MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session April 11, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 1:30 p.m., on Tuesday, April 11, 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 COMMITTEE MEMBERS ABSENT: Senator Ernest E. Adler STAFF MEMBERS PRESENT: DeLynn Gillentine, Committee Secretary Kevin Welsh, Senior Fiscal Analyst Jan Needham, Senior Bill Drafting Advisor OTHERS PRESENT: Kathyrn Adele McClain, Lobbyist, Legislative Analyst, Clark County Robert S. Hadfield, Lobbyist, Executive Director, Nevada Association of Counties Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association Michael A. Pitlock, Executive Director, Department of Taxation Lucille Lusk, Lobbyist, Nevada Concerned Citizens John Bartlett, Senior Deputy Attorney General, Taxation Section Dick DeWitt, Journalist, KOH Radio Roberta Gang, Lobbyist, Planned Parenthood of Southern Nevada Senator Lowden introduced the following bill draft requests (BDRs). BILL DRAFT REQUEST 32-531: Authorizes immediate deposit of checks used to secure business license under certain circumstances. Kathyrn Adele McClain, Lobbyist, Legislative Analyst, Clark County testified: The intent of the proposed change is to allow the business license department to immediately deposit checks for application fees . . . and renewal checks that are not exactly the right amount. The way the law is currently written, you can only deposit money when you issue the business license at the same time. They get a lot of checks that are not the exact amount or checks for applications that need investigations. . . Amending this language, allows them to put it in a trust fund and when the license is issued they can put it in the county General Fund. SENATOR O'CONNELL MOVED FOR COMMITTEE INTRODUCTION OF BDR 32-531. SENATOR RHOADS SECONDED THE MOTION. THE MOTION PASSED. (SENATOR ADLER WAS ABSENT, SENATOR TOWNSEND WAS ABSENT FOR THE VOTE). ***** BILL DRAFT REQUEST 32-820: Adjust distribution of fee charged for costs of collecting sales tax. Robert S. Hadfield, Lobbyist, Executive Director, Nevada Association of Counties testified: The BDR you have before you today attempts to correct a grievous error that was made by the Legislature last session when they were admittedly short of funds and seeking resources to assist the state in meeting their program commitments. Unfortunately, one of the solutions was to increase the collection fee to local government from « of 1 percent to 1 full percent on the retail sales collection. That didn't treat everybody equally. That singled out cities, counties and districts. . . We protested at the time of the legislation indicating that we had the same revenue difficulties that the state had and to increase the collection fee to us would hurt us just as much as it might help the state. I will say that we have requested, from the Department of Taxation, for the last 18 months, information as to the actual cost of collecting the revenue. . . SENATOR RHOADS MOVED FOR COMMITTEE INTRODUCTION OF BDR 32- 820. SENATOR REGAN SECONDED THE MOTION. THE MOTION PASSED. (SENATOR ADLER WAS ABSENT, SENATOR TOWNSEND WAS ABSENT FOR THE VOTE). ***** Senator Lowden opened the hearing on Senate Joint Resolution (S.J.R.) 17. SENATE JOINT RESOLUTION 17: Proposes to amend Nevada constitution to allow legislature to exempt property from taxation if amount of tax to be collected would be less than cost to collect it. (BDR C-598) Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, was first to testify in support of S.J.R. 17. Ms. Vilardo stated, ". . . The basis and the request for the bill [were] on the part of the assessors who testified before the meeting of the interim committee. They had instances where they would be sending out a 39-cent bill or $1.12 bill or a $4 bill . . . Depending on the county and the assessor it was costing anywhere from $5 to $12.50 to collect this tax. They asked for relief because they felt it was an inefficient use of money. Because of the constitutional requirements in section 10, it does require a constitutional change for approval." Senator Lowden announced that anyone who wants to testify in support of or against this bill should speak now, but no one responded. Senator Lowden continued with the vote. SENATOR TOWNSEND MOVED TO DO PASS S.J.R. 17. SENATOR REGAN SECONDED THE MOTION. THE MOTION PASSED. (SENATOR ADLER WAS ABSENT). ***** Senator Lowden opened the hearing on Senate Joint Resolution (S.J.R.) 18. SENATE JOINT RESOLUTION 18: Proposes to amend Nevada constitution to authorize abatement of property tax for certain owners of single-family residences. (BDR C-601) Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, testified in favor of S.J.R. 18. Ms. Vilardo explained, "This is an instance where we have two legislators on the committee that know about this bill, Senator Rhoads . . . and Senator O'Connell." Ms. Vilardo discussed the history of this bill. Ms. Vilardo stated that sometimes property tax is the logical tax to use for certain situations, but if you raise property tax too high, people could lose their homes. Ms. Vilardo said, "The bill that you have before you . . . changes the constitution, which is necessary because of the provisions in section 1 of the constitution. In effect, [this] is a policy statement by [the] legislature . . . that says if you were to use property tax to a greater degree then is presently being utilized, you would have the ability . . . to