MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session April 27, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 1:30 p.m., on Thursday, April 27, 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 Randolph J. Townsend Senator John B. (Jack) Regan Senator Ernest E. Adler COMMITTEE MEMBERS ABSENT: Senator Dean A. Rhoads (Excused) GUEST LEGISLATORS PRESENT: Assemblyman Joseph E. Dini, Jr., Assembly District 38 STAFF MEMBERS PRESENT: Kevin Welsh, Research Analyst, Fiscal Analysis Division Kathy Cole, Committee Secretary OTHERS PRESENT: James Peri, President & Secretary of Peri & Sons Farms, Inc. Barbara Curti, Lobbyist, Nevada Farm Bureau Doug Bussleman, Lobbyist, Nevada Farm Bureau Stephanie Licht, Lobbyist, Nevada State Board of Sheep Commissioners Carole Vilardo, Lobbyist, Nevada Taxpayers Association Michael A. Pitlock, Executive Director, Department of Taxation Chairman Lowden opened the hearing on Assembly Bill (A.B.) 306. ASSEMBLY BILL 306: Exempts irrigation pipe and center-pivots from property tax. (BDR 32-196) Senator Adler briefed the committee on the implications with the passage of this bill. Accordingly, if passed, the farmers would have a tax exemption for certain water-saving devices which restrict the flow of water to the crops in the fields. The end result would be a greater amount of water remaining in the systems that could be used by others downstream. This could in turn help solve, in a positive way, water disputes throughout the state. Senator O'Connell asked, "How many different types of root crops do we have?" Senator Adler deferred this question to the first witness, Mr. James Peri. Mr. James Peri, President & Secretary of Peri & Sons Farms, Inc., said, "In Nevada the biggest crop is probably alfalfa, but they do grow a lot of potatoes." Senator O'Connell interjected with a comment and another question by saying, "The reason I am asking is...the sprinklers are...not being considered permanent...whenever you are planting you have to move them. Whenever you are harvesting you have to move them... [Further,] the fiscal note on it is $78,000... Is that just for the onion crop?" Mr. Peri responded: No, that is statewide... There's the words `permanent' and `devices to conserve' in making water application/movement of water efficient. So, you have laws that say anything that is permanent and conserves water is exempt. Well, these things [center-pivots] go around in circles; that is, they sit in the fields but they are not exempt. They're really permanent... We basically blanket the whole field... Our system is like an insurance. It is the most expensive [irrigation] system in the row crops to grow onions... Senator O'Connell asked Mr. Peri if the rest of the root crops had to be dug up, like the onions, and she wanted to know if the sprinklers had to be moved around. Mr. Peri concurred that the root crops have to be dug up. He then elaborated on the use of "solid set sprinklers." According to Mr. Peri, this type has a wheel line with a motor out in the middle. It can cover one-quarter mile at a time. Further, he explained that the annual crops such as onions, garlic, and alfalfa are best watered by such a system of irrigation. As noted by Mr. Peri, the solid-set sprinklers can and are being used throughout the state effectively and efficiently. Senator O'Connell then asked about the piping itself. She wanted to know if it would last a lifetime. Mr. Peri explained that an aluminum pipe has a 15-30 year life expectancy if it is well-maintained. Senator Augustine asked Mr. Peri if he received any other type of federal tax subsidies for his farm. He asserted that he was against farm subsidies in their entirety and disclosed that, while he did not participate in any of those programs he does take advantage of a "conservation-type program" in which he can get up to $3500 a year rebate. Mr. Peri also added that he believes that program would be falling by the wayside due to federal budget cuts. Senator Regan asked either Mr. Peri or Assemblyman Dini to respond to his question. "In looking at line 9 or 10...'irrigation of crops'... Is that word crop well enough defined in the NRS [Nevada Revised Statutes] so that we won't get every golf course [claiming that their]...grass on the golf course as a crop...?" Neither person was very sure if the word "crop" was well-defined in the statutes. Assemblyman Joseph E. Dini, Jr., Assembly District 38, asked to make a comment with regard to the support of this bill. He reiterated that it was farmers like Mr. Peri who irrigate twice as many fields with less water expended; and they are the ones who conserve water upstream with these types of systems, and yet