MINUTES OF THE meeting

of the

ASSEMBLY Committee on Taxation

 

Seventy-Second Session

April 10, 2003

 

 

The Committee on Taxationwas called to order at 1:55 p.m., on Thursday, April 10, 2003.  Chairman David Parks presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4406 of the Grant Sawyer State Office Building, Las Vegas, 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

Ms. Peggy Pierce

 

COMMITTEE MEMBERS ABSENT:

 

None

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman John Oceguera, District No. 16

Assemblywoman Chris Giunchigliani, District No. 9

Assemblyman Pete Goicoechea, District No. 35

 

STAFF MEMBERS PRESENT:

 

Ted Zuend, Fiscal Analyst

Kyle Wentz, Senior Page

Mary Garcia, Committee Secretary

June Rigsby, Committee Secretary

 

OTHERS PRESENT:

 

Courtney Alexander, representing the Culinary Union

Dennis Bassford, President, Moneytree, Incorporated

John Vergiels, representing Nevada Financial Services Association

Thomas J. Powell, President, Intohomes Mortgage Services

Ray Bacon, representing the Nevada Mining Association

John Sande III, representing the Nevada Bankers Association and the Western States Petroleum Association

William E. Martin, Chairman, President, and Chief Executive Officer, Nevada State Bank

Joseph W. Brown, Citizen

Dave Guinan, representing the Nevada Insurance Guaranty Association

Chuck Chinnock, Executive Director, Nevada Department of Taxation

Marvin Leavitt, Chairman, 557 Subcommittee to Study the Cost to Counties and Cities of Maintaining Highways, Roads, and Streets

Russ Law, representing the Nevada Department of Transportation

John Madole, Executive Director, Associated General Contractors of America, Incorporated

George delCarlo, representing American Ready Mix, Reno, Nevada

Gary Fried, Road Manager, Lyon County Road Division

Lisa Foster, American Automobile Association, Nevada

Teri Baltisberger, Tax Administrator II, Department of Motor Vehicles

Peter D. Krueger, State Executive, Nevada Petroleum Marketers & Convenience Store Association

Debbie Smith, representing Operating Engineers Local No. 3

Carole Vilardo, representing the Nevada Taxpayers Association

Mark Schofield, Assessor, Clark County

Gaylyn Spriggs, representing the Nevada Taxpayers Association

Mike Alastuey, representing Clark County

Dave Dawley, Carson City Assessor

Carla Watson, Administrative Services Officer,Division of Aging Services

Chairman Parks:

Good afternoon.  I would like to call the Assembly Committee on Taxation to order.  [Attendance was taken.]  We have several bills and a work session in front of us this afternoon.  We would like to start with Assembly Bill 517 and ask Assemblywoman Chris Giunchigliani and Assemblyman John Oceguera to come forward.  [See Exhibit X for bill explanation].

 

 

Assembly Bill 517:  Imposes tax on financial institutions for privilege of doing business in state. (BDR 32-1029)

 

Assemblyman John Oceguera, Clark County Assembly District No. 16:

[Introduced himself.] This is the first time I have testified before this Committee.  While I very much admire all of you who serve on the Taxation and Ways and Means Committees and know how to deal with the spreadsheets and long-term projections, I have never aspired to be an expert on tax policy or state budget.  Today I find myself in the unusual position of coming to you to advocate a change in tax policy.  I am here as a result of discussions with various constituents about possible tax reform.

 

There is one thing I have always believed and have consistently said:  Any tax policy I support must be fair, spreading the burden equally.  As representatives, you and I cannot go to the people we represent and tell them they have to pay more taxes when there are segments of our society who are paying practically nothing.  I want to commend the Chair of this Committee for requesting this legislation.  I have been joined by Assemblywoman Chris Giunchigliani, who is the Vice Chair of the Ways and Means Committee and is very knowledgeable and will be better able to address specific questions regarding actual numbers. 

 

This concept, I believe, represents a very common-sense approach to tax reform in Nevada.  Let me be specific.  The banking industry in Nevada is the reason for the amendment to A.B. 517, Section 13.  While I have no problem with the banking industry, the research I have done has convinced me beyond a doubt that they are not paying their fair share of the tax burden.

 

Banking is a billion-dollar industry in our state, yet the only business tax banks pay is the $100 annual business activity tax (BAT).  Not all banks are the same.  Therefore, we will be proposing an amendment that will be fair and equitable to all banks and will not discriminate against the smaller community banks.  We do not think it is reasonable or fair to ask a small community bank to pay the same tax level as the huge multi-state banks, such as Wells Fargo with its net annual income of $427 million.  Therefore, we come with an amendment for a tiered tax rate that protects these small banks and ensures that the largest burden is borne by the giants in the banking industry. 

 

[Assemblyman Oceguera, continued]  It is fascinating to me that about 75 percent of the banking market share in Nevada is controlled by only five banks, banks that make millions upon millions of dollars in Nevada without contributing their fair share to our tax base, the tax base that funds our schools, keeps prisoners incarcerated, and provides critical services to our senior citizens.  For those of you who say this bill is singling out one industry, I would point out that the representatives of the banking industry are adamantly opposed to other business taxes such as the proposed gross receipts tax, stating that their industry is very complex and different from other industries.  If this is indeed the case, then the banking industry should be willing to pay their fair share.  I would think that they would be very willing and strongly supportive, and would agree to this tax that takes into account their objections to the proposed gross receipts tax. 

 

Let me be perfectly clear.  This bill is not asking the banking industry to pay the proposed tax and the gross receipts tax.  Let me also be clear that this is not an onerous tax.  As you can see on this map of the western U.S. (Exhibit C), banks in Utah pay 5 percent tax; in Arizona, 7 percent tax; in Oregon, 6.6 percent tax; in Idaho, a 7.6 percent tax; and in California, a 10.8 percent tax.  The second handout is titled “Wells Fargo Bank Personal Checking Accounts, Fees, and Minimum Balance Requirements” (Exhibit D).  It is a compilation of fees charged in states previously mentioned.  Please note that the fees are identical in the other states, yet no tax other than the BAT tax is paid in Nevada.  It is very clear to me, and hopefully to this Committee, that these institutions are charging the same fees in other states and paying taxes, yet in Nevada they pay no tax. 

 

The third handout is titled “The Nevada Bankers Association Position Statement:  Tax Policy” (Exhibit E).  I would like to quote from the statement in paragraph 1, where they state, “We pledge to pay our ‘fair share’ of the additional tax revenue generated from the business community.”  Big national banks seem to be willing to contribute to the education of children and the well being of senior citizens in other states, but not in Nevada.  In conclusion, Mr. Chairman, before I turn to Ms. Giunchigliani to give you more background and walk you through the bill, let me stress again that I believe this proposal is a fair amendment to the bill, a bill that protects small community banks and requires a very lucrative industry to pay its fair share at long last.

 

Assemblywoman Chris Giunchigliani, Clark County Assembly District No. 9:

[Introduced herself and read from prepared testimony, Exhibit F.]  As my colleague Assemblyman Oceguera has indicated, we are faced with a fiscal crisis in this state.  As sponsor of the legislation creating the Governor’s Task Force on Tax Policy, I felt that they had important charges.  One was to bring recommendations that broaden the tax base, and the other was to help point out areas where some businesses may not be paying their fair share. 

 

[Assemblywoman Giunchigliani, continued]  That is why we need to seriously consider this piece of legislation, because it addresses the fair share issue.  John mentioned the Nevada Bankers Association tax policy pledge.  This bill, with the proposed amendment, will help them keep that pledge. 

 

Banks do business differently from general corporations.  General corporations have gross receipts from sales of goods and services from which a cost of goods is subtracted to reach taxable income.  In contrast, banks have neither gross receipts not cost of goods sold, but rather interest income, which presents itself differently from the return standpoint, but it is not taxed differently. 

 

As John noted, five banks have 75 percent of the market share, and they charge the same fees here as they do in California, yet in California they pay an excise tax of 10.8 percent.  Nevada has favorable bank laws, and we do not wish to change that, but the average bank deposit is seven times more than what it is nationally, and the banks’ income is approximately $7 billion.  We are estimating a potential tax base of $1 million, and the gross figures do not even include the credit card activity. 

