MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
March 25, 2003
The Committee on Taxationwas called to order at 1:30 p.m., on Thursday, March 25, 2003. Chairman David Parks presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. David Parks, Chairman
Mr. David Goldwater, Vice Chairman
Mr. Bernie Anderson
Mr. Morse Arberry Jr.
Mrs. Dawn Gibbons
Mr. Tom Grady
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
COMMITTEE MEMBERS ABSENT:
Ms. Peggy Pierce
GUEST LEGISLATORS PRESENT:
Assemblyman Tom Collins, District No. 1
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Rick Combs, Fiscal Analyst
Mary Garcia, Committee Secretary
OTHERS PRESENT:
Steve Walker, Walker and Walker Associates, representing the Truckee Meadows Water Authority (TMWA)
Carole Vilardo, Nevada Taxpayers Association
Marvin Leavitt, Member, S.B. 557 Legislative Committee
Chuck Chinnock, Executive Director, Nevada Department of Taxation
Jan Gilbert, Progressive Leadership Alliance of Nevada (PLAN)
Chairman Parks called the meeting to order at 1:39 p.m. and requested the roll call. He noted that Assemblywoman Pierce was excused. Calling attention to the agenda, he announced the bills would be heard in reverse order. The hearing on A.B. 361 was opened.
Assembly Bill 361: Requires local governments that acquire certain public utilities or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. (BDR 32-627)
Chairman Parks provided introductory comments and explained the bill had originated in the S.B. 557 Interim Committee, on which he served as chairman. He relinquished the gavel to Vice Chairman Goldwater and commenced testimony from the witness table. A bill explanation document (Exhibit C) was distributed to the Committee.
Assemblyman Parks, representing Assembly District No. 41, Clark County, explained that A.B. 361 was a principal recommendation of the Legislative Committee for Local Government Taxes and Finance. Assemblyman Parks had served as the Chairman of that Committee, which had met during the 2001-2002 Interim Session. The Legislative Committee consulted with an Advisory Committee that consisted of 11 members, including the Executive Director of the Department of Taxation and 10 other appointed members representing various local governments and geographical areas of Nevada.
According to Assemblyman Parks, the Committee issued findings regarding the possible impacts to local governments from counties, cities, and general improvement districts as a result of acquiring or expanding certain facilities of a public utility. Based on those findings, the Committee approved the Advisory Committee’s recommendation to draft legislation to mitigate the impacts to local governments that resulted from the acquisition or expansion of public utility facilities. Continuing, Assemblyman Parks stated it would require the local government that was purchasing such facilities, other than water or sewer utilities, to pay an amount to other local governments in lieu of taxes. That amount had to be equal to the taxes that would have been paid to those local governments by the public utility. Assemblyman Parks emphasized those provisions were contained in Section 7, subsection 1, paragraph (a) of A.B. 361.
The second provision of the bill was to require the Nevada Department of Taxation to establish, on an annual basis, the assessed valuation attributable to a utility that had been purchased by a local government. It would be required that the established valuation figure be utilized in distribution formulas that included assessed valuation. Those provisions were contained in Section 7, subsection 1, paragraph (b) of A.B. 361.
The final requirement, according to Assemblyman Parks, was that local governments acquiring the facilities of a water or sewer utility or expanding the facilities of any other utility would be required to execute an interlocal agreement with other local governments that would be affected by the acquisition or expansion of facilities. Those provisions were contained in Section 8 of the bill.
Continuing, Assemblyman Parks stated the Advisory Committee had recommended that a distinction be made between water or sewer utilities and other utilities. In many instances, a local government was required to acquire those facilities in response to health and safety concerns. In those situations, when a local government was forced to provide water and sewer services, the public and other local governments could receive a benefit that would compensate for the loss of revenue that might be realized by a local government’s acquisition or expansion of the services. In those instances, the Advisory Committee judged the impacts should be mitigated through an interlocal agreement.