they have no tax relief. Speaker Dini continued his testimony with reference to the bill's fiscal note of $78,000 and how a tax exemption could promote statewide water conservation in farming and agriculture. He concluded his remarks by stating that the $78,000 is insignificant in some respects and yet it could mean a lot when the state is trying to save water as a means of conserving other natural resources. And finally, he said, "We need to stretch the water out so that we have a viable farming industry here in Nevada... We've got to give them the tools so that they can invest their money and do this thing to conserve water." Mr. Peri asked to respond to Speaker Dini's testimony. He informed the committee that there are records in the Walker River Irrigation District which can show how much water his operation has conserved in water since 1979. In that first year of farming his operation used 11 1/2 acre feet of water to grow a crop of onions. With the sprinkler system in place they are down to 3 1/2 acre feet of water. Once again, he cited that sprinklers are the single most expensive part of agriculture, at least in the arid areas of the state. Furthermore, the sprinkler system has helped them spread their chemicals and fertilizers evenly and in a less harmful way to the environment. Barbara Curti, Lobbyist, Nevada Farm Bureau, read from a prepared statement in support of this bill, A.B. 306 (Exhibit C). Doug Bussleman, Lobbyist, Nevada Farm Bureau, said that he had been "frantically looking to see if there is a definition for the word `crop' in the NRS." He could not find one even in other statutes, but would continue to look through the NRS books if permitted to do so. Senator Lowden asked him to continue his search. The chairman also asked Kevin Welsh, Research Analyst, Fiscal Analysis Division, to go find a bill drafter who is familiar with definitions. SENATOR REGAN MOVED TO DO PASS A.B. 306. SENATOR ADLER SECONDED THE MOTION. Chairman Lowden said, "We do have a motion and a second, but we will wait until Senator Townsend returns for the vote... So, we will withdraw the motion and we will wait." SENATOR REGAN MOVED TO WITHDRAW THE MOTION ON A.B. 306. Chairman Lowden heard from Mr. Welsh that the word "crops" had not been defined in that chapter, however, it can be defined by this committee. Senator Adler and Senator Regan were asked to work on this definition. Chairman Lowden temporarily closed the hearing on A.B. 306 and opened the hearing on Senate Bill (S.B.) 178. SENATE BILL 178: Revises remedies available to state board of sheep commissioners with regard to delinquent taxes. (BDR 50- 595) Stephanie Licht, Lobbyist, Nevada State Board of Sheep Commissioners, said she was very appreciative of the opportunity to discuss this bill with the committee. Further, she explained how this bill would tighten the statutes in collecting sheep taxes. Ms. Licht referred to the proposed amendments to this bill (Exhibit D). She then explained what the collected taxes pay for in the way of their expenditures and how they help to promote sheep activities. Further, she said, some of the funds go to pay for damage done by predatory animals. Indeed, Ms. Licht explained that they "kind of subsidize the public through their animal damage control." Senator Lowden asked whether the Department of Taxation had anything to do with helping the sheep commissioners collect the taxes due them. Ms. Licht responded with a briefing on how the taxes are assessed both for Nevada residents who own property and sheep and for those who just own sheep. According to Ms. Licht's testimony the county assessors meet once a year and they decide how many sheep a person owns. The owners are at the same time asked to make a declaration of what they own and together they are then assessed. The county assessors send the bill for the taxes and then send the collected taxes into the General Fund, from which the sheep commissioners receive their funding. Ms. Licht concluded her testimony by saying that the Department of Taxation does not have anything to do with sheep tax assessment/collection. Senator O'Connell asked, "Ms. Licht at the bottom of your [proposed amendment] line 25 (Exhibit D), why have you not included cattle, horses, mules, hogs, etc...as `other things' in that chapter?" Ms. Licht replied that those other animals are considered livestock and included in other sections of the chapter. She said that the Division of Agriculture takes care of their part with livestock taxes and the sheep commissioners take care of sheep and a few goats. Carole Vilardo, Lobbyist, Nevada Taxpayers Association, asked if this bill has a provision, such as the Department