Assembly Bill (A.B.) 173 and Senate Bill (S.B.) 144. ASSEMBLY BILL (A.B.) 173: Makes various changes regarding exemption of charitable organizations from taxes on retail sales. (BDR 32-957) SENATE BILL (S.B.) 144: Proposes to exempt expressly from certain taxes on retail sales gross receipts from sales of tangible personal property by certain organizations. (BDR 32- 1325) Mr. John C. Carpenter, Assembly District No. 33, was first to testify in favor of A.B. 173 and S.B. 144. Mr. Carpenter said the most important thing in regard to these bills is that there will be a cutback in government services and funds. Because of this, the charitable organizations should not be burdened with sales tax. Senator Lowden asked, "Do you believe. . . the people in Elko were as confused as . . . people in Clark County on that particular ballot question?" Mr. Carpenter responded, "I don't think there is any question that the wording was very [poor]. A lot of people . . . thought they were voting for a tax increase and that is why it was defeated. I think the people in the north and the southeast and west all had the same feelings. They really didn't understand what they were voting on. Hopefully in 1996, we will be able to solve that problem." Michael Pitlock, Executive Director, Department of Taxation, testified about what the Department of Taxation is doing with respect to the taxation issue. Currently, only 40 organizations have registered to collect sales tax. The Department of Taxation estimates approximately 3500 organizations are required, by law, to register. In an attempt to minimize the impact of the law on these organizations, the Department of Taxation has waived the collection of the security deposit that is normally required from any organization that has to collect sales tax. The Department of Taxation is also trying to educate organizations about this law. Mr. Pitlock stated the Department of Taxation must administer the law as it is written. Janice Wright, Deputy Executive Director, Department of Taxation, presented and discussed Exhibit C. Mr. Ernaut, Assembly District 37, questioned, ". . . I wanted to take issue with the wording of number 7 [Exhibit C] because I think girl scout cookies are . . . immediate consumption. . ." Ms. Wright said the problems the Department of Taxation is having are with the wording of the food exemption, but not the exempt entity situation. Ms. Wright continued discussing Exhibit C and stated the Department of Taxation wants to work with the exempt entities and show them what they need to do to comply with the law. Mrs. Joan A. Lambert, Assembly District 29, asked if there is any difference in the way A.B. 173 and S.B. 144 would be enforced? Mr. Pitlock responded, "There could possibly be a difference, depending on the interpretation given to that language. The Department [of Taxation] believes . . . that by tying the exemption to the Internal Revenue Code, we would have less controversy over who is a qualified organization and who isn't. . . I think from an enforcement standpoint, it would be much easier to enforce if it was tied to the Internal Revenue Code." Senator Regan queried, "Why after 35 years, did the [attorney general] have an . . . idea to change something that this state has operated on for a number of years and issue their opinion, number 92.7, and was this requested by someone . . . ?" Ms. Wright said: Businesses had contacted the Department of Taxation to explain that there was an inequity in the way the tax was being administered. They brought to our attention the fact that you can have a store that is run by a religious or charitable organization right next door to another business establishment that is not run by a religious or charitable organization, and they asked us why we were making that distinction. When we looked at why we were making that distinction, we went back to the language of the statute and found it says `only sales made to.' At that point we believed it necessary to get clarification from the attorney general's office. When that clarification came to us it said, `you must read the statute the way it is written. You may not interpret it other than that.' Therefore, the way it was written says `sales made to' not `sales made by.' That created [this] situation. Senator Regan asked if the committee could overrule the attorney general's opinion with a clarification of legislative intent. Ms. Wright responded if the committee ignores the attorney general's opinion, the committee risks being subjected to judicial action. Senator O'Connell questioned in regard to lines 21-23 of A.B. 173, how the law would be applied to groups not under the Internal Revenue Code. Mr. Pitlock suggested, "If this particular bill was passed that established an exemption for only those organizations that are registered under the Internal Revenue Code, section 501 C3, then I believe we would be bound to follow the law as written." Senator Adler said, "I think that it does create a problem to not have it under 501 C3 because any of us in this room could