According to Assemblyman Parks, the Advisory Committee also believed it was important to distinguish between the expansion of a current service area, as opposed to the acquisition of the utility that was not formerly owned by local government. In the case of expansion, concern had been voiced by the Advisory Committee that it would be difficult to distinguish between the activities that were taxable and those that were not. Because of that difficulty, Assemblyman Parks stated the Advisory Committee had determined it would be appropriate to require in-lieu-of-tax payments” when an electric, natural gas, telecommunications, or community antennae television utility was acquired. Affected parties would authorize mitigation through an interlocal agreement when a local government acquired or expanded the utility services already owned by the local government. The Legislative Committee determined that local governments should only be required to pay taxes for operating-utility services when the operation of those utilities would result in a loss of revenue to another local government.
Concluding, Assemblyman Parks called attention to a letter (Exhibit D) from Linda Ritter, City Manager for the City of Elko. He explained that Ms. Ritter had served as the Chair of the subcommittee that reviewed the bill. Ms. Ritter’s letter contained six main points that covered the findings, conclusions, and recommendations of the Technical Advisory Committee.
Assemblyman Parks introduced Rick Combs, the Fiscal Analyst assigned to the S.B. 557 Committee. Mr. Combs made introductory remarks and offered to respond to questions on A.B. 361.
Assemblyman Marvel requested clarification if there had been any precedent for the situation where utilities were acquired by local government. He asked if it was merely anticipation of such an event. Mr. Combs replied there had been one instance, specifically the Truckee Meadows Water Authority (TMWA), that had taken over water services in the Reno-Sparks area. Because the TMWA was a local government entity, that had resulted in some loss of tax revenue for the Reno-Sparks areas. Mr. Combs acknowledged that the bill was proposed in anticipation of a large undertaking, for example the suggestion of Nevada Power being acquired by a local government.
In response to Assemblyman Marvel‘s question regarding the loss of revenue by local governments in Washoe County, Mr. Combs stated he did not have the information at hand; however, it would be provided to Assemblyman Marvel. Mr. Combs was reluctant to offer an estimation of the loss that followed the Truckee Meadows Water Authority acquisition of the water company from Sierra Pacific Power Company.
Assemblyman Grady asked if the proposed legislation would affect a company or local government that expanded services outside its jurisdiction. To illustrate his question, Mr. Grady cited the example of Churchill Telephone, and he asked if their services were expanded outside of Churchill County, would the bill affect them. Under Section 8, Mr. Combs explained it would have an impact since Churchill County would be deemed a local government providing services formerly supplied by a public utility; however; in his judgment, Section 8 would not require that it be an in-lieu-of-tax situation or one that would require an interlocal agreement.
Assemblyman Goldwater posed a question regarding “non-tax” items; for example, the universal energy charge that appeared on the utility bill. He asked if A.B. 361 would address that situation. In response, Mr. Combs stated he was unable to recall if the universal energy charge was one that local government utilities were required to collect. Mr. Goldwater interjected “no” and explained that certain utilities were exempt. Mr. Combs clarified that the language in Section 7 of A.B. 361 appeared to be fairly broad. As such, it would be a state tax or fee that would be required for collection, pursuant to the provisions of the bill.
Assemblyman Marvel summarized by stating the bill appeared to be designed to protect those local governments from losing tax revenue in the future. Assemblyman Parks responded in the affirmative and stated the intent of A.B. 361 was considered proactive for purposes of looking ahead to what might occur. It was designed to provide a protective response with a statutory mechanism. With the conclusion of his testimony, Assemblyman Parks resumed chairmanship of the Committee. He called for additional witnesses to come forward to testify.
Steve Walker, representing the Truckee Meadows Water Authority (TMWA), commenced testimony in favor of A.B. 361. In answer to why the TMWA would support the legislation, Mr. Walker replied, “$1.8 million.” When the TMWA was created from the Sierra Pacific Water Company, local governments united to successfully acquire that water company. Mr. Walker added that there were two other highly competitive bidders, one a foreign company. When the bid was awarded to the TMWA, the local governments assumed there would be an initial tax loss that would equate to their contribution to the acquisition of TMWA.