of Taxation has, in which the interest and penalties may be waived for a good cause or if a payment got lost in the mail, but it had been paid on time, that they would not be penalized for it then being paid late. The chairman informed Ms. Vilardo that as the bill reads now, a person would be assessed a penalty and interest fees. Ms. Vilardo then asked if an amendment could be included that would permit "at the discretion of the those collecting the taxes to waive the penalty and interest payments." Chairman Lowden asked Ms. Licht if that would be accepted by her and the Nevada State Board of Sheep Commissioners. Ms. Licht agreed to this recommendation. Chairman Lowden asked Mr. Welsh to examine the bill and see where it could be included as another amendment. He advised the chairman that another section could be added to Ms. Licht's amendments. SENATOR REGAN MOVED TO AMEND AND DO PASS S.B. 178. SENATOR AUGUSTINE SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS RHOADS AND TOWNSEND WERE ABSENT FOR THE VOTE.) ***** Chairman Lowden reopened the hearing on A.B. 306. Senator Adler gave the definition of what a crop is for the proposed amendment to this bill. Accordingly, he said, "A crop is a plant or plant product that can be grown and harvested for profit or for sustenance." There was general discussion that followed, and the wording of the amendment would include the definition of "crops." SENATOR REGAN MOVED TO AMEND AND DO PASS A.B. 306. SENATOR ADLER SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS RHOADS AND TOWNSEND WERE ABSENT FOR THE VOTE.) ***** Chairman Lowden explained to the public that, in order to bring a bill "back to the floor for discussion," the committee would have to rescind their previous motion on Senate Bill (S.B.) 319 with a three-quarter vote in favor of doing so. SENATE BILL 319: Revises provision governing collection of sales and use tax on property which is leased or rented. (BDR 32-595) SENATOR REGAN MOVED TO RESCIND THE MOTION TO INDEFINITELY POSTPONE S.B. 319. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR RHOADS WAS ABSENT FOR THE VOTE.) ***** Chairman Lowden opened the hearing on S.B. 319. Carole Vilardo, Lobbyist, Nevada Taxpayers Association, expressed her regards to the committee for permitting her to discuss the merits of this bill. Ms. Vilardo said: The genesis of the concept [of this bill] started prior to the 1990-91 session... Business people for various reasons were looking at ways to come up with revenue, because of...a shortfall... What we started looking at were items that were...passive revenue generating versus creating new taxes. That was, [we sought] to look at those areas [that] were already provisions in the law for the collection of taxes, but for one reason or another they might...not be as tight as possible and so there might be some revenue...loss. This bill before you...accepts this concept. The problem was there was some confusion in the drafting or in the way it was presented to the committee... The bill that appears before you was not the intent. The intent...has been strictly short-term rentals. In fact, the most classic example that has been used has been video tapes. [For example, when] you go into most supermarkets, if you rent video tapes from there, [they] will in fact charge you the sales tax each time you come to get that tape. At that point it isn't sales tax, it really is a user tax, because you used the tape... We are the only state that I can find, where you pay a sales tax or you pay a user's tax... [This bill]...was to clean [that] up, make it consistent, and make it simpler [for] auditing... That is, you would be collecting a user's tax instead of sales tax. This is a policy decision that you are going to have to make... The bill you have before you and the reason for the suggested amendments are because this has been something that has taken a great deal of drafting that nobody wanted to impact. That is, leases or long-term rentals... The bill should have been written and presented strictly for short-term rentals. The purpose was to eliminate the need or situation...in which that tax would be collected on each transaction... Ms. Vilardo then listed off the individuals who were on the interim committee and who support the proposed amendment changes. The point she wanted to make was that the bill did not reflect on any of the discussions that were made in the interim committee hearings. Senator Augustine asked Ms. Vilardo when her proposed amendments (Exhibit E) would be implemented, thus changing the policy of short-term rentals. Ms. Vilardo stated that it would commence on January 1, 1996. Senator Augustine next inquired of