MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session May 9, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 1:50 p.m., on Tuesday, May 9, 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 STAFF MEMBERS PRESENT: DeLynn Gillentine, Committee Secretary Kevin Welsh, Research Analyst, Fiscal Analysis Division OTHERS PRESENT: Robert S. Hadfield, Lobbyist, Executive Director, Nevada Association of Counties Barbara Reed, Treasurer, Douglas County Bill Berrum, Treasurer, Washoe County Janice Wright, Deputy Executive Director, Department of Taxation Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association Marvin A. Leavitt, Lobbyist, City of Las Vegas Senator Lowden opened the hearing by introducing the following bill draft request (BDR). BILL DRAFT REQUEST 32-1840: Authorize certain persons to waive their exemptions from motor vehicle privilege tax and designate additional amount paid to be credited to fund for veterans' homes. SENATOR ADLER MOVED FOR INTRODUCTION OF BDR 32-1840. SENATOR REGAN SECONDED THE MOTION. Senator Augustine stated she had a problem with the bill in that the veterans either "get a motor vehicle privilege tax exemption or a property tax exemption." She said, "If they cannot get an exemption for the motor vehicle tax they might opt for the property tax exemption [then,] the veterans' homes would not get anything." Senator Lowden said that when the committee has the joint meeting at the end of May, they will go over all of the exemptions in more detail. THE MOTION PASSED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) ***** Senator Lowden opened the hearing on Senate Bill (S.B.) 309. Senator Lowden said the committee already heard this bill, but there has been an amendment attached. SENATE BILL 309: Revises provisions governing delinquent taxes. (BDR 32- 660) Senator O'Connell testified on the amendment and presented Exhibit C. Senator O'Connell said: What happens...in Clark County, you will have a situation where you owe back taxes and...you have interest and penalties charged on those back taxes. You cannot as an individual go in and set up a program where you can pay off the taxes that you owe. I have a constituent who called me. They have done an attorney general's opinion that says that the law already allows the assessor's office to accommodate a constituent this way, but for some reason we have different areas of the state that are not doing that. In this particular situation, it is a worst case scenario. [Here] is a widow, she owns property . . . and she has gotten behind [on her taxes]. . . and she cannot pay the full amount at one time. It keeps accumulating. In talking to some of the other assessors throughout the county they say, `Well, we already accommodate constituents by doing this;' but for some reason we do not do this in Clark County. So, the amendment was to set in law the situation where an assessor would go in and work with somebody who came in for a hardship reason [who was] not able to pay the full amount. Robert S. Hadfield, Lobbyist, Executive Director, Nevada Association of Counties, testified that he thought there was a communication problem about getting the information out to everyone with regard to this amendment. Further, he believed that the counties were not "in support or against" the amendment. Senator Lowden asked if the interested parties would hold a hearing outside and come to a consensus among the group and then, return to the committee with their recommendations. Senator Augustine stated she thought an amendment was agreed upon at the last hearing in regard to page 2, lines 12 and 13 of the bill. Senator Lowden explained that the amendment (Exhibit C) has nothing to do with the bill. Senator Augustine thought the entire bill was gone and the amendment was the new bill. Kevin Welsh, Research Analyst, Fiscal Analysis Division, explained that they are renumbering section 1 to section 2 and putting a brand new section 1 below that into the bill. Senator Augustine reiterated that she thought there was an agreement upon an amendment to delete the $1 from page 2, line 12 and 13 of the bill. Senator Lowden explained that this amendment had nothing to do with S.B. 309, indeed she asserted that this was like having another bill. A general discussion ensued with regard to the amendment as a whole. Senator Rhoads asked about the printing of names in the newspapers. He asked for verification that this bill would indeed prohibit the printing of the names until 30 days after taxes are due. Senator Lowden said there will be a mailing, then, if the taxpayer does not pay, their name will be printed in the paper, which will be very costly. Senator O'Connell asked members of the audience if they had been informed and seen the amendment (Exhibit C.) Barbara Reed, Treasurer, Douglas County, said she did not know about this amendment until yesterday at which point they faxed her a copy of the amendment with the "language" discussed. Senator O'Connell informed the committee that the assessor worked with them in drafting the language of this amendment. Ms. Reed continued her testimony by stating, "The treasurers are the ones that are collecting the taxes and we are the ones who would be setting up this program. To my knowledge none of the treasurers has received this information. . ." Senator Lowden asked Ms. Reed if she needed a little more time to absorb this and work it out. Ms. Reed responded by saying, "Our initial reading of it is that there really are some great errors [that] need to be addressed. In Douglas County we already do this. We set up partial payments for people; but we have some real concerns with the way in which the amendment is written." Senator Lowden then asked Ms. Reed if they had a problem with the "content" of the amendment. Ms. Reed reiterated that it was not the content that they had a problem with. Senator Lowden asked Ms. Reed to work on the wording of the amendment while the committee heard from another witness. Bill Berrum, Treasurer, Washoe County, stated, "What appeared to be an excellent piece of Legislation. . .takes a real drastic turn with this last amendment, which is basically a totally different issue. . . I've got a whole list of things that I would [like] to share with you or if you want us to resolve this. . ." Senator Lowden restated the question from Senator O'Connell which asked whether or not Washoe County makes some arrangements for the taxpayers. Mr. Berrum affirmed that they already have a mechanism in place to help the public. Senator Lowden concluded that this problem appeared to be a Clark County problem only; which means that the Legislature will have to mandate by law that Clark County do this also. The chairman asked Mr. Berrum and Ms. Reed along with any others interested in working on the wording of this amendment to get together and then present it to the committee in the next 1/2 hour. They concurred that they could do so. Senator Lowden made it clear to those who testified that the committee "is not married to the wording of the amendment, just the concept" of the amendment. Ms. Reed was asked to give Senator Rhoads an update on the history of and the purpose of S.B. 309. Ms. Reed explained to the committee how they have successfully been getting late tax payments from a simple postcard which reminds taxpayers to pay their taxes, fees, and informs them that their names will appear in the newspaper if they do not receive payment by a certain date. She declared that when the reminders were sent out they were able to collect taxes from 6,000 of the 9,000 delinquent taxpayers. Ms. Reed continued to testify about their concerns with the language of the amendment and included suggestions to remedy the problems in the wording. Senator Lowden asked Mr. Welsh to note the suggested amendment changes in the verbiage of the bill. A general discussion ensued among the committee members seeking clarification in amending S.B. 309. Chairman Lowden closed the hearing on S.B. 309 and opened the hearing on Senate Bill (S.B.) 376. SENATE BILL 376: Revises provisions governing compensation paid to state for cost of collecting certain taxes on retail sales. (BDR 32-820) Mr. Hadfield testified while giving the committee a handout (Exhibit D), which stated the Nevada Association of Counties' position with regard to this bill. He explained that regardless of the legislation they have fundamental problems with the whole "process of charging a fee." Continuing on, Mr. Hadfield referred to the Legislative Session of the 1993 budgeting process which ended up costing the counties a lot of revenue. He then repeated that "the fundamental problem that we are attempting to address with S.B. 376 is [this]. . .the state should be reimbursed for the cost of collecting their revenue; but we don't believe cities, counties, and improvement districts should be singled out as the only ones who actually, do in fact, pay the costs." According to his research the sales tax revenues are about "37 percent" of the total revenues collected by the Department of Taxation. Under that formula, Mr. Hadfield thought "we should be paying $1.5 million in 1995- 1996 and about $1.6 million in 1996-1997." He asserted yet again that this is a fairness issue and a matter of equity. Indeed, Mr. Hadfield stated, "The money [collected] didn't even go to buy the equipment that the Department of Taxation needs to function the way they can and should in collecting revenue. They are doing a great job. . .but haven't got the equipment they need to be efficient as they could be and we're sorry our money didn't go and buy them all new computers. . . We would all benefit from that. . ." Senator Lowden asked if the money had gone to the General Fund. Mr. Hadfield concurred that it did. Janice Wright, Deputy Executive Director, Department of Taxation, asked Mr. Hadfield to please inform the committee of the meeting he had with Mr. Pitlock, Director, Department of Taxation as Mr. Pitlock was unable to attend this hearing. Mr. Hadfield stated for the record that he had met with Mr. Pitlock on this bill and declared that he was going to represent Mr. Pitlock to the best of his ability. Mr. Hadfield suggested that Mr. Pitlock encourages the committee to look at: ...the whole area...and not just be confined to the relationship between local government and the Department of Taxation. I know he [Mr. Pitlock] feels that the department, if properly equipped, could be much more efficient in the collection; but he feels that the whole mechanism probably should be looked at because there are different ways of handling the different participants, including the people who collect taxes for the state. . . This system was layered logically as a system. . .perhaps a close look at the whole process and the relationship of everybody, needs to be [examined]. . . Senator O'Connell asked what the fiscal note is on this bill. Ms. Wright said it was "around $3.6 million." Senator Augustine inquired further of Ms. Wright's figures. The senator wanted some clarification. Ms. Wright confirmed that it would be a "$3.6 million loss to the state's General Fund." Before Ms. Wright could answer further, Mr. Hadfield spoke out by saying, "Or to put it another way, they are collecting $3.7 million more than it costs them to collect it, at our expense. . ." Ms. Wright concurred with Mr. Hadfield's testimony that this is an issue that is very important for local governments and the state's General Fund. She asserted that they would like to work with local governments and examine this issue, knowing full well that the revenues in question did not go to the Department of Taxation, but went instead to the General Fund. There is a much broader issue according to Ms. Wright: [That is,] at what point is the service received and who should be paying for the service. Currently. . .the money that we generate from collections, about 70 percent. . .goes to the local governments. The Department of Taxation in Nevada probably expends less than 1 percent of the amount of money that we generate. We generate $1.7 billion and our budget is less than 1 percent of that. When we look at other states we find that that percentage is much greater in other states, so we would welcome the opportunity to examine this issue to encompass the broader areas of who is receiving services and where the costs should actually be borne. We don't believe that we can do it at this point in time based on the fact that our budget has been closed. . ." Ms. Wright reaffirmed that they do want to work with the local governments in examining this but she is not sure that they can correct this problem by one bill. Mr. Hadfield also responded in the affirmative that they do need to work together for "it is truly an intertwined issue." Senator O'Connell inquired of Ms. Wright with regard to a possible need for an interim study on this issue. Ms. Wright said, "Yes senator. I believe that there would be a real benefit not just to the locals, but also to the state, if we were to examine this issue and as Mr. Hadfield explained it is a very far-reaching issue. There are many services that the locals perform for the state, so there's a lot to look at." Senator O'Connell commented that this is a similar situation with the retailers and their taxes that they pay to the state. Further, the senator acknowledged because this is such a broad-issue there does appear to be a need for an interim study. Senator Lowden asked Senator O'Connell, "What should the committees next step be in addressing this issue? That is, should they ignore this and go into an interim study or go forward with this?" Senator O'Connell asserted that they should go forward with this law and gather as much information as possible in order to cover problems such as the one in White Pine County. According to the senator the funds will have to come from the General Fund. Senator O'Connell further explained that the Department of Taxation is "kind of [like] a clearing house for the service and for the money; and they don't get back anything for the services they perform. So, I think a study is warranted." Senator Lowden reiterated that they have seen this in so many areas. As she stated, "This is not the first time we have seen this; nor are they the only department suffering with this problem." Mr. Hadfield restated that "if the local governments had not fought a budget cutting proposal the local government office which is taking care of the White Pine County problem would not be in existence today." Senator Augustine asked Mr. Hadfield to inform the committee how much are they looking to lose; that is, "the actual cost to the state." Mr. Hadfield responded by explaining that the fiscal note is at $3.6 million which is the actual cost of collection and the money that they would lose. He then referred to the figures he had used from a prior testimony dated 1993 (Exhibit D). Mr. Hadfield then continued to address the concerns raised by Senator Augustine with regard to the percentage and amount of money collected. Ms. Wright asked to clarify some of Mr. Hadfield's testimony along with the questions that had been raised by the committee on how the Department of Taxation will implement this bill upon its passage. She acknowledged that the Department of Taxation would have an "almost unworkable" task in gathering the "determining factor of figuring the actual cost of collection" on a monthly or quarterly or annual basis. Mr. Hadfield stated that this concern had also been raised in his conversation with Mr. Pitlock; however, Mr. Hadfield believed that the bill should not "dictate" how the department would figure out the cost of collection. He continued to assert that as the state would grow they would be getting more dollars, not expending more. Ms. Wright then said, "So, my recommendation would be that you go ahead and put us on a commission basis; and we will try very hard to collect more money. . . " Chairman Lowden concurred with this suggestion and asked if there was anyone else who wanted to speak to this bill. Carole Vilardo, Lobbyist, Nevada Taxpayers Association stated: We opposed the bill that changed it to 1 percent last session. We are supporting the bill that attempts to put it back to `actual.' I was glad to hear the testimony because obviously there is a problem. . . I truthfully don't know if an interim committee would [be able to] solve [it]. What I think would be better, if it would be solved by the department and the parties involved with some proviso that they come back to the Legislature... So, we hope you would process the bill. Senator Lowden said, "Instead of amending it as you suggested at this point, if this committee passes this bill, it's going to re-refer to finance for the obvious reasons... hopefully, they would amend it there. If we amend it now it would hold it up even longer..." SENATOR RHOADS MADE A MOTION TO DO PASS S.B. 376 AND RE-REFER THE BILL TO THE SENATE COMMITTEE ON FINANCE. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Chairman Lowden reopened the hearing on S.B. 309. Mr. Berrum, the Washoe County Treasurer, said he did have a discussion with Mr. Aston the Treasurer from Clark County who stated that they have been working regularly with hardship cases and that he had records to indicate their efforts to do so. According to Mr. Berrum's conversation with Mr. Aston, they had never gone to "tax sale" over a hardship case and moreover, they will continue to work with hardship cases as they arise. Senator O'Connell said that the Clark County Treasurer does indeed have some records dealing with hardship cases; however, she was "amazed" that they are in fact working with these cases. Mr. Berrum reiterated his position as he stated: The hard part is trying to tell the difference between those who are a hardship and those who are not hardship. I have denied [certain cases from] going to certification. . .because of their payment history and what is perceived by the treasurer to be the ability to pay and that is a lot different from hardship cases. . . My philosophy is, I will make you a deal for a year if you show me that you will make an effort to catch up on your taxes owed. . . " Mr. Berrum further explained that some of the problems occur due to the taxpayers waiting too long to contact the treasurer's office over their particular situation. He then said, "If this amendment took place, this would amount to a government sponsored tax-free loan so-to-speak, while somebody waits to pay their taxes for awhile. I think the treasurers as a whole in the state are all sympathetic towards the cause [of hardship cases]. . ." Senator O'Connell enquired further of Mr. Berrum. The senator wanted to know if he was aware of the attorney general's opinion with regard to hardship cases, and of special note the case in Clark County. Mr. Berrum said, "I can't quote it verbatim, but I remember discussing this [ruling] even before I took office. It said, `The treasurer may upon their own judgment enter into an agreement to take partial payments'. . ." There was a further discussion between the committee and Mr. Berrum in how best to address these types of cases. He finally recommended that the committee leave the "bill as is" with the exception of the amount of postage, that of being $1 which Mr. Berrum termed an "unrealistic" amount. Senator Lowden asked if there was specific criteria to determine who was a hardship case from county to county. "Should there be some type of uniform criteria throughout the state, who is really eligible?" Mr. Berrum said: I think in applying standards. . .[there would be a need of] adding two or three more people to the staff just to do background work, to verify. . .It is one thing to take someone's word for it and be a little lenient. . .versus doing a full-blown research on a case. There is a huge dollar factor to that, in addition to looking at automation upgrades. It would be quite expensive. . ." Mr. Berrum continued to express his concerns even with the appeal process and who would make the final decision. Senator Adler asked Mr. Berrum, "You say you have the statute to fall back on, I was just concerned that the next time you have an appeal you don't say, `Well the Legislature made me collect the tax.' I have heard that a couple of times in public hearings." Ms. Reed asked to testify stating that "county treasurers have traditionally. . .sat down over these items. . .and unofficially, we have round-tabled this and discussed what is the criteria for a hardship case. . . I think it is pretty consistent throughout the state. . .even though it hasn't been in writing..." Senator O'Connell wanted to know if they have very many of these cases in a year and she wanted to know if they should set up some kind of due process on the appeals level. The senator further queried if the State Board of Equalization would be a better vehicle for this type of problem than the Department of Taxation. Mr. Berrum said, "Without any publicity or without any assistance we already deal with about 350 cases now on our books. . . I think if we make this a law, I think we will be inundated. . .this would create a line around the block and an appeal for it." Marvin A. Leavitt, Lobbyist, City of Las Vegas, said, "You all know that most of the debt in the state is paid by property taxes and we levee a rate. . . to pay the debt. If we can get into a system whereby we delay the payment of taxes on a formalized basis, I would think we would [be] inviting. . .a negative [rating] on our whole bond rating scheme in the state. . ." Mr. Berrum asked to "piggyback" on that testimony by calling attention to the fact if there was a large number of hardship cases it could in essence "kill that county and affect everyone." Another point he wanted to make was in response to Mr. Leavitt's prior testimony. Mr. Berrum said, "Our. . . collections are just over 97 percent. Depending on the impact [of this bill], if it would cause our tax collections in the first year to drop below 96 percent, that has a huge negative impact on our bond rating and that would be detrimental on everybody within the structure. . ." SENATOR REGAN MADE A MOTION TO AMEND AND DO PASS S.B. 309. SENATOR AUGUSTINE SECONDED THE MOTION. Senator Lowden asked Mr. Welsh to help with the construction of the amendment as voted on. He concurred that he would do so. Senator Lowden then asked if there was any other discussion. THE MOTION CARRIED. (SENATOR ADLER VOTED NO AND SENATOR RHOADS WAS ABSENT FOR THE VOTE.) ***** Chairman Lowden adjourned the meeting at 3:15 p.m. RESPECTFULLY SUBMITTED: Kathy E. Cole, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation May 9, 1995 Page