consider an abatement [due to economic hardship]. . . The reason for the language abatement, as discussed in 1991, was that [it] gives you much greater flexibility in what method of relief you might choose to provide. . . " Senator Lowden said, "I guess there is enough leeway in this that if that would ever happen, if property taxes would ever go up, that the legislature would then have to address, who, what, where, when." Ms. Vilardo responded, "You would have to enact the enabling legislation that set the specific parameters for what you wanted to do. This is nothing more then a policy statement in the constitution to deal with this." Senator O'Connell stated: One of the things that really brought this to my attention is a situation where an older citizen had been diagnosed with cancer and she had lived in this home for . . . about 30 to 35 years. Her husband was dead and they were doing an assessment on a special assessment district. . . She simply couldn't afford the assessment. In the present law there was no leeway, no movement at all for them to take her case into consideration. With something like this [bill], it would allow the assessor to at least make an allowance . . . That is the type of . . . circumstance that this would help to give some movable room so they could accommodate somebody in a severe situation . . . Ms. Vilardo explained: This is known in a number of states, there are at least 38 states that have mechanisms like this and it is called a circuit breaker. The idea is to break and be able to step back and stop. I think it is very important to realize that you have not put finite detail into this statement. . . You have left it to future legislators, if the voters approve this, to set up the absolute parameters and direction that you would then provide down to the assessors and treasurers. Senator Regan suggested the committee consider who will determine hardship and the method of the abatement. Senator Regan asked Kevin Welsh, Senior Fiscal Analyst, "The constitutionality of section 1, under article 10 of the equal and uniform basis, are we covered on that?" Mr. Welsh answered, "Yes, we provide in the constitution several exemptions from that equal and uniform provision. We just specifically have to show what . . . the exemption is." Senator Lowden asked if there was anyone else who wanted to testify on S.J.R 18. Since no one responded, Senator Lowden took a motion. SENATOR REGAN MOVED TO DO PASS S.J.R. 18. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION PASSED. (SENATOR ADLER WAS ABSENT). ***** Senator Lowden opened the hearing on Senate Joint Resolution (S.J.R.) 19. SENATE JOINT RESOLUTION 19: Proposes to amend Nevada constitution to impose additional requirements for enactment of legislative measures that impose or increase public revenue. (BDR C- 614). Senator Rhoads testified on S.J.R. 19 and Senate Concurrent Resolution (S.C.R.) 18. SENATE CONCURRENT RESOLUTION 18: Amends Joint Rules of Senate and Assembly for 68th legislative session to impose additional requirements for enactment of certain legislative measures. (BDR R-613). Senator Rhoads stated: There is actually one more of these bills that will come before the committee. This came out of . . . committee . . . when we were having a hearing down in Las Vegas. A gentleman from down there suggested that after what happened with the 300 percent pension increase and the second time that we voted on it, we certainly had a change of mind. . . What these 3 [bills] will do . . . is once you voted on a tax or a fee increase, there would be 10 or 15 days go by. Then you would have to vote on it one more time. There is really a safety provision in S.C.R. 18, particularly the one that would change our Senate Joint and Assembly rules. Senator Rhoads stated that on line 16, of S.C.R. 18 the language states a second vote on passage of any bill that increases taxes or revenue is void unless it is taken at least 10 calendar days before adjournment. Senator Rhoads gave some examples of this bill and how it would work. Senator Rhoads said he does not feel that we should amend the constitution, so he recommends approving S.C.R. 18 instead of S.J.R. 19. Senator Rhoads gave the committee some statistics on how often this bill would have been used in the past. Senator Rhoads introduced Exhibit C. Senator O'Connell asked, "Was there any discussion in the committee about when the budget . . . is increasing taxes and we don't get to see the budget . . . until just about the last 2 or 3 days of the session? How would that apply to the budget bill?" Senator Rhoads answered, "All of the bills that are in the chart Kevin [Welsh] got for me are in the budget. In order for the budget to be given to us at that particular day, we have already voted on . . . most of the tax increases in there. . . All the new taxes in the budget would be voted on twice before the budget was put together. The second time around it can't be amended . . . it has to be . . . a vote up or down and go with it." Ms. Vilardo testified in favor of S.J.R. 19 and S.C.R. 18. Ms. Vilardo said one of the things that was of concern in the committee hearings was that there should be greater scrutiny on tax legislation. Ms. Vilardo discussed how she thinks these bills are very workable and should not interfere with the closing down of the Legislature or the budgets. Senator Lowden asked if anyone else would like to address this bill. No one from the audience wished to testify. Senator Lowden asked for a motion on S.C.R. 18. SENATOR RHOADS MOVED FOR ADOPTION OF S.C.R. 18. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION PASSED. (SENATOR ADLER WAS ABSENT). ***** The committee decided to hold S.J.R. 19. 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). Michael A. Pitlock, Executive Director, Department of Taxation, introduced and discussed Exhibit D. Lucille Lusk, Lobbyist, Nevada Concerned Citizens, presented Exhibit E. Mr. Pitlock stated, "I think the basic issue that is going to be before this committee is how broad . . . or how narrow you wish to make this exemption. . . In some respects, the language that is before you would broaden the exemption compared to the current policy of the department . . . Up until 30 seconds ago I did not think that there was that much substantive difference between [Exhibit D and Exhibit E]. Apparently, some parties are interpreting this language to be a significant difference. . ." Senator Lowden asked Jan Needham, Senior Bill Drafting Advisor, if she had copies of all the amendments they were discussing (Exhibit D and Exhibit E). Ms. Lusk described the steps that have been taken since the last meeting and stated her opposition to (Exhibit D) as an amendment to this bill. The areas of disagreement between Ms. Lusk's group and Mr. Pitlock's group start with section one, item (e). Senator Lowden asked Mr. Pitlock why he thought it was important to add "in Nevada" to section (e). Mr. Bartlett said he added it because he wanted to narrow the scope of the exemption to try to ensure that a charity that gets the benefit of the exemption, actually benefits the state of Nevada. Senator Lowden asked for an example of a group like one he is talking about. John Bartlett, Senior Deputy Attorney General, Taxation Section, said in California they have restricted their charitable and religious exemption. A California organization might not qualify for an exemption in California, but would qualify in Nevada so they might come to Nevada to buy all of their tangible personal property free of tax and take it back to California. Senator Regan asked, "If a non-profit or charitable group bought something out of state, this would also relieve them without the words `in Nevada'?" Mr. Bartlett responded that the provision would apply whether they were a Nevada organization or not. Senator Regan clarified his question and stated if a Nevada-based organization purchased supplies in Utah, would they not have to pay use tax on these supplies? Mr. Bartlett said they would be exempt from sales tax and use on purchases. Ms. Lusk suggested the committee look at Exhibit E and consider the wording for the proposed ballot question. Senator Lowden and the committee discussed the wording for the question as proposed by Ms. Lusk. Senator Townsend requested a copy of the original wording on the previous ballot question. Senator Townsend read the wording used in the last election to the committee. Senator Lowden asked if everyone understood what was on the old bill and what is on the new one. Senator Lowden inquired whether everyone liked the language for the question and whether it was clear. Senator Augustine responded she thought it was still confusing especially when it says, "for which the Legislature provides guidelines for regulations to be adopted. . . " Senator Lowden said she wondered if that language was required. Ms. Lusk stated that Ms. Needham advised her that the only way the Legislature could act on guidelines without a vote of the people, would be if it were in the ballot question. Senator Lowden asked Ms. Needham if the language Senator Augustine mentioned had to be in the question. Ms. Needham responded, "If you want the voters to vote on the question of whether the Legislature is going to determine which organizations are going to be exempt, you need to give them notice that is what they are voting on and I think that is what this is attempting to do . . ." Senator Rhoads suggested changing the wording by using two sentences instead of one. Senator Augustine said she wondered if having the Legislature in the wording will turn the voters off to the bill. Ms. Lusk reiterated that this bill would allow the Legislature to adjust the scope of the bill in the future. Senator Lowden stated she was not sure she wanted the scope to be able to be adjusted in the future. Senator Lowden and Ms. Lusk discussed the possible reasons for adjusting the scope bill in the future. Mr. Pitlock stated, "The guidelines are extremely important to the department, that they be in there one way or another. In addition to the ease of being able to change these in the future, one of the concerns about including all of these definitions and guidelines in the ballot question was that you would run the risk of making that ballot question so complicated again that the voters may not understand what they are voting on. . . We were trying to look for a way of dealing with that and this was part of the compromise we came up with." Senator Lowden stated, "The actual question that people are going to see on the ballot will not entail all of the guidelines . . . if we enact the guidelines now. . . So we want to make the question as easy as possible . . . I think we are prepared to provide the Department of Taxation with guidelines right now. That is why we are spending so much time with this and I don't think we want to change