Assemblyman Marvel requested clarification if the current amount of revenue for TMWA equaled or exceeded that tax level. Mr. Walker replied that there was an agreement with the ratepayers of the Truckee Meadows that there would be no increase in rates for two years. As such, there was “revenue loss” by Reno, Sparks, and Washoe County, as well as by the Washoe County School District. There were discussions in progress between the staff of TMWA, the cities, and the school districts for purposes of drafting an in-lieu-of-tax resolution.
In the discussions leading up to the takeover of the water company, Assemblyman Anderson asked if the loss of potential revenue had been considered seriously. In response, Mr. Walker explained he had been the Regional Water Planner for Washoe County during the initial stages of negotiations. He left that planning position, ending his involvement about one‑third of the way through negotiations. From the beginning, Mr. Walker explained there was an understanding of “lost tax revenue.” He recalled there had been discussion that it was important to acquire the water for the citizens of Reno and to have elected officials representing the water resources of the area. The sentiment at the time was not to be overly concerned with the loss of tax revenue; rather, the focus was on buying the water company.
Carole Vilardo, representing the Nevada Taxpayers Association, commenced testimony in favor of A.B. 361. Ms. Vilardo described the legislation as a good forward step to provide statutory protection for future situations. She shared her concern over the possibility of serious consequences that could arise, especially where an entity had debt that resulted in a sizable amount of assessed value going off the property tax rolls. Ms. Vilardo declared it would leave the debt in the hands of the taxpayers at large unless there was legal protection as provided in A.B. 361. She urged the Committee to pass the bill.
Marvin Leavitt, member of the S.B. 557 Technical Advisory Committee, voiced agreement with the testimony of Chairman Parks and Carole Vilardo. Mr. Leavitt viewed the legislation as protective, especially in the rural counties. The threat of utility takeovers could be disastrous, and he viewed A.B. 361 as ensuring some stability for the taxing system of local governments.
Chuck Chinnock, Executive Director of the Nevada Department of Taxation, voiced a neutral stance on A.B. 361. He assured the Committee that the Department of Taxation would have no problem with the implementation of the new law since those industries and companies to be assessed were already in the tax system. His agency had the responsibility to assess value on interstate and inter-county properties. If the properties were to be sold to a local government entity, the Department of Taxation would merely transfer that responsibility.
Chairman Parks thanked the witness for his testimony and, seeing no additional witnesses, closed the hearing on A.B. 361. The hearing on A.B. 339 was opened. While awaiting the arrival of the bill sponsor, Assemblyman Collins, Chairman Parks announced he would entertain a motion on A.B. 361.
ASSEMBLYMAN MARVEL MOVED TO DO PASS A.B. 361.
ASSEMBLYMAN ANDERSON SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Pierce was absent for the vote.)
The hearing on A.B. 339 was opened. A bill explanation document (Exhibit E) was distributed to the Committee.
Assembly Bill 339: Increases business tax. (BDR 32-79)
Assemblyman Tom Collins, representing Assembly District No. 1, Clark County, commenced testimony as sponsor of the bill. He had proposed the legislation 2 years ago when the teachers’ initiative “was killed in court.” Assemblyman Collins described the legislation as long overdue, saying A.B. 339 would increase the business activity tax. As part of the construction industry, Mr. Collins had firsthand knowledge of sentiments among contractors on the subject of such a tax. It was regarded as simple in that it required a minimal number of forms to complete and also because contractors could calculate costs based on the number of man-hours for each construction job. Assemblyman Collins predicted A.B. 339 would generate several million dollars in revenue that was long overdue, and he urged the Committee to support passage of the bill.
Assemblyman Marvel asked what the impact would be to contracts that were already through the bidding process and where estimates had been based on the assumption of a $45 fee. Assemblyman Collins replied he was unable to address the specific impact on each job; however, in his experience, most of the jobs were not long-term. In the cases of larger construction jobs, the impact would be small. He illustrated his point with the example of a firm with 400 employees. When that figure was multiplied by $40, the total would be $16,000 per year, and that amount could be readily absorbed into the job.