become a nonprofit tomorrow. . . Nevada law does not require us to do anything but file court incorporation papers. . . " Senator Maurice E. Washington, Washoe County District No. 2, was next to testify. Senator Washington stated: . . . The constituents that are in my district along with some of the non- profit and religious organizations have expressed their concern on the intent of the voter referendum. Most of them did not understand the language and for the most part, they thought they were voting against taxes being applied to them. I can speak for my own behalf. Running a small church, anything that we do is to raise funds to maintain our overhead. . . and continue our own operation. . . Under the Nevada law right now, you can actually file for nonprofit or a non-incorporated organization . . . with the state, without going to a [501 C3] status. The problem with it is that if you do apply for a 501 C3 status, you lose your choice. We threw the argument in again of the separation of church and state. . . It is important to know that the state shouldn't make any laws or implement anything upon nonprofit organizations or religious organizations that are just basically out there to maintain their existence. . . " Senator Lowden asked, ". . . You are saying that it would be a problem for some organizations to be a 501 C3, that should be exempt?" Senator Washington responded, "Correct. You can actually file for a nonprofit organization within the Nevada statute right now and still get a tax exempt number from the [Internal Revenue Service] IRS. You don't actually have to file for a 501 C3 status. Senator Lowden and Senator Washington discussed how Senator Washington's church maintains non-profit status. Senator Regan added, ". . . We did [this] for the Senior Citizen's Mobile Home Park. It took numerous months with additional costs to an attorney in San Francisco. . . It is a very costly factor for a nonprofit organization to become a 501 C3 . . . I think that we are adding additional costs to our charitable nonprofit organizations when we demand that they obtain a federal nonprofit stated in the 501 C3. . . " Senator Washington agreed with Senator Regan's comments. Myrna T. Williams, Commissioner, Clark County Board of Commissioners, testified next. Commissioner Williams stated, ". . . I do support placing this back on the ballot. We all understand the only way that we can modify this or extinguish it is by a vote of the people once again. I think it is unfortunate that the language was not clear enough for the people to be able to understand the amount of chaos something like this could cause, particularly to the small organizations. . . " Next to testify was Gunda Bristoll, Spring Valley Assembly of God. Ms. Bristoll thinks that everyone should be able to revote on the issue since now they understand what they were voting on and they did not before. Pastor David Childers, Spring Valley Assembly of God, testified and stated, "We have quite a number that are here . . . I would be happy to speak for them . . . People say that Nevada did not vote for a tax increase, but in reality they did. The tax increase is upon themselves. They are making their churches and their charitable organizations collect the taxes. I know of no church or charitable organization that is happy being the publican . . . for the state of Nevada. Also, there is an issue of intrusion. We would like to see things kept clearly defined concerning separation of church and state. . . Our concern is I don't think anyone in the state of Nevada is interested in seeing the state have any intrusion . . . into the church or . . . charitable organizations. . . " Senator Lowden and Pastor Childers discussed the cost of his organization becoming a 501 C3 organization. Garth R. Winckler, President, United Way of Southern Nevada, was next to testify in support of S.B. 144. Mr. Winckler discussed and presented Exhibit D. Mr. Manendo asked, " . . . There are some people . . . that voted `no' . . . Did they know what they were doing? One example is today in the Las Vegas Sun; `Legislature is ignoring proven wishes of the voters'. . . I personally have always been a believer that the voter is the boss and whatever they say goes. . . " Sister Diane McGuire, Variety Day Home, stated her support of S.B. 144. Sister McGuire reiterated previous testimony. Monte C. Fast, Executive Director, Friends in Service Helping, (FISH), presented and discussed Exhibit E. Senator Adler agreed with Mr. Fast about FISH contributing greatly to the community. Senator Adler also commented that he thinks taxing nonprofits and charitable organizations will hurt their ability to contribute to the community. Mr. Fast said FISH is a very strong organization with a great deal of community support, but thousands of agencies will have their charitable spirit killed by the tax. Next to testify was Ed Fend, Lobbyist, Chair, American Association of Retired Persons. Mr. Fend discussed and presented Exhibit F. Mr. Ernaut commented, ". . . There is a bill draft request currently in the Legislature authored by one of my colleauges from Carson City . . . that addresses the moratorium to deal with the period in between now and the period that these bills work. . . " Brett Organ, Nevada Concerned Citizens, testified next. Mr. Organ said, ". . . I would like to point out . . . after more than 30 years of operating in what I think was a very principled and time honored way, because of the . . .