them." Mr. Pitlock reiterated that unless the ballot question references the Legislature establishing the guidelines, the entire guidelines would have to be in the bill. Senator Lowden asked for a legal opinion on this. Ms. Needham said it would be preferable to have a reference that the Legislature will establish guidelines, but to simplify the question, as long as the notice of the ballot question contains that information, might be acceptable. Senator Townsend suggested the question be clean and simple. Senator Townsend stated a version of the question that would require 2 sentences. Ms. Lusk asked if it was the committee's intention that the guidelines be firmly established or if the committee would like the guidelines to be changeable by the Legislature without a vote of the people. Senator Lowden said, "As far as I am concerned, I would like to establish the guidelines now, but maybe we should go over them. . . " Senator Townsend inquired, " . . . Are you saying you want all of the guidelines in the constitution?" Ms. Lusk said she just wanted to resolve this issue. Senator Townsend continued, ". . . My sense is that you need a simple ballot question . . . that would allow the Legislature to set the guidelines in a statutory fashion. The second you set them in stone you have . . . one more organization that will say wait a minute, what about me? . . . " Senator Lowden pointed out, "I think there are some of us on the committee that want it set in stone so they can't change it for one more organization. . . " Senator Townsend insisted, "But by set in stone do you mean put all of this into the constitution or just into statute?" Senator Lowden responded, "Into statute." Senator Townsend stated, "That is not a problem. . . that you can change every two years if there is a problem. . . " Ms. Needham remarked, "Essentially, if you put it as part of this question and the people vote, these are the guidelines that are going to be followed. You can't change those guidelines without another vote of the people. . . If you put in a provision that says the Legislature will establish these guidelines by statutes, then the legislature can come in and change them every session." Senator Townsend said, "Well that is what I am talking about, am I missing the boat here?" Senator Lowden reiterated, "Well I don't know that we want to change them every session, that is the problem. I am speaking for myself here . . . but I don't want them changed every session. That is why we are spending so much time on them now." Senator Townsend questioned, "You are saying then, Lucille [Lusk], you want this put into this explanation portion of this ballot question? So therefore it could only be changed if we went back to the ballot? Is that what you are saying?" Ms. Lusk replied, "I am saying there are 2 options, you can either do it so that it is put in and it is set in stone and can only be changed by a vote of the people, or . . . you can put it where it is statutory guidelines which the Legislature can change. . ." Senator Townsend stated, ". . . My recommendation would be that we clearly define what the ballot question is. . . Is it possible to put this into the statute triggered by an acceptance of the ballot question?" Ms. Needham responded that the section of the bill which would provide the guidelines would not become effective until the ballot question passed the voters approval, but the fact that the Legislature would establish the guidelines must be on the ballot. Senator Rhoads agreed with Senator Townsend that the guidelines should not be set in stone. Senator Lowden stated it was clear that the committee wanted the bill open ended enough to change it, so the language for the ballot question must include the statement "Legislature would establish guidelines." Senator Townsend discussed the history of the bill and reiterated his prior testimony. Senator Regan concurred with Senator Townsend and discussed his previous experiences. Senator Lowden stated the committee had reached consensus on the ballot question and asked if the committee could go on to section 1. Dick DeWitt, Journalist, KOH Radio, suggested a version of the ballot question for the committee to consider. Mr. DeWitt said, " . . . The question should be `shall non-profit corporations and funds or foundations organized and operated exclusively for religious, charitable or educational purposes be exempt from the Sales and Use Tax Act of 1955, under or within legislative guidelines? . . ." Senator Lowden said the committee would skip section (1) of Exhibit D so the committee could think about whether they want "in Nevada" in the language. Senator Lowden asked if there were problems with section 2. Ms. Lusk said she thinks the changes Mr. Bartlett made are substantial. Ms. Lusk explained her oppositions to this section. Mr. Bartlett explained the language he used makes the law easier to administer. Senator Augustine asked if Mr. Bartlett looked at the federal guidelines when drafting this bill. Ms. Lusk said she thinks they are trying to tighten the bill down more then the federal guidelines. Senator Lowden continued the discussion with testimony on section (3) of Exhibit D. Roberta Gang, Lobbyist, Planned Parenthood of Southern Nevada, suggested changes in the amendment. The lines "renders at a reduced rate or gratuitously" and the part of the amendment that says "all of the following characteristics" and in subsection (c), she would like the word "and" to be "or." Senator O'Connell and Ms. Gang discussed whether the language related only to charitable organizations. Ms. Vilardo added that she suggests the wording stay in because the organization that receives the exemption should do something to relieve the burden of the government. Ms. Lusk mentioned she thinks the exemption should promote volunteerism. Senator Lowden moved on to section (4) of the amendment. Ms. Lusk thought the character development and the civic benefit were two areas where Exhibit D and E were different. Senator Lowden questioned whether political groups would be included or excluded in Exhibit D. Senator Augustine wondered why adults were not included in the language for charitable fund raisers. Mr. Bartlett explained that the language was meant to include only children and they can accommodate the other groups by other means. Senator Lowden wanted to know if political groups would be allowed to be exempted. Ms. Lusk wanted to know where the Parent Teachers Association would fit into the language and if they would be exempted. Mr. Pitlock restated that the committee would have to come to some sort of policy decision on how inclusive the committee wants the exemption to be. Mr. Pitlock stated that if the committee could decide how broad or how narrow they want the language to be the Department of Taxation could accommodate them with the correct language. Senator Lowden continued the discussion on section (5) of the amendment. Ms. Lusk said she did not see any problem with section (5), but she did have problems with section (6). Mr. Pitlock said that in section (6) they were attempting to create some mechanism to relieve small organizations of any burden including the burden they have had since 1955. Mr. Pitlock stated: When it comes to the application of the exemption, it is imperative that the Department [of Taxation] have the ability to administer and enforce this section. Without the filing for an exemption letter and the providing of that letter by the department to that entity, we have no way of knowing whether or not a particular organization that may be undertaking fund raising activities is in fact exempt or not. We also have no way to then enforce the other side of the exemption which is the exemption for purchases. The only way an organization can get that exemption is if they have the letter to provide to the retailer that they are buying these goods or services from. It is imperative for the Department [of Taxation's] enforcement efforts that the exemption letter still be applied for. Again, this is no different then the burden that all of these groups have had since 1955. We then come up to a different situation of whether or not we want to provide specific relief to the smaller organizations. I would suggest to you that we need to look at 2 different alternatives here; one that may be viewed as an alternative to Senator Adler's amendment in dealing with the interim period, the other one is an alternative that we may want to consider in the event that the ballot question fails a second time. That is, do we want to provide an exemption specifically targeted at small organizations? The Department [of Taxation] has looked into this issue and we believe that we could establish a dollar amount tied to the taxable sales or the taxable transactions that an organization has in a given year. . . Senator Lowden asked if it was legal to exempt the organizations now even though the ballot question failed. Ms. Needham said, "I think Senator Adler's amendment addressed the administration of the taxes that are collected, which were not voted on by the people. So that is something that the Legislature can control. As opposed to exempting certain organizations from the taxes that are imposed by the provisions that were adopted by the people which is something that the Legislature cannot control. I think that is the distinction between the 2." Senator Regan stated he would like to have the attorney general's decision on this amendment. Senator Lowden asked if the committee wanted to vote on this bill now or wait. The committee decided to hold off on voting on the bill. The committee did decide to vote on Senator Adler's amendment. SENATOR O'CONNELL MOVED TO INDEFINITELY POSTPONE AMENDMENT NUMBER 77. SENATOR RHOADS SECONDED THE MOTION. Senator Augustine said she liked the amendment because it gave some control over how the taxes are collected. Mr. Pitlock stated that the fiscal note represents the diversion of revenue officers time from revenue generating activities to non-revenue generating activities. Senator O'Connell pointed out that the Department of Taxation will receive $1.5 million from a law that was just past. Senator Augustine asked, "What are the monies or amounts that are on here (Exhibit F) that are monies that you would not have collected? . . . " Mr. Pitlock responded, "What this says is that the revenue officers within the revenue division . . . because we are taking time away from their normal activities, their normal activities generate collections of $178,000. If you have them not performing that duty, but performing something different that does not generate revenue that is going to be a loss to the state." Senator Lowden asked for a vote from the committee. THE MOTION PASSED. (SENATOR AUGUSTINE VOTED NO, SENATOR ADLER WAS ABSENT). ***** Senator Lowden 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 11, 1995 Page