Because some construction jobs were long-term, Assemblyman Marvel asked about “CIPs that go for a couple of years, such as the prison or the library.” The proposed extra costs had not been factored into the total costs. Assemblyman Collins assured the Committee that many construction contracts had “re-opener clauses” that allowed for renegotiations. In closing, Assemblyman Collins emphasized the increased impact would be to the benefit of the citizenry as a whole.
Assuming the testimony had referred to full-time-equivalent employees (FTEs), Assemblywoman McClain requested clarification on the calculation for part-time employees. She asked about employees who worked on a “1099 basis” and whether or not they were considered employees and tracked for tax calculation purposes. In response, Assemblyman Collins stated the threshold was $600 before reporting was required. When casual laborers were hired for $200-$300, most of those situations were unreported. He reminded the Committee that the paper trail was already in place, making it simple for compliance and implementation. Assemblyman Collins described the downside as the fact it did not broaden the tax base. On the other hand, it was considered low‑maintenance and accessible.
In response to Assemblywoman McClain’s question on the number of part-time employees statewide, Assemblyman Collins replied “hundreds of thousands, 700,000 or more.” Chairman Parks called upon Ted Zuend to clarify that point.
Ted Zuend, Fiscal Analyst, addressed the first part of Assemblywoman McClain’s question and stated that, under current law, the employees of a non-incorporated business were not subject to the tax; however, the Governor’s bill had proposed that the tax be extended to those workers. Employees of an incorporated business would be subject to the tax. Addressing the second part of the question on revenues, Mr. Zuend stated the proposed tax would raise approximately $80 million per year. Assemblyman Collins’ bill would add $32 million to that revenue amount. Mr. Zuend explained that translated into 800,000 full-time-equivalent employees (FTEs). In actuality, there were closer to 900,000 workers counted in private sector employment by the Nevada Department of Employment, Training, and Rehabilitation. According to Mr. Zuend, the tax intake compared to the head count reflected a reduction in the full-time-equivalency base of approximately 10 percent.
Chairman Parks called for additional witnesses to testify on A.B. 339.
Carole Vilardo, representing the Nevada Taxpayers Association (NTA), commenced testimony. She recalled the NTA Board had reviewed multiple tax measures, including the increase in the business tax. Because of the length of time that it had been in place without adjustment, the NTA Board judged it to be appropriate to support A.B. 339.
Chuck Chinnock, Executive Director of the Nevada Tax Department, offered to comment on the proposed legislation. Mr. Chinnock summarized the bill as merely a rate change; therefore, there would be no impact on the Department of Taxation as far as implementation. The law would become effective on July 1, 2003, and the first reporting requirement would be at the end of September. Collections would be due before the end of October, with the first revenues realized in the middle of November.
Jan Gilbert, representing the Progressive Leadership Alliance of Nevada (PLAN), made a brief statement regarding A.B. 339. Although she was not opposed to the tax, Ms. Gilbert voiced concern that it was just a “Band-Aid” to the problem. Her preference would be for the Committee to concentrate its efforts on a comprehensive tax package. Ms. Gilbert did not believe that A.B. 339 was the answer, and she believed, because the problem was much larger, all of the individual tax bills should be viewed as a whole. The Progressive Leadership Alliance of Nevada was hoping to make a presentation to the Committee regarding needs of the state of Nevada. In her view, $32 million would not have an impact, and Ms. Gilbert encouraged the Committee to take a broader view of the situation. In summary, she stated the Progressive Leadership Alliance of Nevada (PLAN) supported a broad-based business tax, and A.B. 339 was not the approach. PLAN thought the business community should be required to pay its fair share through a broader tax. In closing, Ms. Gilbert stated, “I would oppose this bill.”