[way the] language in the original 1955 law was worded . . . it didn't say you couldn't do something, the attorney general decided that suddenly we could. I think that is very telling and very typical of our modern government. When we were hearing the presentation of the tax authority, . . . I got lost as to what is and what isn't taxable . . . We want to keep church and state separate. . . I am here in support of S.B. 144 . . . " J. William Starmer, President/Chief Executive Officer, Young Men's Christian Association (YMCA), Southern Nevada, presented and discussed Exhibit G. Next, Patricia Miller, Executive Director, Frontier Girl Scout Council, discussed and presented Exhibit H. Harry Mortenson, Member, Board of Directors, Nevada Dance Theatre, testified and presented Exhibit I. Suzanne Le Blan_, Executive Director, Leed Discovery Museum, testified: . . . The Nevada statute requiring the charitable organizations charge sales tax on material goods sold is of concern to the board of trustees and staff at the museum. As we struggle to understand the law, meet the requirements of collecting the tax, and report those collections to the state of Nevada, we must also look at the impact that it has on museum family members, our donors, the children that are involved in our programs and services, and the available staff time needed to be in compliance with the law. In order to protect financial stability, nonprofit organizations go to a variety of sources for funding . . . While we are losing funding at the national level, . . . we cannot afford to increase the cost of services. . . In accordance with the new law, the museum must collect state sales tax on items sold in our gift shop, food served at our giant picnic land family fund raiser, and our annual dinner dance auction . . . I would like to call attention to the staff and volunteer time required to be in compliance. . . [and] I did an informal survey of about 30 people and 3 of them knew what they were voting for. . . M.J. Harvey, Nevada Symphony Orchestra, was next to testify. Ms. Harvey presented Exhibit J and expressed her concern about the tax that will be collected on the fund raiser they have planned. Ms. Harvey stated she is in favor of S.B. 144. Paul Beams, Boulder Dam Area Council, Boy Scouts of America, testified in support of S.B. 144. Mr. Beams presented and discussed Exhibit K. Senator Lowden and Mr. Beams discussed the security deposit, a meeting that the tax commission would have on March 22, and whether or not the security deposit can be waived. Mr. Neighbors reviewed a current bill draft request and its purpose. Anita Gant, Concerned Citizen, expressed her thoughts on the problems of the small nonprofit organizations. Major Jim Sullivan, The Salvation Army, said they sent their first tax check in recently and it was for $11,000. Major Sullivan thought the money could help a lot of people if they did not have to pay it to the state. Major Sullivan said the Salvation Army is expected to do more with less and less money. Senator Augustine considered the tax amount the Salvation Army has paid. Senator Regan asked for confirmation that the Salvation Army cannot ring bells inside businesses on the Las Vegas strip and offered suggestions to help. Mr. Neighbors asked how much the Salvation Army had to pay for a deposit. Major Sullivan replied, "$37,000." Lucille Lusk, Lobbyist, Nevada Concerned Citizens, testified in support of S.B. 144 and against A.B. 173. In regard to A.B. 173, Ms. Lusk stated: . . .Since the hearing in Carson City, we have grown more and more convinced that we should not agree to limit the church and charity tax exemption to 501 C3's only. . . A.B. 173 ties us not only to the current definition of 501 C3, but would tie churches and charities in the state of Nevada to the future vagaries of the IRS. If you look at it closely it says in it, `to the Internal Revenue Code and future amendments to that section and the corresponding provisions of future Internal Revenue Codes.' . . . I wanted to point out for you that A.B. 173 would actually impose a new tax on purchases as well as a tax on sales for small charities and churches that are not 501 C3 registered. . . Senator O'Connell discussed with Mr. Pitlock the procedure, time frame of audits on sales tax, and the cost of an audit to the division. Mr. Pitlock said there is no set time frame and no plan to audit any small organizations. Senator Lowden asked those people in attendance if they had any suggestions on the language that could be used to make S.B. 144 perfectly clear, to please submit them to the committee. Reverend Merrill