 

Recognizing that we do not want to drive banking away, especially our smaller community banks, the flat 14 percent fee in the original bill is too high and could potentially cause institutions to move investment portfolios and accounts into other jurisdictions.  The key to this bill will be the amendment we are proposing that assures that the revenue-generating ability of any levy will be a function of how the tax is applied and administered, the formula base to apportion the income, and the rate. 

 

The simplest way to estimate the total taxable income for the banks is via a share analysis technique.  This means that we make the assumption that Nevada bank income is proportional to its share of several representative factors such as deposits, gross state product, employment, and so forth.  The Federal Deposit Insurance Corporation (FDIC) reports that banks nationwide have after‑tax operating incomes of $97.2 billion.  They also report that Nevada institutions maintain deposits of $27.4 billion in at least 435 locations.  By applying the technique I mentioned, one could assume that Nevada banks would generate nearly $620 million in net operating revenue.  I point out that three banks, Wells Fargo, Citibank, and Household Bank, account for 88 percent of the state’s aggregate after-tax income total. 

 

[Assemblywoman Giunchigliani, continued]  Bank of America, US Bank, California Federal Bank, Colonial Bank, and Washington Mutual Bank are not included in those income figures that I noted because they are federally chartered without an independent subsidiary or having been domiciled in the state of Nevada.  If you combine the five firms, they account for roughly one‑third of Nevada’s total bank deposits, with Bank of America having 19.5 percent of market share, which places it second to Wells Fargo. 

 

I have a handout for you (Exhibit G) in which we analyzed data for this information.  I point out that the five banks really have the market share, and that’s why we are proposing an amendment to A.B. 517 (Exhibit H).  I would recommend the deletion of the 14 percent franchise fee in Section 13 and realign that section for a three-tiered program, so that all banks pay a small amount, but the biggest tax burden is borne by the largest banks with the most gross.  The tiers John and I presented here should raise approximately $75 million. 

 

I will close with asking the banks to work with this Committee to find a balance so that smaller banks are not hurt and larger banks are not discouraged from doing business in our state, but they will bear a higher tax burden.  Banks are in the business of investing, and I ask them to step up and help invest in Nevada’s schools.  After all, the kids are their future investors.  I will try to answer any questions, Mr. Chair.  I think you have the amendment.

 

Chairman Parks:

Yes, thank you, the amendment has been distributed (Exhibit H).  There are extra copies.  We have a number of handouts, and we would like to go through the first couple to make sure we understand what has been placed in front of us.  Looking at the map, it is fairly simple and easy to realize that there are different rates that are imposed on financial institutions in the western states.  By looking at the other chart with regards to personal checking accounts and minimum fee balances, I am somewhat surprised.  If you just concentrate on the first two columns, Nevada and California, we are looking at a monthly service fee of $12 in both Nevada and California.  Then if you follow further down to the Advantage Plus checking, it is $14.  These are identical rates in both states.  However, in Nevada there is no income tax imposed.  Can you explain why the same rate might be charged in both states, where one has an income tax and the other does not?

 

Assemblywoman Giunchigliani:

Nevada’s banking laws have been very favorable, and that is part of the reason banks have chosen to be here.  However, they also probably recognize the size of California, and realize that in the course of doing business you have to pay some taxes.  In my opinion, Nevada just has never bothered to look at that industry to make sure it is paying an equal share.  Therefore, the banks are charging Nevadans exactly the same rate for the deposits, yet they pay no tax other than the BAT.  Again, it is one of those fair share issues that we felt we needed to bring forward. 

 

Chairman Parks:

Thank you.  Are there other questions from Committee members? 

 

Assemblyman Marvel:

I think I was the only one here in 1984, but we had a special session inviting Citibank to come in because of our variable tax climate.

 

Assemblywoman Giunchigliani:

I was not here, but I do recall that.  I think Governor Bryan was actually who called that into special session.  The bill before you takes the California model.  We are suggesting a change in the tier structure, but we would be just as competitive.  In fact, with the rate we are recommending, we would be less than California, and they would still be charging their customers more, even though they are paying more there and less here. 

 

We do not want to drive businesses out.  That is absolutely not the intent.  We do think that they need to be equal partners and step up to the plate.  I believe that an offer had originally been made that they would be willing to generate $13 million through sales tax or something, but certainly not the gross receipts tax.  That is a very minimal gesture as far as what they make and what they raise and what they are paying in other states as compared to Nevada.  So, one more time, we are exporting dollars, it appears to me. 

 

Assemblyman Griffin:

I have a question.  This actually may be better for somebody from the banking industry, but it is related to you.  As you may recall, yesterday afternoon a bill on living wage was discussed in Commerce.  Has there been a correlation to costs of services?  I understand what you are saying about money and gross and profit and all those things, but as far as benefits paid, what kinds of options exist in the banking community?  Is there a cost allocation that this tax considers one way or the other?

 

Assemblywoman Giunchigliani:

I saw one document that said their salaries were quite high on average, but I do not know if that was based on management salaries or individual bank tellers.  I think it was around $41,000, and it is in one of the documents that we handed out to you.  They would be better able to address that issue.

 

Assemblyman Hettrick:

Obviously, I am trying to look at the bill and the amendment, although it is short.  Since this is Section 5, which indicates this is intended to be on gross, should not any amendment include that they would not pay any other tax of any kind on gross or otherwise?

 

Assemblywoman Giunchigliani:

Yes, and I think Mr. Oceguera mentioned that our intent would be that if a gross receipts tax were to pass they should not pay both.  That would be inequitable, so any amendment should contain that as well. 

 

Assemblyman Hettrick:

So we would have to have that added to the amendment that has been submitted.  [Ms. Giunchigliani agreed.] 

 

Chairman Parks:

Are there any further questions?  If not, thank you very much for your testimony.  Going down the list, the first person signed in to speak in favor is Courtney Alexander.

 

Courtney Alexander, representing the Culinary Union:

[Introduced herself.]  I am here in support of A.B. 517.  As you know, our organization has argued that Nevada needs a broad-based business tax to save our schools.  In our opinion, we cannot continue to rely on the usual tax suspects, sales taxes and gaming taxes, to fund our fast-growing state.  As we have witnessed in the past 18 months, these sources of revenue are volatile and unstable, turning bad times into crises. 

 

Nonetheless, businesses that do not already pay an industry-specific tax have united in opposition to a broad-based business tax and are pushing an expansion of the sales tax to services.  If that is the best that these businesses can do, then we have to advocate adding to the base of industry-specific taxes because some industries in this state pay their fair share, but most do not. 

 

Banking is top of the list in not paying its fair share of the state budget.  The finance sector pays only $4.2 million into the state General Fund, less than a quarter of one percent of General Fund revenues.  That includes $2.4 million under the business activity tax, the only broad tax that businesses pay, and $1.8 million in financial institution fees. 

 

[Ms. Alexander, continued]  Banking is one of the most profitable businesses in the country, and this industry has likely benefited most from Nevada’s rapid growth.  In 2002, a year of recession, Wells Fargo made a net profit of almost $6 billion.  Bank of America made a net profit of over $9 billion.  While these companies do not report their profits by state, conservative estimates suggest that the banking industry generates annual profits ranging somewhere between $650 million and $1 billion in Nevada. 

 

We all know where these profits come from.  I will give you a couple of examples.  Banks charge $2 automatic teller machine (ATM) withdrawal fees, and twice that much if you use another bank’s ATM.  With interest rates at their lowest level in four decades, how many of you have seen your credit card rates decline below 10 percent, or even 15 percent?  They have also generated huge sums through the massive refinancing of home mortgages in the past couple of years, with some families refinancing more than once because rates have fallen so far. 

 

The finance sector in Nevada has also grown faster than most.  Finance jobs grew by 46 percent between 1996 and 2001.  Gaming jobs grew just over 18 percent in that same period.  I believe that is one indicator that banking has benefited from our state’s growth, even while that growth has put more pressure on our state’s fiscal health, yet these banks are part of a coalition that would bring us a tax on services.  So, consumers would pay a sales tax on checking account fees, on ATM fees, refinancing fees, even, potentially, interest costs on borrowings so that banks will not have to pay more than 1 percent of the state’s General Fund. 

 

Our state’s leading banks do pay taxes in almost every other state.  In 2001, Wells Fargo paid $282 million in state income taxes, none of which went to Nevada.  Bank of America paid $364 million to other states.  As you have already heard, banks in California pay an income tax of 10.8 percent, 2 percent higher than the general corporate income tax rate.  In Arizona, they pay 6.9 percent.  In Oregon, they pay 6.6 percent; Idaho, 7.6 percent; Utah, 5 percent. 