Assemblywoman Gibbons requested clarification of the term “broad-based business tax” and asked if the witness would consider a service tax as fitting that category. Ms. Gilbert replied that the Progressive Leadership Alliance of Nevada had looked at that option, but did not accept a service tax approach because it was considered a ”regressive tax” that hurt lower-income individuals at a much higher rate. She added that it would not affect the business community on a broad-based spectrum. As such, PLAN would be opposed to a service tax. Ms. Gilbert added that their proposal was a business net-profits tax, and PLAN was supportive of the Governor’s gross receipts tax (GRT) proposal.
Continuing, Ms. Gilbert emphasized the problem was much bigger, and the business community had not paid into the economy. In her view, it was revenue from sales tax and gaming tax that carried the burden in Nevada. The insurance industry paid some; however, that was actually paid by individuals through payment of insurance premiums. Ms. Gilbert summarized by saying it was time to make business pay, and, regardless of the tax, “we are all going to hurt at the end of this.” The benefit to education and human resource systems had to be considered.
Chairman Parks thanked the witness for her testimony and clarified that a service tax was added to the service provided. As such, it was not considered a business-based tax. Seeing no additional witnesses, he closed the hearing on A.B. 339.
Chairman Parks opened the work session on A.B. 270. A bill explanation contained in a work session document (Exhibit F) was distributed to the Committee. The document also contained bill explanations and amendment language for several other Taxation bills.
Assembly Bill 270: Revises provisions relating to community redevelopment. (BDR 22-384)
Chairman Parks remarked that there had been general support for the bill, originally heard on March 18, 2003. Testimony from the cities of North Las Vegas and Henderson had reflected general support of the bill, but the cities had offered an amendment. Chairman Parks summarized the amendment as adding the language, “the elimination of economic blight.” The amendment would be added in subparagraph (a) of Section 1, subsection 2, on page 2 following line 28.
Assemblywoman McClain asked for an interpretation of the proposed language, “foster the elimination of economic blight.” Assemblyman Goldwater offered to clarify and stated any objection to the bill was alleviated by page 2, line 11, which said, “shall consider.” He encouraged consideration of the language, ”fostering the elimination of blight and economic blight.” Concluding, Mr. Goldwater stated if the amendment was not acceptable, he would reconsider its inclusion.
Assemblywoman McClain responded that she did not object to the amendment; however, she was concerned over future interpretation of that clause. Looking at the language, “encourage the creation of new business,” she asked if that carried the promise to eliminate economic blight and clarified by asking, “Do you want economic blight or run-down neighborhoods?” Assemblyman Goldwater admitted he was uncertain of the real meaning of the term “economic blight.”
Continuing, Assemblywoman McClain reiterated her concern as being the inclusion of the word “economic” with the phrase, “fostering the elimination of blight.” In her judgment, blight could refer to physical buildings that were deteriorating, rather than the absence of a business in that locale.
Assemblyman Griffin commented if the word “shall” was inserted, it ensured that the legislative body followed the process. The opportunity was available to say, “Here is what we think it means. Here is what we want it to mean and go forward.” Mr. Griffin stated it would force the discussion in a public forum, but did not force the imposition of any rules.
Mr. Zuend defended the inclusion of the term “economic blight,” clarifying the phrase “the elimination of blight” could include “corn blight” or diseases. In his view, economic blight did include run-down buildings. The language “economic and social” might allow for more creativity; however, Mr. Zuend emphasized the intent was to exclude “corn blight” or some similar situation.
Assemblyman Goldwater viewed the amendment as “friendly” because it did no harm to A.B. 270. Because it had so little impact on the bill, Mr. Goldwater was amenable to a simple “do pass.”
ASSEMBLYMAN MARVEL MOVED TO DO PASS A.B. 270.
ASSEMBLYMAN GRADY SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Pierce was absent for the vote.)
Chairman Parks closed the work session discussion. The meeting was adjourned at 2:21 p.m.
RESPECTFULLY SUBMITTED:
June Rigsby
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: