MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session April 4, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 1:35 p.m., on Tuesday, April 4, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. 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 GUEST LEGISLATORS PRESENT: Assemblywoman Jan Evans, Assembly District No. 30 Assemblyman John W. Marvel, Assembly District No. 34 STAFF MEMBERS PRESENT: DeLynn Gillentine, Committee Secretary Kathy Cole, Committee Secretary Kevin Welsh, Research Analyst, Fiscal Analysis Division Ted Zuend, Fiscal Analyst OTHERS PRESENT: John Bartlett, Senior Deputy Attorney General Pat Smith, Executive Director, Sierra Arts Foundation Robert McGowan, Washoe County Assessor Janice Wright, Deputy Executive Director, Department of Taxation Henry Etchemendy, Lobbyist, Executive Director, Nevada Association of School Boards Sam McMullen, Lobbyist, Barrick Goldstrike Mines Incorporated C. Joseph Guild III, Lobbyist, Santa Fe Pacific Gold Corporation Gaylyn J. Spriggs, Lobbyist, Director of Government Affairs, Rayrock Mines Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association Lucille K. Lusk, Lobbyist, Nevada Concerned Citizens Michael Pitlock, Department of Taxation Paula Berkley, Lobbyist, United Way Senator Lowden introduced the following bill draft requests (BDRs): BILL DRAFT REQUEST 32-605: Remove school tax rate from statutory tax rate cap. SENATOR REGAN MOVED TO INTRODUCE BDR 32-605. SENATOR RHOADS SECONDED THE MOTION. THE MOTION PASSED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) ***** BILL DRAFT REQUEST 32-604: Remove state bond redemption from statutory tax rate cap. SENATOR RHOADS MOVED TO INTRODUCE BDR 32-604. SENATOR REGAN SECONDED THE MOTION. THE MOTION PASSED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) ***** BILL DRAFT REQUEST C-614: Amend constitution to require two final floor votes in each house of legislature to pass any proposed tax increase. SENATOR RHOADS MOVED TO INTRODUCE BDR C-614. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION PASSED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) ***** BILL DRAFT REQUEST 32-1953: Requires regional transportation commission in counties to develop transportation plans and programs in compliance with federal law. SENATOR REGAN MOVED FOR INTRODUCTION OF BDR 32-1953. SENATOR RHOADS SECONDED THE MOTION. THE MOTION PASSED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) ***** BILL DRAFT REQUEST 32-165: Allows county to recover costs associated with fire, police and social impacts. SENATOR RHOADS MOVED FOR INTRODUCTION OF BDR 32-165. SENATOR LOWDEN SECONDED THE MOTION. John Bartlett, Senior Deputy Attorney General, discussed some of the implications this bill draft would have on the Indian reservations. THE MOTION WAS WITHDRAWN. ***** Senator Lowden opened the hearing on Assembly Bill (A.B.) 166. ASSEMBLY BILL 166: Revises provisions governing exemption from taxation of property owned by certain nonprofit organizations. (BDR 32-1233). First to testify was Assemblywoman Jan Evans. Mrs. Evans discussed and presented Exhibit C. Pat Smith, Executive Director, Sierra Arts Foundation, testified and presented Exhibit D. Senator Rhoads asked if there is a fiscal note on A.B. 166. Ms. Smith said there is, but it is minimal. Robert McGowan, Washoe County Assessor, confirmed Ms. Smith's testimony that her organization is the only one that the law applies to. Mr. McGowan said he thought the fiscal impact of this bill would be approximately $200 a year. Senator Augustine asked if there are any other organizations in the state that this legislation would affect. Mr. McGowan said research that was done did not show any other organization this legislation would affect. Janice Wright, Deputy Executive Director, Department of Taxation, stated: The Department of Taxation did contact all of the county assessors. In doing so we discovered there was one organization, the Very Special Arts, which would qualify for this type of an exemption. The exact dollar amount is $3,949 of assessed value times the tax rate of $3.26. $128.80 is the total amount of the tax exemption. That is the complete fiscal note. We were only able to determine there is one organization . . . that this would cover. . . Senator Lowden asked if anyone else wanted to testify on the bill. SENATOR REGAN MOVED TO DO PASS AS AMENDED A.B. 166. SENATOR TOWNSEND SECONDED THE MOTION. THE MOTION PASSED UNANIMOUSLY. ***** Senator Lowden closed the hearing on A.B. 166 and opened the hearing on Assembly Bill (A.B.) 272. ASSEMBLY BILL 272: Revises provisions governing payment and distribution of tax on net proceeds of minerals. (BDR 32-127). Assemblyman John W. Marvel, Assembly District No. 34, testified, "What we are trying to do with A.B. 272 is correct some of the flaws in the present collection of the net proceeds of mines. . ." Mr. Marvel introduced Ted Zuend, Fiscal Analyst. Mr. Zuend presented Exhibit E and testified: First, the bill eliminates the prepayment of net proceeds tax by all mines and royalty recipients and the accompanying penalties for underpayment. Second, all mines are still required to provide estimates of gross yield, net proceeds and royalty payments by May 30 each year, but they will only be used to help local governments with the preparation of budgets . . . Third, all mines with $4 million or more of net proceeds and all royalty recipients with royalties from an individual mining operation of $100,000 or more in the prior year, will pay net proceeds taxes on actual business from January through June, from July through September, and from October through December on or before August 1, November 1, and February 1 respectively. . . Based on current net proceeds and royalty information, this schedule will encompass about 92 percent of all net proceeds taxes each year. Each mine and royalty recipient affected by that payment schedule is to be notified by the Department of Taxation by March 15 of each year. . . Failure to receive the notice, . . . will not relieve the taxpayer of the obligation to pay the taxes as required. All mines and royalties recipients are required to file an activity statement by February 1 of each year subject to a pre-approved 15-day grace period. The Department of Taxation will mail a certificate of the amount of net proceeds and tax due to each mine and royalty recipient by April 20 and the taxes are to be paid by May 10. Because we are keeping everything in the same fiscal year, there is . . . no fiscal effect of the state beyond that forgiven interest. All taxes due for mining activity in the calendar year would be allocated in a single fiscal year rather than being dispersed across fiscal years as they are now. Provisions are added to provide for the crediting of any overpayment of the taxes due by mines or royalty recipients. . . The grace period for the payment of net proceeds on taxes has been reduced to 10 days. Provisions adding a 10 percent penalty . . . and interest at the rate of 1 and « percent per month for non-payment or underpayment of taxes. Giving taxpayers 30 days to appeal such penalties and interest. . . Also, a provision providing local governments and schools with a prorated share of any penalties and interest has been added. Payments due the county for distribution to the local governments and schools are to be made within 20 days from the date the taxes are collected by the state. Finally, transitory provisions are included to account for tax payments and allocations to be made under the current payment schedule. . . Senator Rhoads asked if there would be a hit on the school district. Mr. Zuend stated the school district should actually receive an additional payment. Mr. Marvel said he thought the school district would be testifying May 15. Senator O'Connell questioned if Exhibit E is Mr. Zuend's language. Mr. Zuend explained Exhibit E is legislative counsel's language with input from the interested parties. Henry Etchemendy, Lobbyist, Executive Director, Nevada Association of School Boards, testified in support of A.B. 272. Mr. Etchemendy discussed a portion of the bill which he thinks could be made better. Mr. Etchemendy thinks the May 30th date could be improved by setting it back 1 month, changing the date to April 30. Sam McMullen, Lobbyist, Barrick Goldstrike Mines Incorporated, said he supports A.B. 272. Mr. McMullen discussed the considerations that were made when drafting the bill. Senator O'Connell explained to the committee the reason there is a fiscal note on A.B. 272 is because it is a reprint, but there is no fiscal impact. C. Joseph Guild III, Lobbyist, Santa Fe Pacific Gold Corporation, discussed the history of their experiences which made this bill necessary. Mr. Guild said the Santa Fe Pacific Gold Corporation urges the committee to pass A.B. 272. Gaylyn J. Spriggs, Lobbyist, Director of Government Affairs, Rayrock Mines, testified in favor of A.B. 272. Ms. Spriggs discussed how the mines benefit the state. Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, testified in support of A.B. 272. Ms. Vilardo introduced a letter of support from the Nevada Association of Counties (Exhibit F). Senator Lowden asked if anyone else would like to testify on the bill. SENATOR RHOADS MOVED TO AMEND AND DO PASS AS AMENDED A.B. 272. SENATOR REGAN SECONDED THE MOTION. THE MOTION PASSED UNANIMOUSLY. ***** Senator Lowden opened the hearing on Senate Bill (S.B.) 144. SENATE BILL 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) Ms. Wright stated: During the last 2 years, interim committees have been meeting on the question of exemptions. . . The difficulty that the Department of Taxation faces is defining which organizations are exempt and which ones are not. Currently, the language in the statute says that entities that are religious, [or] charitable . . . are entitled to the exemption, provided that no part of the net earnings inure to the benefit of a private individual. The Department of Taxation spends an inordinate amount of time trying to define what organizations fall within that framework and which ones do not. What would be very helpful for the department is to have some guidance from the Legislature as to which organizations you would like to see considered exempt and which ones you would not. One of the individuals that works on that very issue is our Senior Deputy Attorney General John Bartlett. John works with the chief of revenue in sitting down and examining every request for an exemption and determining whether or not it falls within the statutory guidelines. Because of the difficulty that he has faced, he has developed a proposed amendment for this bill which would give the Department of Taxation further guidance in defining which organizations would be exempt . . . Senator O'Connell discussed and presented Exhibit G, an article that identifies Pennsylvania's law on this subject. Ms. Wright briefly discussed Pennsylvania's law. John Bartlett, Senior Deputy Attorney General, introduced and discussed Exhibit G. Mr. Bartlett reiterated Ms. Wright's testimony. Mr. Bartlett said he tried to be very specific in the amendment (Exhibit H) in regard to defining who would be exempt. Senator O'Connell commented on page 3 of the amendment. Mr. Bartlett said in subsection 1 they tried to make a list of all of the attributes organizations must have to be considered a charitable organization. Senator Lowden and Mr. Bartlett discussed the reasons why the 501 C3 status is not one of the requirements to be considered a charitable organization on the amendment. Senator Adler questioned, "If a nonprofit qualifies under a 501 C3, why do they have to jump through all of these other hoops? If they have that certificate shouldn't they be able