 

Clearly, Wells Fargo and Bank of America have not left those markets because they have to pay their fair share in those states.  In fact, California is Bank of America’s largest regional market.  I am sure banks will argue that they will have to raise their fees to compensate for higher taxes.  You have before you, as Assemblyman Oceguera has already demonstrated, charts that show that Wells Fargo and other banks actually charge the same or higher charges in the state of Nevada for banking services, where they pay no taxes, as they do in California, where they pay considerable income tax. 

[Ms. Alexander, continued]  Nevada currently relies heavily on industry‑specific taxes.  Gaming currently pays a gross receipts tax in addition to licensing fees and the BAT.  Gaming taxes generated $660 million for the state in 2002, 32 percent of General Fund revenues.  While gaming companies are generally profitable, banking appears to be more profitable.  Compare a national gaming company like Harrah’s Entertainment, which earned $235 million in profit last year, to Wells Fargo, earning almost $6 billion in profit.  Or look at the Gaming Control Board’s report on casino profitability.  All casinos statewide earned an aggregate $300 million in profit last year before accounting for write‑downs and changes in accounting rules that would otherwise have caused net losses.  Compare that to banking’s estimated $650 billion in profit. 

 

Insurance pays a tax on the premiums it charges in Nevada at the rate of 3.5 percent.  Last year that tax generated $356 million for the state, raising 9 percent of General Fund revenues.  That tax alone generated twice as much as the BAT tax paid by all industries.  Revenues brought in by the insurance premium tax grew 6.4 percent last year while gaming tax revenues declined 1.8 percent.  This information underscores the importance of broadening our tax base to other businesses, because other business sectors are growing and are not necessarily driven by the same dynamics as our tourist-based businesses are. 

 

Mining also pays an industry-specific tax.  While that industry has a very prominent historic role in our state, it is an industry in decline.  Nonetheless, mining pays state taxes and is willing to be part of the solution to our state’s fiscal crisis.  Meanwhile, booming businesses like banking pay next to nothing. 

 

This bill would help change that.  This bill takes an industry that pays almost nothing under the business activity tax yet makes substantial profit from the growth of our state, and asks it to pay its fair share of the cost of that growth.  It says that we will choose to tax profitable banks on the money they make in Nevada instead of choosing to tax working Nevadans for ATM fees, loan origination fees, and even interest charges.  A.B. 517 refuses to let Wells Fargo and Bank of America say that children in Nevada are less deserving of a quality education than children in California or Arizona. 

 

Chairman Parks:

Thank you very much for your testimony.  Are there questions for Ms. Alexander? 

 

Assemblyman Marvel:

I have a declaration.  Since the name keeps coming up, I am a community director for Wells Fargo, although I share no liability. 

Chairman Parks:

Thank you.  As far as persons signing in, we have one person, Dennis Bassford, and then we have persons against, followed by Kim Koster.

 

Dennis Bassford, President, Moneytree, Incorporated:

[Introduced himself]  We are a Seattle-based, family-owned business in financial services.  We do check cashing and small loans.  We have 80 branches in four Western states, 14 of which are here in the state of Nevada.  I come before you today opposed to Assembly Bill 517, and I would like to offer a few of my personal feelings about the tax issue here in the state of Nevada. 

 

My industry is made up of small businesspeople throughout the state.  We are not banks; we are not credit unions; we are small businesspeople offering a financial service in the communities.  My company, Moneytree, and others understand Nevada’s fiscal dilemma, and we, like many other companies doing business in this state, want to pay our fair share.  It is important to me because my employees live and work in your districts and their children go to schools here in Nevada.  I believe that education is the state’s highest priority, not only for the sake of the children here in Nevada but also for the sake of the future of businesses like mine.  Because of that, Moneytree wants to be part of the solution and, Mr. Chairman, I feel that A.B. 517 will only hurt Nevada’s financial industry, my industry, and our customers. 

 

The tax contained in this bill singles out one industry with an onerous, punitive tax that I think would cripple my company and many of the other companies, both large and small, in my industry.  If the goal of this Legislature is to consider ways to reduce volatility in state revenue streams, I think that A.B. 517 will not achieve that goal.  It will not go to the point of relieving financial reliance on gaming and sales taxes as a revenue stream. 

 

With that said, Mr. Chairman, I would not be opposed to a broad-based business tax.  In the states of Idaho and California, I pay state income taxes, but in the state of Washington, where my company was started and where 50 of my branches are located, what we pay there is a gross receipts tax.  We call it the B and O tax.  Personally, I find it easier to administer, less subject to subjective interpretation and manipulation, and more equitable because everybody in Washington state pays it. 

 

As I understand it here, there was a call from the Governor for a gross receipts tax in which $450,000 in receipts would be exempt in order to protect small businesses from taxation.  Over 60 percent of the Nevada businesses would be exempted under that proposal.  While the gross receipts tax does not take into consideration business profitability, I think the Task Force found that low rates like the quarter of one percent that is proposed here—and, by the way, while I do not like paying it, in Washington state I do pay 1.5 percent, which is six times more than the quarter of a percent proposed—would allow businesses to participate without major hardship.  I agree with that conclusion.  I think the gross receipts tax would broaden the tax base and reflect Nevada’s broad, diverse economy, and it would provide better stability to the state’s income stream. 

 

[Mr. Bassford, continued]  Washington state, as I mentioned, has a gross receipts tax that applies broadly to the business community.  Hawaii, Delaware, and New Jersey include corporate and personal income taxes as well as gross receipts taxes, which, I can tell you, is something I am opposed to.  While we do have the gross receipts tax in Washington, the idea of income taxes comes up about every four years, and every four years it is defeated in the state of Washington.

 

In summary, while I, like anyone, would prefer not to pay more taxes, I understand the need for it here in the state of Nevada.  If it must be done, let us have a tax structure that is broad-based, as opposed to focusing on a particular industry. 

 

Chairman Parks:

Does anyone have any questions for Mr. Bassford?  Not seeing any, thank you very much.  The next person is Kim Koster.

 

John Vergiels, representing Nevada Financial Services Association:

[Introduced himself]  Ms. Koster had to leave.  I have a prepared statement here (Exhibit I), which runs somewhat parallel to Mr. Bassford’s except for the gross receipts tax.  It talks about the “mom and pop” operations, and how it may have an effect on the smaller operations.  I think it speaks for itself and we will not belabor it.

 

Chairman Parks:

Thank you very much.  We will make sure it is made part of the record.  The next person we have on the list is Tom Powell.

 

Thomas J. Powell, President, Intohomes Mortgage Services:

[Introduced himself and noted that his company was based in Reno.  He read from prepared testimony, Exhibit J.]  My wife, Tonya Powell, and I are the principal owners of the company.  We are here to give testimony regarding the negative impact A.B. 517 will have on our business, and, we believe, on all brokers in the state of Nevada, should this bill be passed in its current form, or even with the recent amendments.  As a business owner, I understand the need to increase revenues to support the additional growth and infrastructure of the state.  We are struggling at Intohomes.  How do we fund our growth, make a return to our investors, support our 24 employees, provide a great work environment, give back to our community, and stay competitive so as to best serve our clients? 

 

[Mr. Powell, continued]  As a broker, we operate under NRS 645B.  I believe A.B. 517 is flawed in several ways, but specifically it is flawed in the assumption that a small, local, family-owned business such as ours can afford to pay 4–14 percent of our profits for the privilege of doing business in the state.  This privilege, for my wife and me, means we take a financial risk each day our doors are open.  We personally sign lines of credit and leases, guarantee payroll, and subject ourselves to possible large fines from the state for errors that can be made by our employees.  We work more than full time to operate the business.  Because we are a limited liability corporation (LLC), our compensation is in the form of profit. 

 

In addition, A.B. 517 specifically states that the Legislature finds and declares that the tax imposed pursuant to this chapter on a financial institution must not be construed as a tax upon the customers of the financial institution, but as a tax which is imposed upon and collectable from the financial institutions, and which constitutes part of the operating overhead of the financial institution.  In simple terms, this is not a pass-through tax; this bill is a direct 14 percent personal income tax to my wife and me. 