Ms. Vilardo with regard to her amendments and their terminology. The senator wanted to know whether everyone would be charged a user fee on top of the sales tax when they rent video tapes at a supermarket. Ms. Vilardo drew attention to the fact that most rental places already charge these fees. Further, she said, "We just want a point of consistency when there is a transaction. We would rather see all of the mechanisms within the statutes cleaned up...our revenues cleaned up, our loopholes closed, which is a reason..." Senator Augustine asked, "is the percentage of a use tax the same as the percentage of a sales tax?" Ms. Vilardo said, "No, it is exactly the same. It is a reciprocating tax... In this particular case on rentals, the question comes down to when do you pay it [the tax]?... Chairman Lowden asked Ms. Vilardo if she had talked to some of the retailers who would be affected by this bill. Mr. Vilardo answered in the affirmative that she had gone to the retailer association and she found out that their membership "was having a blooming stroke with this bill." Ms. Vilardo then went to them and heard their concerns and discussed with them the amendments before this committee. Accordingly, they had three different meetings trying to iron out the language of the bill with the proposed amendments. Senator O'Connell directed her next question to Mr. Pitlock, "Do you know if you have the data base if you know if we were to do the reverse of this and require that upon purchase that the tax be paid? What kind of tax loss would we have?" Michael A. Pitlock, Executive Director, Department of Taxation, said, "As I indicated when I first testified on this bill, it varies from business to business whether or not it would go in one direction or another, whether it generates more revenue or not...It would take some time for the department to be able to put together information on how much you would generate if you went the other way because we don't get information on the items where the sales tax was paid on a rental until they are actually rented. Whereas, when the retailer pays the use tax, that would be recorded at the time of purchase." Senator Augustine declared, "The retailer should have to pay the tax when he purchases the tape, but I don't think the consumer should have to pay every time they rent, if they have already paid the sales tax upon the purchase. Is this what this accomplishes?" Mr. Pitlock asked to respond to the senator's question. "The section that allows for the credit, for the use tax that was paid by the retailer to be applied against the sales tax collected is at least designed to make the retailer...for the amount of taxes that he paid. In general terms...if someone is in the business of renting video tapes they're in that business to make a profit; so, it is safe to assume that the accumulative amount of the rental charges is going to be greater than the amount he paid for the video tape. If we look at it from the general policy standpoint this would probably generate more revenue than is currently being generated where the retailer has the choice; and given the choice...he would choose the avenue that has the least economic impact for him as a retailer." Senator Augustine said, "But you didn't answer my question. Does the consumer continue to pay a use tax every time they rent? [Mr. Pitlock] you are shaking your head yes." Ms. Vilardo also affirmed this to be so and then related how more questions had arisen due to the question of taxes on take-out food. She said there are some places who charge sales tax and some who do not and it is just not equitable. Further, Ms. Vilardo said, "the problem you have right now...is a policy decision to make..." A general discussion ensued with regard to who should pay the sales tax for a rental item and at what point. Some of the members questioned the impact of short-term, 30-day rentals versus long-term rentals. Moreover they stated the need to correct not only the language of the bill but make it clear in defining terms such as rentals, user taxes, and sales taxes. Others wanted clarification on the procedures for dealing with items which are purchased at wholesale and then sold or rented at a retail level. Finally, Mr. Pitlock asked in view of the language of the bill that it should be "...very clear that the credit against the sales tax would be no greater than the use tax that was actually paid...[so that there is] not a gain or a loss [to the people involved]." Chairman Lowden closed the hearing on S.B. 319 and adjourned the meeting at 3:45 pm. RESPECTFULLY SUBMITTED: Kathy Cole, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation April 27, 1995 Page