MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session May 25, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 2:10 p.m., on Thursday, May 25, 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: Senator Lawrence Jacobsen, Western Nevada Senatorial District STAFF MEMBERS PRESENT: Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division Linda Chapman, Committee Secretary Susanna Martin, Reproduction Operator OTHERS PRESENT: Richard Kwapil, Jr., Attorney at Law, Woodburn and Wedge Robert Hadfield, Executive Director, Nevada Association of Counties (NACO) Marvin Leavitt, Legislative Coordinator, City of Las Vegas Janice Wright, Deputy Executive Director, Department of Taxation Lucille Lusk, Lobbyist, Nevada Concerned Citizens Peter Krueger, State Executive, Nevada Petroleum Marketers Association John Haycock, Chairman, Nevada State Petroleum Board Allen Biaggi, Chief, Bureau of Corrective Actions, Division of Environmental Protection John Sande III, Lobbyist, Western States Petroleum, Inc. Thomas Grady, Executive Director, Nevada League of Cities Randy Capurro, Vice President, Layne and Associates Insurance Henry Etchemendy, Executive Director, Nevada Association of School Boards Robert Miller, Principal Geologist, Broadbent and Associates, Inc. William Botsford, Hydrogeologist, Steffen Robertson and Kirsten, Inc. James Kitchel, Director of Administration, Airport Authority of Washoe County Jim Polkinghorne, Mayor, City of Elko Kathy Gilbert, Executive Vice President, El Aero Services, Inc. John Ellison, City Supervisor, City of Elko Steven Tackes, Chairman, Carson City Airport Hale Bennett, Manager/Owner, Silver Springs Airport Senator Lowden opened the hearing on Senate Bill (S.B.) 68. She explained there is an amendment to this bill that will eliminate what is on S.B. 68 and refill it with the amendment. SENATE BILL 68: Expands exemptions from tax on transfers of real property to include transfers made to corporation sole from another corporation sole. (BDR 32-657) Richard Kwapil, Jr., Attorney at Law, Woodburn and Wedge, Reno, testified he represents the Roman Catholic Bishop of Reno-Las Vegas, a corporation sole which is the legal entity for the Catholic Church in the State of Nevada. He explained the corporation sole and asked for some language to be adopted to amend Nevada Revised Statutes (NRS) 375.090 (Exhibit C). This is because there will be a split in the diocese, making two separate dioceses for the State of Nevada. He explained the reorganization. SENATOR O'CONNELL MOVED TO RECONSIDER S.B. 68. SENATOR AUGUSTINE SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division, explained what Amendment No. 536 does to S.B. 68. SENATOR O'CONNELL MOVED TO AMEND S.B. 68 WITH AMENDMENT NO. 536. SENATOR AUGUSTINE SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE. SENATOR ADLER VOTED NO.) * * * * * Senator Lowden opened the hearing on S.B. 320. SENATE BILL 320: Increases statutory limit on total rate of taxes ad valorem. (BDR 32-609) Robert Hadfield, Executive Director, Nevada Association of Counties (NACO), testified that there have been several meetings seeking an approach with S.B. 320 that will provide relief to local governments who will be impaired by the existing tax cap. Senator O'Connell stated that most cities and county budgets are employee salary influenced. She asked if there is any way this money can be protected from the salary negotiations. Mr. Hadfield stated that the entities who seek relief from this mechanism will experience difficulty. The process will not be accessed unless a county has a deteriorating economic condition. Marvin Leavitt, Legislative Coordinator, City of Las Vegas, testified the bill can specify that any taxes levied cannot be used as revenue to determine salary increases. It would be best if the entire state has one standard relating to property taxes. He said assessed value of property on the preceding year's roll, and that of the new property being added to the roll this year, should be considered in determining the taxes levied. Mr. Leavitt discussed the pros and cons of the bill with the committee. Senator O'Connell said the whole county should vote on these taxes. Senator Rhoads asked what will happen when the entire county votes down taxes. The county and city officials are in office to make those decisions. It is very difficult to get any additional taxes through the voters. Mr. Leavitt suggested it would be good if the Department of Taxation could run the figures for the property rolls for a couple of years to see what kind of changes are there, so the numbers can be compared for the sales tax. Janice Wright, Deputy Executive Director, Department of Taxation, testified the commission meets in Las Vegas and Carson City. The meeting that certifies the tax rates is held on June 26 and is required to be held in Carson City. Senator Lowden stated she feels public input is necessary. The people should be allowed to stand up and say they are not for a tax increase. She said she will work with Mr. Leavitt and bring the figures back to the committee. Lucille Lusk, Lobbyist, Nevada Concerned Citizens, testified she has strong feelings that anyone who has to pay these taxes should have a vote. Senator Lowden closed the hearing on S.B. 320 and opened the hearing on S.B. 324. SENATE BILL 324: Increases fees for certain petroleum products. (BDR 51-1306) Senator Lowden said: We have the original bill that deals with increased fees for petroleum products. We have an amendment that I am going to pass out to the committee (Exhibit D), because they have been told about it, but have not seen the amendment. The amendment is going to drastically reduce the amount of aviation fuel tax. There is a request for this amendment to reduce the fuel tax. Instead of just having a whole new bill, what we are going to do is, if the committee agrees to it, is amend this