 

Last year, Intohomes helped nearly 1,000 families obtain the dream of home ownership, lending nearly $140 million dollars.  Our net profit was approximately 37 basis points on that revenue, which is 0.0037.  The gross receipts tax is asking to take over two-thirds of this profit, and this particular tax is over 56 times higher than the gross receipts tax being proposed.  Similar to the gross receipts tax, this new tax will cause the creation of an internal revenue service for the state, with all the costs associated with a new agency, along with all the powers of intrusion into the lives of small business owners throughout our state. 

 

My question for you today is, based on this simple insight I have given you into our mortgage broker business, which is indicative of the industry as a whole, why should my wife and I keep our doors open, personally assume the financial risk we take each and every day, and give back to our community through numerous non-profits in which we are involved, just to give the state 14 percent of our earnings?  Intohomes is one of the largest mortgage brokers in Nevada, with 24 employees.  The majority of mortgage brokers by far are tiny mom-and-pop businesses with an average of 2–5 employees.  If you choose to include mortgage brokers in this bill, you will undoubtedly drive many, if not most of them, out of business, and you may drive us out of business.  This eliminates competition within the marketplace and leaves only the large institutions, which are not based in Nevada and have no true commitment and loyalty to our state, from which homeowners may choose.  As you know, small business is the cornerstone of our country’s free enterprise system, employing by far the majority of all working people.  I brought with me today many letters signed by other mortgage brokers throughout the state who feel as we do. 

 

[Mr. Powell, continued]  When we talk about “fair share,” five banks have 75 percent of the deposits in this state.  Lumped in this bill are 500 independently owned fewer-than-five-employee mortgage brokers, most of whom earn their money by investing their personal time back into their companies.  Again, it becomes a tax on the business owners for their efforts instead of simply on profits.  Mortgage banks keep servicing values off the books, and their profits are calculated differently, so when you talk about profits, a mortgage broker is at a competitive disadvantage from a mortgage banker in this state. 

 

Last year, we paid a little more than a million dollars in wages.  We have high‑paying jobs with great benefits.  Assemblyman Griffin, you asked the question, what kind of benefits?  I cannot speak for banks, but our employees have a 401(k) that matches after they have been with us 90 days.  They have health care, vision, dental, vacations, holidays, and education reimbursement.  Last year they bought over 14 new vehicles and 3 new homes.  Those are the benefits of working for our financial institution. 

 

I cannot urge you strongly enough to reconsider this bill, and I ask that you remove those of us that operate under NRS 645B, your local mortgage brokers, from its scope.  Thank you for your time.  I would be happy to answer any questions.

 

Assemblywoman McClain:

I am just curious.  Since they brought this amendment, does it still have the same impact on you?

 

Thomas Powell:

It still does.  Again, the primary fact is that most, if not all, brokers are small businesses.  What this becomes is a personal income tax for the broker, because it is our personal effort in the business.  We are not a band of investors, such as shareholders in a large corporation.  We are working in the business, and that effort returns the profit to the business, so yes, it does do that. 

[Mr. Powell, continued]  The second piece is, again, competing against banks and how they determine an origination fee.  Most banks nowadays do not charge origination fees because consumers will not pay origination fees.  They take it off the books and bill it off of the servicing value.  Again, how does that keep us competitive? 

 

Assemblywoman McClain:

Under the proposed gross receipts tax, you say that it is bad but this is worse.  Would you be included in the gross receipts, even with the $450,000 exemption?

 

Thomas Powell:

Yes.  Our profit was above that, but again, our profit was 37 basis points and the gross receipts tax is 25 basis points, so, again, it leaves us with about 12 basis points.  It is taking two-thirds of our profit.  [Ms. McClain thanked him.]

 

Assemblywoman Pierce:

Just a follow-up to Ms. McClain.  You have got this part on your paper in capital letters so we do not miss it (Exhibit J).  Would you support any tax that you could not pass through to your customers? 

 

Thomas Powell:

Is it a question of would I prefer to have a tax that is pass-through?  I believe the insurance tax that was mentioned by the person who spoke before me is actually paid for by the policyholder, the person who actually goes out and takes the insurance policy, and that does not put anybody at a competitive disadvantage.  I think that for the consumers it is part of doing the business.  If it is there and we all pass it through, and it is a small tax, I think that would be better. 

 

Should there be a tax?  Again, it has to be determined, as long as it is not a personal income tax to us, because then that is not a fair share.  Being in business is a privilege, and so I get to pay a personal income tax.  Again, because we are an LLC, we do not take a salary off the business.  It is taxed as a partnership.  All of the profits come down as guaranteed payments to partners, and so that is considered profit, and any of that is taxed, so at any point, that tax becomes, again, a personal income tax to my wife and me. 

 

Assemblywoman Pierce:

You do not support anything you cannot pass through to your costumers.

Thomas Powell:

I am not stating that.  I am stating that it is preferable that it be passed through to the consumers because it is fairer, because anything that is not passed through to the customers is specifically an income tax to my wife and me.

 

Assemblywoman Pierce:

Okay.  Thank you.

 

Chairman Parks:

Are there any further questions?  If not, thank you, Mr. Powell.  The next person we have on our list is Mr. Ray Bacon.  [Mr. Bacon answered from the audience that his points were covered.]  I would like to follow that with Mr. John Sande.

 

John Sande, representing the Nevada Bankers Association:

[Introduced himself] With me to testify is Bill Martin, who is the President and CEO of Nevada State Bank.  I will start my remarks off on two issues.  One is that if you listen to the proponents of this, it is almost as though banks are bad people.  All I can say is that I was on the board of Valley Bank in the 1980s, and I remember how this Legislature and people in the community were very anxious to have more capital coming into Nevada.  Back at that time, as you may recall, it was very difficult to get casino loans.  As a matter of fact, Valley Bank of Nevada was virtually the only bank in the state that was making gaming loans at that time, and the only way we could afford to make them to people like Steve Wynn was to participate with banks outside the state that relied upon Valley Bank’s expertise on gaming. 

 

Nowadays, what do we have?  We have a lot of capital in Nevada, and we have encouraged a lot of banks to come in here and do business.  That is my first point.  I think the banking industry has been very good for Nevada in recent years, and I think it should be applauded for coming in and taking care of the concerns of our businesses and residents. 

 

The second part was the amendment.  Actually, I do not know where the original 14 percent figure came from.  It is obviously a very punitive tax the way it was proposed to be higher than any tax that I am aware of in the nation.  It still is, even in the revised amendment, from my standpoint. 

 

I am chairman of the board of a small start-up bank called First Independent Bank of Nevada.  We are very proud.  We are three years old.  We have grown very rapidly, and we compete directly against the large banks like the Wells Fargos and the Banks of America.  I can tell you that we do very well because we find our niche, and we do the right thing, we believe, for our consumers. 

[Mr. Sande, continued]  There were some statements made that somehow we do not pay for our cost of goods, that somehow we are sitting there taking and making money out of thin air.  The way banks and other financial institutions make money is with a margin.  You deposit your funds with the bank.  The bank will sometimes, if it is a demand account, not pay any interest, but give you free checking, whatever.  Sometimes we pay interest.  Sometimes you invest with a certificate of deposit (CD).  We do raise money, and we have to pay for that.  Then we go out and lend that to the community, or otherwise invest it.  The average return, or I should say the margin, right now for most banks would be in the range of 4 percent.  It is a very, very competitive market, and you have to be very careful. 

 

Remember the savings and loan debacle, and the other times when banks have failed.  Another point I would like to make is that we want our banks to be healthy.  We want our banks to do well, but I can tell you that, in my opinion, no one in the banking industry is ripping off anybody.  I would say that we do not want to be treated differently.  My bank does not want to be treated differently from any other bank, even if it is a larger bank.  We compete very well.  I might mention that we have a great board of directors.  We have some great employees like the large banks do, and we pay very high salaries.  This last week I just went through the compensation of our 50-plus employees, and I can tell you that they are treated very well, they love their jobs, and they participate in the community. 

 

I have a few points to talk about, and I will be quick.  This bill is industry-specific.  What have we been hearing?  We have been hearing the Governor saying, “Let us stop being industry-specific; let us start having a broad-based business tax.”  What did the Governor’s Task Force say?  The same thing.  What did the Nevada Realtors Association (NRA), through Harvey Whittemore, just say the other day?  “We want to have broad-based business tax.”  This is not a broad-based business tax. 

 

They say the other states around you tax banks.  They do.  They charge income tax, but banks are included like every other business.  It is true that in California, they apparently pay 2 percent more, but what they pay it upon, as I understand it, is less, and they do not have to pay certain local fees.  Under the Constitution of the United States of America, a bank cannot be taxed on its federal obligations, so interest on federal obligations cannot be taxed.  Some banks have a lot of federal obligations, so if you are going to impose an income tax, you may very well have to differentiate between them and other forms of business. 

 

[Mr. Sande, continued]  This tax is punitive.  It taxes just banks.  As far as I know it does not tax some of our competitors like stockbrokers, so it is punitive.  As I pointed out, it discriminates against financial institutions compared to other businesses.  There is a lot of talk about how we are getting a free ride in the state of Nevada. 

 

Let’s face it:  Nevada for a long time has said we are a very tax-friendly state.  We have no personal income tax.  That is why we try to encourage people to come in, and anybody who has been up to the north shore of Lake Tahoe knows that a lot of people come into Nevada because of our tax structure.  We recognize that we have increased tax needs, and we are going to have to go and look at a change in our tax structure, which my banks will, in the endgame, not be opposed to. 

 

Finally, the bill would create an entirely new tax structure.  There are constitutional problems with A.B. 517.  It delegates a lot of authority to the Department of Taxation.  There is a case, Cashman Photo, that I happen to have put into a brief a long time ago, which says, and I will quote directly, “A tax statute must say what it means.  The Supreme Court will not extend a tax statute by implication, and it will construe it in favor of a taxpayer.”  A.B. 517 needs a lot of work, if you were to pass it, to make sure a bank or any other financial institution could read the bill and understand exactly what it says.  You cannot delegate to the Department of Taxation to grant regulations to flesh out the bill. 

 

Just think about this:  We are talking about a gross receipts tax; we are talking about other tax.  If you pass this bill, you would set up an entirely new tax structure that would be extremely complex and costly to administer to just go after one industry.  We are opposed to A.B. 517 for the reasons I have said, and I would be glad to answer any questions.

 

Assemblywoman Pierce:

Which broad-based business tax do you support, sir?

 

John Sande:

I told you the other day.  Unfortunately, I have a conflict of interest.  I cannot lobby.  I represent a gaming company that is supportive of a gross receipts tax.  I represent auto dealers.  I also represent the banking industry.  But I can tell you this:  Whatever the tax ultimately is, I think it is a very tough situation that we all understand we face.  Whatever tax is ultimately passed, I know my clients, all of them, will participate, and they will do so voluntarily.

William E. (Bill) Martin, Chairman, President, and Chief Executive Officer, Nevada State Bank:

[Introduced himself]  I have been president of three banks in Nevada over the last 20 or so years.  I am here today to oppose A.B. 517.  Although there may be a lot of technical issues with the bill, I have as a principal objection that it singles out one industry and does not represent, by any stretch of the imagination, a broad-based business tax. 

 

I have here a series of articles that I have pulled from the Las Vegas Review-Journal over the last week or ten days, starting originally with the Task Force that had, as its principal mission, the creation of a broad-based business tax, to Harvey Whittemore’s quote when he was dealing with A.B. 342 having to do with a room tax.  He said that it was industry-specific; it was not a broad-based tax.  In the articles are Gail Tuzzolo, who is heading the coalition of gaming and unions who wish to support Governor Guinn’s effort toward a broad-based business tax, and Mike Hillerby, Deputy Chief of Staff to Governor Guinn, who on April 9 said that he needed a broad‑based business tax.  He was probably quoting Governor Guinn. 

 

Today’s paper quotes Speaker of the Assembly Perkins and Governor Guinn as both saying “fair and stable broad-based business tax.”  When I heard the people proposing and testifying for A.B. 517 earlier, I almost felt like they should give my testimony for me because they used the words “broad-based,” “fair,” and “equitable,” and I find those to be exactly my position.  This bill is not fair, it is not equitable, and it is certainly not broad-based.  It is very industry-specific. 

 

Just as a little point of clarification, under federal tax laws, states cannot charge individuals or entities that collect interest on certain obligations, so California, because it is prohibited from charging on certain income that banks receive, adds a 2 percent surcharge to it.  If we look at that in its finest form, and let us assume the rate is 8 percent and banks pay 10 percent, the 2 percent surcharge is essentially to create equality in the state of California so that everybody pays on the same rate. 

 

Mr. Oceguera, I think, left the impression when he read off the states and the taxes that that was some sort of franchise tax on banks in those states, and unless his information differs significantly from mine, what he really should have said to be correct was that it is a corporate income tax.  All the corporations in those states pay the same corporate income tax.  Were it the wisdom of the Taxation Committees in the Senate and the Assembly to institute a corporate income tax to all corporations operating in the state, we would be more than pleased to pay that tax along with every other corporation, because it would be equal, it would be fair, and it would be broad-based. 

 

[Mr. Martin, continued]  There is one ratio that is very important to banking, and that is called “return on assets.”  Banks typically like to operate in the 1 to 1.5 percent return on assets, so while these corporations are very, very large, particularly Bank of America and Wells Fargo, the fact is it takes a lot of income to generate a 1 percent return on their assets. 

 

There was a question asked of the mortgage broker earlier of passing through a tax.  Actually, the banks do a very small percentage of mortgage lending in the United States, and I presume that is true in Nevada.  With 500 mortgage brokers, I think you can understand why there is a lot of mortgage activity outside the banking arena.  It is very difficult to pass through that tax because those mortgages are based on a national real estate interest rate as they sell those loans to investors.  It would be very difficult to charge more in one state than another, so I guess I am supporting his position that that would be a difficult tax for them to pass through. 

 

I guess I will close and see if you have any questions, but there is one thing I would like to say.  I am getting a little tired of hearing people say that bankers have gone out and said they do not want to pay tax.  That simply is not true, and I would ask anyone who says that I or anyone representing the Bankers Association have said that to please stand up.  I will say it with all the emphasis I can:  We are for a broad-based business tax.  Whatever tax is passed, or whatever series of taxes created by a compromise, be it a sales tax on services, a gross receipts, or a transfer tax on real estate—banks are great consumers of real estate; we spend several million dollars a year buying branch locations—the banks will pay that tax.  There is no effort on my part or on anyone else’s part to avoid a tax or escape a tax, any more than it would be a gaming company who currently operates in this state.  I stand on that position as firmly as I can.  Thank you very much.

 

Chairman Parks:

Thank you, Mr. Martin.  Are there any questions?  Mr. Grady.

 

Assemblyman Tom Grady:

I feel that I should disclose that I had the honor of working for Mr. Martin for some years.  It has been over ten years, so I do intend to participate in the discussion and vote on this issue. 

 

Assemblyman Griffin:

I appreciate what you said, Mr. Martin.  I think you are right.  I have never heard anybody say that.  I know that a discussion has occurred with your industry and the Governor and others on all the different options to participate. 

 

I have a two-part question.  One is, if you can, bring us up on any of those discussions and what they were, and if amounts were discussed.  You may not have gone into that kind of detail.  Also, referring to the question I asked Ms. Giunchigliani on the nature of benefits, one way of looking at an industry is in terms of its gross or its profitability, but the other way is in what services it requires by its existence.  That goes back to the issue of benefits and salaries.  I do not know if you have that information for the whole industry, but I would be curious about how that plays into your discussions that you had on contributions. 

 

Bill Martin:

Just so I understand the question, were you asking about our discussions on gross receipts tax and, I am sorry, I just did not…

 

Assemblyman Griffin:

I am sorry.  I asked a bunch of different things.  More in general, would you just let us know what those discussions were on, if you can?  Also, are they relevant to what benefits and salaries you provide your employees?  In a sense, that has a great impact, in my opinion, on the demand for services that would be created by the industry.  I do not know if I clarified it any better.

 

Bill Martin:

Actually, no, you did not.  I am just as confused as ever.  How about I give an answer and you tell me whether you think it was responsive.  I will not single out banks, but I think there are a lot of entities, banks being one of them, that put an awful lot of emphasis on employee benefits.  Everybody is struggling under the weight of those these days because of the totally separate issue of rising medical costs, and that is something in which we get very high participation.  We allow part-time employees to get full benefits, should they wish.  I know at a number of the banks some of the part-time employees choose not to accept benefits because perhaps a wife or husband has benefits somewhere else and then they receive a higher hourly wage.  That tends to be tellers and those types of part-time positions.  Now, was your question on discussions on a dollar amount from…?

 

Assemblyman Griffin:

Yes, just discussion.  I mean, you had mentioned your participation in this tax discussion.  I was just curious if it considered those things that you are talking about in terms of benefits and…

Bill Martin:

I had not heard that being of consideration at any point.  The only discussion we have ever had has specifically dealt with the gross receipts tax, and, as was stated a little bit earlier, gross receipts tax does not adapt well to a banking situation.  Let me give a brief example.  An auto dealer, for example, probably has three products.  They sell cars, they sell parts, and they sell warranties, insurance, and that type of thing.  Everything they sell has a cost to goods sold.  Banks have interest income, they have fee income, they have a number of other things, but they also have cash flow.  Cash flow simply consists of somebody making a deposit to an account or making a loan payment. 

 

In its broadest definition, gross receipts to the car dealer would be every dollar they receive.  If you apply that same definition to a bank, I would literally be broke in a month if I had to pay a quarter of a percent on every deposit that was made and every loan payment, because that would be considered a gross receipt.  When I sell a bond, all bonds mature.  We have $640 million in bonds, and about $200 million matures each year, so under a broad definition, I would pay a quarter of a percent on bonds that simply mature, because I would have cash flow of $200 million.  That has been the center part. 

 

We currently have a technical Task Force.  We have been asked, and we are providing to Guy Hobbs, to that group writing that, to show those areas where a gross receipts tax does not fit well with banks.  Beyond that, you do not see us opposing gross receipts, and you do not see us out there promoting gross receipts, either.

 

Assemblyman Goldwater:

Mr. Martin, we have been discussing different taxes.  Just for my own edification, which is a broad-based one that you think is good?  The sales tax on services, maybe? 

 

Bill Martin:

Unless there is a tax that I do not recognize at present, I do not know of one single business tax that will solve the $900 million, the $700 million, the $1.9 billion, whatever that number seems to be, so I have reached the conclusion that what may turn out very well might be a combination of several business taxes of several different types.  I mentioned those somewhat in my testimony strictly as examples.  Gross receipts tax adapted to banks works.  A sales tax on services works.  We are big consumers.  I do not need to be giving you advice, but I would recommend a minimum of maybe $100 [cost for a service] that truly takes consumers out of that picture.  We are huge consumers.  I have 62 branches.

 

Assemblyman Goldwater:

I was just saying, as much as a gross can be adapted to banking’s sales tax and services, I do not suspect banks intend to pass the entire transaction and apply that rate and pass it on as whatever rate the sales tax and services would be.  They both can be broken out.  What is the best way, in your opinion, to tax banks?

 

Bill Martin:

In the very beginning, the Task Force could have considered a corporate income tax, and I think we would find 47 or 48 states that have corporate income taxes.  An argument could be made that, on the basis of equality, the companies that make money would pay a tax.  The companies that lose money would not pay a tax, and you would eliminate those inequities.

 

Vice Chairman Goldwater:

Thank you.  I appreciate that answer.

 

Assemblyman Marvel:

Maybe you could just explain what our involvement is in CRA and how we give back to communities that way. 

 

John Sande:

Actually, CRA, the Community Reinvestment Act, was passed many years ago, when there was some concern that banks, particularly in large cities, were drawing deposits, their raw material from which they derive their cost of goods sold, from some communities, let us say lower-income areas, and then lending it out in better areas.  There was a term called “red lining” for that.  There were a lot of reasons why the data would lead to that.  The CRA was created to equalize that and say bankers must, by law, put money back into those areas. 

 

The law is there and a lot of people need to do things to meet a certain formula and a test so that when the federal regulators come in, banks can prove that in investments, in lending, and in services, they are meeting the needs of lower-income people. 

 

I can say without qualification that in the state of Nevada banks go far beyond the requirements of CRA, including education.  I am sure other companies would like to say the same thing, too.  My bank has adopted an elementary school.  We have given them tens of thousands of dollars.  I have read books to the third graders.  There is no limit.  I think bankers in this state are very generous, and, although those might qualify as CRA, I do not think they do it just to meet the test of the law.  I think they do it because they have been members of the community so long.

Assemblyman Marvel:

They are also involved in a lot of the other community activities. [Mr. Martin agreed.]

 

Vice Chairman Goldwater:

Any other questions from the Committee?  I do not see any.  Thank you, Mr. Martin, Mr. Sande.  How about Mendy Elliott?  [Inaudible comment from a spectator]  Okay, note Mendy is in opposition to this bill.  Are there other folks who would like to speak in opposition to this bill? 

 

Joe W. Brown:

I do not want to repeat what has been said by everyone else, but I do want to say that I have served on the board of four different banks.  I met John Sande serving on the board of Valley Bank, Bank of America, First Security, and now Wells Fargo.  I have seen, in my involvement for 34 years in the Las Vegas community, that the directors, stockholders, and employees of the banks of our community are the backbone of many of the charities that help the people of all levels in this state.  I think that the citizens of this state are aided greatly by the banks and by their stockholders.  I just wanted to say that to you.  Having served on all those boards, I am very proud to be involved with the Wells Fargo Bank.

 

Assemblywoman McClain:

Joe, don’t go away.  You are from Wells Fargo, right?  I am going to ask you the same question that Assemblyman Goldwater asked before.  What tax do you guys want to see happen?

 

Joe Brown:

I should say what John Sande said, and that is that I am a retained lobbyist for a couple of different entities, and so I would have a conflict.  I am in favor of a broad-based business tax.  I am in favor of myself, my law firm, my partners, and…

 

Assemblywoman McClain:

What do you consider a broad-based business tax, though?  Gross receipts—is that a broad-based business tax?

 

Joe Brown:

I think yes, the general concept of gross receipts is.  I do not think the present form is acceptable.

 

Assemblywoman McClain:

I guess my question is, if that is not the right one, what is broad-based, then?  I am throwing it out there to everybody.  Come on, we need answers.  This is half over.

 

Vice Chairman Goldwater:

I guess we can stipulate that we are all in favor of a broad-based business tax.

 

Joe Brown:

I am in favor of everybody paying their fair share.

 

Vice Chairman Goldwater:

We are in favor of education.  We love our seniors.  We will just stipulate to that.

 

Assemblyman Hettrick:

I think we are sitting here playing this definition game and it is wonderful, but the reality is, in the end, consumers pay taxes.  Nobody else pays any taxes.  Consumers pay all taxes.  You can say that you put it on a business, but, in the end, every business must maintain a profit margin.  If they do not, then the business does not exist.  Therefore, they will raise their prices to maintain the profit margins, and when they do, the consumer will ultimately pay the tax. 

 

Every one of these bills we have seen has a section that says you cannot construe this tax as a tax on the consumer; it is a tax on the business.  You can write it in a bill till you are green.  It does not matter what you say in the bill, because the reality is that, in the end, the business will not exist if it cannot maintain a profit margin.  Then how could they possibly pay the tax?  It has to be passed on to the consumer, and it always is.  First rule of economics:  it ends up that way every time.  We can sit here and badger these people about broad-based business taxes till we are green, and it will not change anything.  We are going to have to broaden the base by taxing more consumers.  It is reality.

 

Vice Chairman Goldwater:

It is true.  I think it is true.  The transaction taxes are, certainly, more or less passed on. 

 

Assemblywoman Pierce:

I do not come here as any genius about finances, but I do not think that is true at all.  I think it is entirely possible to have lower profit margins.  Taxes can come out of your profits.  Taxes do not have to be passed on to the middle class.  There have been periods of time in this country when corporations paid much higher taxes.  What were the tax rates on corporate America in the early 1960s?  They were much higher than they are today.  That is not at all true that everything has to get passed on to the middle class.  That is not at all true.

 

Vice Chairman Goldwater:

Excellent.  Excellent debate.  Yes, sir.

 

David Guinan, representing the Nevada Insurance Guaranty Association:

[Introduced himself.]  I am here to offer a bit of clarification on one aspect of this bill [A.B. 517], which I think was drafted in error.  In large part, I am neutral on the bill, but Section 43 of the bill amends one of the sections in the Nevada Insurance Guaranty Association Act to exclude the Association’s excise tax exemption, which is a part of this bill. 

 

That is curious, because in the definition of financial institutions, the Nevada Insurance Guaranty Association is not a financial institution, it is a non-profit entity that exists for the purpose of stepping in when there is an insurance company insolvency, and, through assessments made against the other solvent insurance companies, we step in and pay the claims and defend the insureds.  I think that Section 43 was included in this bill by error, and I would be concerned about leaving that section in the bill because it creates an ambiguity and confusion about whether or not this would apply to the Guaranty Association.  I would request that the bill be amended by deleting Section 43. [See Exhibit L.]