W. Karouse, Director, United Methodist Social Ministries, stated his concern about keeping the separation of church and state in tact, the cost of monitoring these agencies will not be cost effective. Reverend Karouse does not want 501 C3 status to be a determining factor, with increasing problems nonprofits have been doing more with less money. Reverend Karouse suggested suspending the collection of taxes and rethinking the wording of the bill and have the public vote on it again. Cynthia Watson, Principal, Echoes Christian Academy, testified next. Ms. Watson stated her concern about the effect the tax will have on fund raisers and their budget. Eddie Watson, President, African Americans for Energy Awareness, testified in support of S.B. 144. Renata Cirri, Executive Director, Community Action Against Rape, was next to testify. Ms. Cirri stated her appreciation for the committee's time and her wish for the committee to put a moratorium on the tax until it can be fixed. Mike Montandon, North Las Vegas Stake Latter Day Saints Church, commented in support of S.B. 144. Mr. Montandon discussed the troubles the tax would cause their fund raisers. Janice Brooks, Junior League of Las Vegas, testified the tax would greatly affect their fund-raising efforts and they are in support of S.B. 144. Candace Ruisi, Women's Development Center, stated she supports S.B. 144 and reiterated prior testimony about establishing a moratorium. Ms. Genie Ohrenschall, Assembly District 12, was next to testify. Ms. Ohrenschall said she has had many phone calls from citizens about the problem with the tax. Ms. Ohrenschall said the committee should consider if they want to destroy the volunteer spirit in Nevada because that is what this tax will do. Senator Lowden and Janice Wright discussed how citizens might find out when the taxation meetings take place and how to attend. Dennis Hetherington, Executive Director, Clark County Pro Bono Project, was next to testify in favor of S.B. 144. Mr. Hetherington said they provide free legal assistance to the low income residents of Clark County in civil matters. They rely on volunteer attorney service and the ability to raise funds to provide services. Mr. Michael Schneider, Assembly District 42, stated, ". . . I would just like everyone to know that . . . I too am on the board of directors of Opportunity Village. [The tax made] quite an impact to our organization. There is an independent study by the University of Nevada, Reno that Opportunity Village saves the state of Nevada $20 million a year in services it provides. The impact of this tax affects the entire community of Nevada." John Hiatt, Red Rock Audubon, testified in favor of S.B. 144. Mr. Hiatt said there is too much paperwork involved to pay the taxes. Mr. Hiatt favors a moratorium and some way to stop this tax completely. Charles Collenberger, Families of Murder Victims, stated his support of S.B. 144 and discussed the services they provide to families of murder victims. John Agular, Victory Outreach Ministries International, testified in favor of S.B. 144 and discussed their contribution to the community. Luann Day, Concerned Citizen, said she does not think it is right to charge tax to children for a cupcake. Ms. Day discussed volunteering and the state's tax policy. Senator Adler commented, ". . . Under Nevada Revised Statute (NRS) 374.290, meals and food products sold to students or teachers by the Parent Teacher organization is exempt isn't it?" Mr. Pitlock responded, "If that is what the statute says, then I believe that would be correct. . . " Senator Adler and Mr. Pitlock discussed whether or not food sold at a Parent Teacher Association function is exempt. Mr. Price, Assembly District 17, mentioned that if people get information from the Department of Taxation in writing it is binding, but if they get the information verbally it is not binding on the department. David Pool, Concerned Citizen, voiced his support for S.B. 144 and his thoughts on using 501 C3 status to determine an organizations' ability to be tax exempt. Senator Adler and Mr. Pool discussed 501 C3 status and unscrupulous organizations. Bob Tretiak, Concerned Citizen, testified against S.B. 144. Mr. Tretiak said he is in favor of charitable organizations, but he thinks it is a use tax and should be instituted. Mr. Manendo and Mr. Tretiak discussed what Mr. Tretiak thought he was voting on in the last election. Senator Lowden explained how the issue got to the ballot to begin with. Angie Wallin, Nevada Association for the Handicapped, urged the committee to pass S.B. 144. David Parks, President, Board of Trustees, Aids for Aids of Nevada, testified that his organization would be severely impacted by the tax and they support S.B. 144. Senator Lowden adjourned the meeting at 8:20 p.m. RESPECTFULLY SUBMITTED: DeLynn Gillentine, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Assemblyman Robert Price, Co-Chairman DATE: Assemblywoman Jeannine Stroth, Co-Chairman DATE: Senate Committee on Taxation Assembly Committee on Taxation February 13, 1995 Page