into the bill. As long as it is the same chapter and it deals with the same information, we can all deal with it in one bill instead of having two bills. She called for testimony from anyone in favor of the original bill. No one came forward. Senator Lawrence Jacobsen, Western Nevada Senatorial District testified as a sponsor of S.B. 324 (Exhibit E). Senator Augustine asked if this is going to create an increase in fuel taxes. She asked if the money can be shifted from other taxes that the consumer pays. Senator Jacobsen said "yes" and that the consumer will pay the increase. It is possible for that to be transferred from other taxes that are being collected, but there is nothing relative to fuel. It is a small amount, but leakage does need to be cleaned up. This is a modest approach, but the main concern is the environment. Peter Krueger, State Executive, Nevada Petroleum Marketers Association, testified when the bill was first introduced in 1989, this was an unfunded federal mandate that forced the people who owned the tanks to come up with financial responsibility of $1 million per site. He said the small tank owners could not afford that. As a byproduct of that unfunded mandate the Nevada Petroleum Fund was created in 1989 for the clean-up of the leaking tanks. He said they are asking for an increase of the fee on petroleum products from six-tenths of a cent to one cent on an imported product, and raise the tank owner fee from $50 annually to $100 annually. John Haycock, Chairman, Nevada State Petroleum Board, testified his concern is for the solvency of the Nevada Petroleum Fund. As a starting point, S.B. 324 is a way to maintain the solvency of the program. The annual fee serves as the premium and is used to help keep people in business. He suggested the consumer pays the increase in costs in any business. Senator Augustine asked Mr. Haycock to expand on the fund having to be a certain level, which the EPA (Environmental Protection Agency) looks at as a solvency issue. She asked if the fund must be a certain amount of money. Mr. Haycock responded the federal requirement is for a $1 million financial responsibility. The federal EPA has to recognize the petroleum fund as viable in order to be a fulfillment of the requirement. The cost of clean-up will be a relative factor until the end of the century. Senator Rhoads asked what percentage of the tanks have been cleaned up already. Allen Biaggi, Chief, Bureau of Corrective Actions, Division of Environmental Protection, testified approximately 450 leaking tanks have been cleaned up under this program. The program covers about 4100 regulated storage tanks. He said about one- fourth of those tanks are meeting the 1998 standards. Once all those tanks meet the standards, there is a decrease in the likelihood of a release of fuel. Senator Adler said he thinks one of the problems is that the EPA sets standards for the clean-ups, but the contractors who do the clean-up are overcharging for the work they are doing. They charge more to lease the air stripping machine than the machine costs. He suggested that the receipts from the contractors need to be seriously examined. He asked if the cost can be monitored. Mr. Haycock stated his staff reviews every claim that comes in. There are people who have taken advantage of the program. He said he is attempting to monitor the costs of the services to prevent abuse of the fund. The board questions everything and some stuff still gets through. He said they are trying to be more careful. Senator Rhoads asked what the consequence is if this bill does not get through. Mr. Biaggi replied this fund never goes into the red. He said they pay as the money comes into them. The tank owner and operator put the money up front for clean-up. Reimbursement time becomes longer and longer. Mr. Biaggi referred to Exhibit D and reviewed it with the committee. Senator Augustine asked again about transferring the money from another fund. Mr. Haycock replied that it is unconstitutional, and explained the road taxes are strictly for the Highway Fund. John Sande III, Lobbyist, Western States Petroleum, Inc., testified this is a designated fee. The Constitution says you can only use gasoline taxes for road construction and maintenance. Ms. Wright cited statutes on the taxes. She said specific restrictions exist for each portion of the fuel tax which is applied. Thomas Grady, Executive Director, Nevada League of Cities, testified they agree with the concept that some costs should be better controlled. The governments are paying the tank registration fees. The hope is that this will eventually go away. It is the people's duty to solve the problems that have been created over the years. Mr. Hadfield testified in support of S.B. 324 and the fund to support it. Randy Capurro, Vice President, Layne and Associates Insurance, testified the Associated General Contractors of Southern Nevada are in support of this bill. He said his company insures a lot of underground tanks. The average premium on a single tank in Arizona and California is running about $1,000 per year. He said they do not provide coverage in Nevada unless they provide excess. The coverage has to come from the petroleum fund. He said they are not prohibited from writing this coverage. Henry Etchemendy, Executive Director, Nevada Association of School Boards, testified they hope this fund can be augmented because the school districts are involved in this type of business. Robert Miller, Principal Geologist, Broadbent and Associates, Inc., testified in favor of the petroleum fund (Exhibit F). William Botsford, Hydrogeologist, Steffen Robertson and Kirsten, Inc., testified they do state petroleum work. He said the comment was made about Nevada having the highest taxes and tax ratio on gas in the country. The real issue is that in the last 50 years, no one in this country has paid the real cost