 

Assemblyman Anderson:

Mr. Guinan, is that the only place in the bill that we make reference to the Guaranty Association?  [Mr. Guinan replied in the affirmative.]

 

Vice Chairman Goldwater:

Thank you, sir.  Is there testimony in Las Vegas?  Does anybody wish to add anything?  Mr. Chinnock, welcome.

 

Chuck Chinnock, Executive Director, Nevada Department of Taxation:

I wanted to provide some clarification and updates on the fiscal note that we provided with this bill.  Of course, it will change because of the amendments that were offered.  Also, I wanted to make sure that you knew that on the manpower costs that we placed there for administration of it, we had originally shown 11 personnel there.  This was a little aggressive on the number of personnel.  We could do it with two fewer personnel, two fewer auditors, and that would reduce the annual cost for personnel about $100,000.  I also wanted to stress the fact that the $20 million cost shown for information services was that same cost that was provided in my earlier testimony and all the other tax proposals, and that was provided in the Governor’s proposal, so we just stated that we do not have current information technology capability for this bill.  Something would have to be developed to go ahead and implement it.  That is all I have.

 

Vice Chairman Goldwater:

Thank you, sir.  How long do you think it would take to get you up to speed?

 

Chuck Chinnock:

If this were the only tax proposal that was before us, I could implement it by January 1, 2004, and make a special application for it.  Depending upon the amount of changes to other new taxes, January 1, 2004, might be difficult. 

 

Vice Chairman Goldwater:

Mr. Chinnock, I think everyone who has worked around your issues for a while recognizes the difficulty your Department has with information systems, and we definitely need to address that sooner rather than later.

 

Chuck Chinnock:

I appreciate that.  Thank you very much, Mr. Chairman.

 

Vice Chairman Goldwater:

You are quite welcome.  Does anyone have further testimony?  We will close the hearing.  We will wait for the Chairman to return, so we will take a five‑minute break.  [Written testimony submitted as Exhibit K].  [Meeting was recessed at 3:09 p.m.]

 

Vice Chairman Goldwater:

We will bring the committee back to order [at 3:23 p.m.].  Chairman Parks.

 

Assemblyman David Parks, Clark County Assembly District No. 41:

Thank you, Chairman Goldwater.  [Introduced himself.]  Good afternoon, I am here to speak in favor of Assembly Bill 516. [See Exhibit W for bill explanation].

 

Assembly Bill 516:  Makes various changes to provisions governing taxes on motor vehicle fuels. (BDR 32-622)

 

A.B. 516 is one of the recommendations of the Legislative Committee for Local Government Taxes and Finance, the 557 Committee, for which I served as chairman during the 2001–2002 interim.  For the purpose of issues related to fuel taxes and the road construction and maintenance needs of local governments, the Legislative Committee consults with a subcommittee consisting of 11 members, including the executive director of the Department of Taxation and ten other members appointed by groups representing local governments and representing various geographical areas of the state.  Marvin Leavitt chaired the subcommittee; I believe he is in attendance and, hopefully, will provide additional commentary on A.B. 516.

 

Based on the Committee’s findings regarding fuel taxes and the road construction and maintenance needs of local governments, the Committee approved the subcommittee’s recommendation to draft legislation to address four distinct concerns with respect to motor vehicle fuel taxes.  I have provided a seven-page handout from the 557 Committee’s final report that corresponds to A.B. 516 (Exhibit M).  A.B. 516 incorporates four of the ten recommendations made by the 557 Interim Committee.  It does the following:

 

·        First, indexing state and local fuel taxes to a five-year average of the change in Consumer Price Index (CPI) and limiting that increase to no more than 4 percent in any given year.

 

·        Second, adjusting the intercounty fuel tax distribution formula so that the formula is based two-thirds on population and one-third on roadway miles, while holding harmless the counties that would lose revenues under the formula, by taking a proportionate share of the gains received by the counties that receive additional revenues under the formula and distributing that proportionate share as necessary to ensure the counties do not lose revenue.

 

·        Third, clarifying that “road miles” means the mileage from one end of a roadway to the other without regard to the number of lanes the roadway has, for the purpose of intercounty and intracounty fuel tax distribution formulas.

 

·        Fourth, requiring the Nevada Department of Motor Vehicles to apportion directly to local governments the receipts of the one-cent tax on motor vehicle fuels, except aviation fuel, imposed for the costs of maintaining existing local government roads, highways, and streets. 

 

The indexing provisions are in Sections 1–5 and Section 9 of A.B. 516.  The 557 Committee, based on the subcommittee report, recommended indexing as a way to stop the further erosion of gasoline tax revenues as a source of funding for the construction and maintenance of roads.  Representatives of the Nevada Department of Transportation (NDOT) provided information regarding the tendency of highway construction cost in Nevada to rise gradually over time and the tendency of fuel tax rates in Nevada to remain flat for many years, with occasional extreme increases to catch up with the consistent increase in the construction and maintenance costs.  I believe you have a chart in front of you (Exhibit N) that demonstrates this trend. 

 

[Assemblyman Parks, continued]  The local gasoline tax was last increased on July 1, 1988, almost 15 years ago.  The state gasoline tax was last increased on October 1, 1992, a little over 10 years ago.  To put this in perspective, the buying power of each dollar from gasoline tax has declined to 64 cents for local road needs and to 77 cents for state highway needs since the respective taxes were last increased.  A.B. 516 does not capture this loss of buying power, but rather ensures that the loss will not continue after July 1, 2004.  The provisions regarding the revision of the local gas tax, distribution formula, and the clarification of what is meant by road mileage are in both Sections 7 and 8 of the bill. 

 

Because of a previously approved amendment to NRS 365.550, the road subcommittee pointed out that because the formula implemented pursuant to S.B. 557 of the 71^st Legislative Session only allocated a small portion of the motor vehicle fuel tax revenue, under the new formula, based two-thirds on population and one-third on road and street mileage, the intent of the Committee during the previous biennium was not being carried out.  As a result, the committee approved the amendment described earlier. 

 

While the amendment will have only a small effect on the distribution of revenues in excess of FY2001 amounts to the donor counties, it will provide a more predictable distribution as the formula allows the existing hold-harmless counties to exceed their FY2000–2001 guarantee amounts.  Based on the request from representatives of the Nevada Department of Transportation, the Legislative Committee approved the subcommittee’s recommendation to clarify that “road mileage” means “center line” to ensure consistency in the reporting of mileage by counties. 

 

Finally, the direct distribution of revenues from the one-cent-per-gallon gasoline tax to local governments, which is included in Section 6 of the bill, merely corrects an oversight in S.B. 124 of the 71^st Legislative Session, which provides for the direct distribution of each entity’s share of all other gasoline taxes.  Thank you for your consideration of A.B. 516.  I will try to answer any questions you might have.

 

Vice Chairman Goldwater:

Questions from the Committee?  There is an indexing provision in here, it looks like Section 2.

 

Assemblyman Parks:

Yes, there is an indexing section, and I believe that it is in subsection 3 of Section 2, as well as subsection 3 of Section 3. 

 

Vice Chairman Goldwater:

In the measure that was approved by the Clark County voters, were they told that an index was going to be part of this?

 

Assemblyman Parks:

Mr. Chairman, the indexing portion in Clark County was not included in their Question 10.  It had been initially considered, and then, upon revised consideration, it was removed from the actual wording in Question 10.  I do believe, on the other hand, that the indexing provision was retained in the Washoe County question, and that is currently being considered in the other house.  Perhaps I could ask Mr. Marvin Leavitt, who was the chair of the subcommittee, if he could join me.  I am sure that he can provide further insight.

 

Marvin Leavitt, Chairman, 557 Subcommittee to Study the Cost to Counties and Cities of Maintaining Highways, Roads, and Streets:

[Introduced himself.]  What A.B. 516 does with the indexing portion is essentially take all of the gasoline taxes, whether received by local governments or by the state, and provide an indexing mechanism.  It is not restricted, of course, just to new taxes on the ballot in either of the counties.  It essentially indexes the entire gasoline tax.  It does not, by the way, index diesel fuel, but it does index all of the gasoline taxes. 