to show that to you?" Mr. Bartlett explained that is the way it works now, but 501 C3 designations covers more then just charitable organizations. Senator O'Connell said she has a problem with the way the division has given out exemptions. Senator O'Connell stated she thinks there definitely needs to be language in the bill that defines a charitable organization. Mr. Bartlett and Senator O'Connell discussed the current statute and how it is administered. Senator Adler discussed and presented Exhibit I, an amendment to S.B. 144. Senator Adler explained his amendment and how it came about. Lucille K. Lusk, Lobbyist, Nevada Concerned Citizens, discussed and presented Exhibit J. Mr. Bartlett stated that they review all of the information in an application for nonprofit status. Ms. Lusk asked if more people would be required to process applications. Mr. Bartlett said he does not think so. Senator Lowden said some churches allow candidates to speak at their church and she wondered how broad the legislation would be. Mr. Bartlett responded that the "language in subsection (b) and (c) of part 1, came right out of the language in 501 C3. . . " Senator Lowden clarified that she wanted to know if a church would be still exempted if they allow a candidate to speak at their church. Mr. Bartlett said he does not believe it would disqualify them. Senator Augustine stated, "But John [Bartlett], (b) says no substantial part; however, (c) specifically says such organizations do not participate or intervene in any political campaign. . . " Mr. Bartlett said there is no prohibition against individuals from the church participating in the campaign, but if the charitable organization acts as the political organization for a certain candidate then they would be disqualified from tax exempt status. Ms. Lusk added there is leeway in the legislation for forums, but no leeway to endorse a candidate from the pulpit. Ms. Lusk continued her discussion on Exhibit J. Ms. Lusk expressed concern over the numerous small nonprofit groups which would not have the funding to complete the 501 C3 status, if that were a requirement for this exemption. Senator Lowden inquired, "Is there no hope that we can all get on the same page with this, or do we [the taxation committee] have to just decide this? Is there any way [you can all agree] . . . or do we have to just take a vote?" Ms. Lusk responded her preference would be to have a simple bill. Ms. Lusk thinks the organizations should not be required to have 501 C3 status, but the language could be used to determine which organizations would be exempt. Ms. Lusk reiterated her aversion to tying the exemption to 501 C3 or any changes in the IRS [Internal Revenue Service] code. Also, Ms. Lusk does not want any other demands to be required of churches. Senator Townsend questioned, "I thought I heard you say you don't want to have any additional requirements for churches?" Ms. Lusk replied, "That is correct. No more [requirements] then already exist under this 501 C3 definition." Senator Townsend said, "But under [Mr. Bartlett's] amendment, there is on page [3], a requirement for . . .a certificate of exemption. You are saying you don't want to do that?" Ms. Lusk responded that she does not want any additional demands on churches that are not currently being applied. Ms. Vilardo stated: . . . I would like to ask the department for something on this because currently, we are dealing with the issue of sales to the group. As a retailer for 23 years . . . if a religious group or charity . . . were to come into my store. . . in order not to charge them the sales tax, I was bound to take an exemption letter from them. In effect, if you, Lucille [Lusk], do what you want and don't have this exemption letter, then it is going to apply to them only on one point. We have got to be as consistent as possible with how the department deals. . . It was our recommendation to tighten up . . . [the] parameters because the department does not have . . . the ability to really challenge some of these exemptions . . . Ms. Vilardo said only nonprofit organizations that contribute to taking some of the burden from the community should be allowed to have tax exempt status. Ms. Vilardo does not think nonprofit political organizations like her own should be tax exempt. Ms. Vilardo wants a provision put in the legislation that says religious organizations may apply for the exemption directly with the Department of Taxation. Senator O'Connell reiterated that a letter of exempt status would have to be given to exempt organizations so they could be sold goods without paying tax. Ms. Lusk reiterated her prior testimony. Ms. Vilardo clarified instructions for the drafting of a new amendment. Michael Pitlock, Department of Taxation, stated: Unfortunately Senator Adler is not here right now, but with all due respect to his amendment (Exhibit I), I believe the department would have significant concerns with it. Concerns in two areas. I believe I heard Senator Adler say that he would view this as something that would stay in place even if the ballot question failed the next time around. My initial perception of that . . . is that you are basically saying that it doesn't matter what the vote is, the department will refund automatically any taxes that are collected. The other concern I have is that the department has not had the opportunity to develop any fiscal notes associated with this amendment and I would like to have that opportunity. . . Senator Lowden confirmed Senator Adler's intention was that if the vote failed, to be able to refund tax to a charitable organization. Senator Adler was not present for the discussion. Senator Lowden closed the hearing on S.B. 144 and adjourned the meeting at 4:15 p.m. RESPECTFULLY SUBMITTED: DeLynn Gillentine, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation April 4, 1995, 1995 Page