of energy. He said those costs are coming to us now in the form of environmental pollution and has to be addressed. With the exception of a few oil countries, our petroleum prices are extremely low. Ms. Lusk stated the consumer or taxpayers are the ones going to have to pay the fees. The federal government mandates to the state government, the state government mandates to either local government or business, and ultimately the taxpayers have to pay. She asked the committee to get the taxpayers out from under as many of the federal mandates as they can. Senator Lowden said the committee is going to proceed with the amendment to the bill which deals with the decrease. She told everyone that there is not going to be any action taken on the bill at this point. Mr. Sande asked the committee, on behalf of the airport authority, to consider reducing the tax on aviation fuel. It is not jet fuel and is very high octane. The tax on this fuel goes to the Civil Air Patrol and the counties. He said if a person uses more than 200 gallons in a 6-month period, they can apply to the Department of Taxation for a refund. The Department of Taxation receives no revenue for administering this program. He said this tax in Nevada is the second highest in the nation. James Kitchel, Director of Administration, Airport Authority of Washoe County, testified in support of Mr. Sande's statement. He said the growth of general aviation is in conflict with the commercial aviation/air carrier activity. The authority is concerned that congestion at major airports will be costly to them. He said small community airports can help to stimulate business, and reduction of this tax will promote the business of general aviation airports. Jim Polkinghorne, Mayor, City of Elko, testified in favor of the proposed amendment. Kathy Gilbert, Executive Vice President, El Aero Services, Inc., testified her company has three locations and deal with the customers who use this type of fuel. She said if the tax is lowered, the airports will receive more flowage fees due to the increase of business. John Ellison, City Supervisor, City of Elko, testified a lot of people fly out of their way in order to buy fuel at a lesser tax rate. Steven Tackes, Chairman, Carson City Airport, testified in support of this bill. He said an opportunity to compete, fuel price-wise, will result in an increase of business. SENATOR RHOADS MOVED TO AMEND S.B. 324, WITH AMENDMENT NO. 537. SENATOR REGAN SECONDED THE MOTION. Senator Augustine said she is in favor of the amendment, but not in the additional fuel tax. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Lowden called for introduction of Bill Draft Request (BDR) S-1889. BILL DRAFT REQUEST S-1889: Revises tax exemptions for property owned by airports. SENATOR REGAN MOVED TO INTRODUCE BDR S-1889. SENATOR TOWNSEND SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Lowden asked the committee for introduction of BDR 32- 1212. BILL DRAFT REQUEST 32-1212: Exempts certain machinery and equipment used by manufacturers from sales and use tax. Senator Townsend said this bill was drafted by the legal division as a result of the concern of the Commission on Economic Development, Nevada Development Authority and Economic Development Authority of Western Nevada relative to their ability to compete with other states to abate tax on the purchase of machinery and equipment used by business to expand to a certain level or bring new business in. SENATOR RHOADS MOVED FOR INTRODUCTION OF BDR 32-1212. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Lowden called for introduction of BDR 32-1926. BILL DRAFT REQUEST 32-1926: Exempts certain leased property from property tax. Mr. Tackes stated this amends Nevada Revised Statutes (NRS) 361.157 and addresses airports that are not subject to an airport authority statute. Hale Bennett, Manager/Owner, Silver Springs Airport, testified that the lease payment to Lyon County was negotiated with the premise that the property on the airport was nontaxable for real estate tax. An attorney general's opinion said airports are taxable. He said if he pays the tax, which goes to Lyon County, his rental goes to Lyon County. If this bill is processed, his rental agreement will stand as it is today. He said if the bill does not pass, it forces him into a position of going back to Lyon County and questioning his having to pay property tax as well as rent. SENATOR RHOADS MOVED TO INTRODUCE BDR 32-1926. SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Lowden said the amendment to the insurance premium tax was written incorrectly. SENATE BILL 271: Repeals temporarily requirement for repayment of insurance premium tax. (BDR 57-1804) Mr. Welsh explained: Last meeting, we amended S.B. 271 with an amendment that would move the first prepayment back from June 15 to July 1. We have two problems with that. Number one, that has to stand alone and go first, because the reason for that was to give the companies some breathing room . . . or give us some breathing room to process [S.B.] 271, so that we would not come up and repeal it after they had already paid it. The second . . . problem with the amendment is that it pushed to July 1. We want to push it back to June 30. If [S.B.] 271 does fail, and they do end up making the prepayment, it will come in the proper fiscal year. If we set it back to July 1, it goes into the next fiscal year and goofs up the budget. What we need to do is rescind our action amending it and I will have that corrected and make it its own bill and [S.B.] 271 can stand at its own for now. SENATOR O'CONNELL MOVED TO RESCIND THE ACTION OF MAY 23 REGARDING THE AMENDMENT TO S.B. 271. SENATOR RHOADS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Lowden adjourned the meeting at 4:20 p.m. RESPECTFULLY SUBMITTED: Diane Rea Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation May 25, 1995 Page