 

I think the chart (Exhibit N that Chairman Parks referred to is interesting in that we can see what has happened over time.  If you look at the first page of that, you will notice that essentially what we will do is go for a number of years without doing anything, and then all of a sudden we will do quite a bit, and we will go another number of years without doing anything.  You will notice that we have that straight line at the top. 

 

What is interesting is that if you look at the second page of that handout, you will notice that orange line essentially is tracing the cost of construction of roads.  We know the gasoline tax is restricted in this state constitutionally for roads, so you notice that the cost of roads goes up pretty evenly over time.  It is almost linear; you could almost put a straight line along there.  You will notice that we chose not to recommend it be tied to gasoline prices, because gasoline prices, as evidenced by the green line, have a tendency to have big jumps over time.  You obviously do not want a tax that is as unstable as the price of gasoline, and that is why the Consumer Price Index is in yellow is very close to what the cost of road construction is.  So it very closely approximates what the costs are associated with that. 

We have discussed and you have discussed over time all of these excise taxes that we have in the state, and we have a number of them, like cigarette tax, liquor tax, and this one, which are essentially based on volume, with no adjustment for price level changes in the general economy.  Then we have a situation where sometime along the line, if they are going to have equal purchasing power, some kind of an adjustment is required.  What this would do, of course, is provide an automatic adjustment.  It smoothes it.  That is essentially what it is doing.  If you look at what we have done over time, we eventually approximate the index.  What this would do is smooth it so we do not have these big jumps and starts.

 

Assemblyman Grady:

I appreciate the work that both the subcommittee and the committee have done over the last probably six or more years.  Mr. Chairman, can we also ask NDOT to come forward at some time during the hearing?

 

Vice Chairman Goldwater:

Is anybody here from NDOT? 

 

Russ Law, representing the Nevada Department of Transportation:

[Introduced himself.]  Thanks.

 

Assemblyman Grady:

Can you tell us, on the CPI, do you have or does the Department have any ideas yet as far as earmarking any CPI adjustments?  I know you have a new director, but maybe you could touch on that for us. 

 

Russ Law:

No, we do not have any plans for earmarking any of it, and, in fact, because this is not part of the Governor’s tax plan, we are taking no position on the bill.  Having said that, it is certainly true that our transportation needs outstrip available revenues.  In other words, we certainly have projects to spend the money on if you were to push this through.  Our costs are certainly sensitive to inflation, and the best representation of that is the part of the graph that Marvin referred to that shows that the federal-aid highway construction price index goes up pretty much with inflation, although it is a bit more volatile than inflation.

 

Assemblyman Mortenson:

Marvin, did I hear you say you are indexing the gasoline but not the diesel?  [Mr. Leavitt replied in the affirmative.]  Is there some reason you would not index the diesel along with the gasoline?

 

Marvin Leavitt:

This committee is much like the Interim Committee on Local Government Taxes and Finance, and so we essentially look mainly at local government needs, although, since the gasoline tax is also shared with the state, the recommendation came forth from the Legislative Committee to include the gasoline taxes that are received by the state in this bill.  The taxes from diesel fuel are not received by local government and go exclusively to the state, so we did not make a recommendation in that regard for that reason.  The same principles obviously apply, but we, for that reason, did not make a recommendation in this bill.

 

Assemblyman Mortenson:

Since the state is badly in need of taxes, do you know if there are any bills around that may try to index the diesel fuels?  Probably they do the biggest damage to the roads, more than the private cars, I am guessing.

 

Marvin Leavitt:

I am not aware of any bills that do that.  As you might guess, the diesel fuel, tax on which is received only by the state, is used mainly by big trucks, and the roads that the big trucks travel on are mainly the ones maintained by the state.  As you can guess, the freeway system and the major roads, the U.S. highways and such that go throughout the state, are primarily maintained by the state.  Like I said before, I think the same principle applies.

 

Assemblyman Mortenson:

I understand why you did that.  I am just thinking that maybe we need another bill. 

 

Vice Chairman Goldwater:

Marvin, a quick question.  You used the All-items CPI in this bill, and I am looking at it right now.  Are motor vehicle taxes included as a constituent of that index?  [Mr. Leavitt indicated he did not know the answer.]  The answer is yes, I think.

 

Russ Law:

That is correct, because taxes on wholesale changes appear in the retail price of items purchased by consumers, and it is a consumer price index, so, indeed, a higher tax is reflected on the national Consumer Price Index.  Of course, Nevada’s contribution to that would be less than 1 percent of whatever portion is due to gasoline prices in the index, so it is doubtful that Nevada’s increase of a tax would make much difference one way or the other.

Marvin Leavitt: 

We had discussed using this federal-aid highway construction index, which would be a very precise measure of costs associated with the construction of roads, but eventually decided against it because it is more volatile than the…

 

Vice Chairman Goldwater:

Why don’t you just go back to the governing body and ask them for a tax increase?

 

Marvin Leavitt:

The governing bodies, in most instances, are not allowed by state law to increase them since they are on your books.  There are certain taxes that are available to local governments, and we recognize that there are some instances in this state where the local governments have not levied all that they are allowed, but in most cases of the taxes that are involved here, local governments do not have authority to increase those.

 

Vice Chairman Goldwater:

But the state government does.

 

Marvin Leavitt:

I suppose that is why it is before you.

 

Vice Chairman Goldwater:

My personal opinion is no one wants their taxes increased automatically.  I do not see us being in a position to have deflation any time in the future.  For example, take the preceding three months.  Fuel drove 11 percent of the CPI, and when taxes are a constituent of that index, everything is in front of you, so now you are perpetuating…I am not sure.  We just had a long discussion about taxes.

 

Marvin Leavitt:

Mr. Chairman, if I might go through a couple of other parts of A.B. 516, I know you had a long discussion previously in this Committee about indexing the fuel.  What I say probably just belabors what you have already heard over and over again, but if I might, again on page six, we have an attempt to make the changes to the formula that Chairman Parks had indicated.  You know we have, in the past, recommended legislation that is very complicated, and I think maybe we have outdone ourselves on this section right here.

 

Vice Chairman Goldwater:

It is mostly your fault, Marvin, because you have written most of these text statutes.

Marvin Leavitt:

Probably part of it is my fault.  It is extremely complex.  It is much easier to do on a spreadsheet than it is to put into words.  Essentially, what we found out after you had passed the bill last time that changed the method for the distribution of gasoline tax among the various counties, was that we had a situation where if you happened to be just barely above the guarantee that goes back to June 30, 2001, you reap some real windfalls, as opposed to someone who was just barely under the guarantee.  This would correct that, but to do so requires, as you see here, a somewhat very complicated formula.  The end result is that it does, indeed, achieve it, but it does not simplify the tax situation in the state. 

 

On page eight, lines 26–28, there is a portion that relates to the distribution of fuel taxes below the county level between the cities and the counties that, somehow or other, got into this bill.  The committee had not recommended that we do this right now because we are still working on the formula for the below‑the-county distribution.  We would recommend that you delete this language that appears essentially on lines 26–28, because we are not ready yet to recommend a change on the distribution below the county level.  Language just like this also appears on page 13 of the bill, and both of those need to be taken out.  We are working on that.  You might guess it is a very complex matter to try to distribute this fuel tax in a way that is fair to the various entities involved.  We are just not ready yet to make a recommendation on that particular point.

 

Assemblyman Grady:

Marvin, you mentioned you are not ready on the second-tier distribution.  Are they still doing the second tier under the old formula, then?

 

Marvin Leavitt:

We are still doing the second tier under the old formula.  I think if you look at that you can see probably some deficiencies in there.  One of the factors is area, and area is probably not a fair way to distribute between the counties and cities.  We have a problem with the counties.  Sometimes you have a great big county having to maintain a road crew a big distance from another road crew simply because of the size of the county.  Cities are much more compact.  We made some attempts to try to come up with a formula that takes care of that.  Area does not seem to be a fair way of doing it because you could have roads that are completely unrelated to the area.  Area is probably not a fair measure of need.  For those of you who have not been involved in this before, the attempt is to distribute gasoline tax in relation to the relative need incurred by the various governments for the maintenance and construction of roads.  That is what the whole basis is, and we are trying to develop formulas that would achieve that.

 

Vice Chairman Goldwater:

Marvin, in your opinion, do you think we are doing the voters of Clark County justice by saying now that we are going to index it?  Or should I ask Mr. Parks what was the rationale?

 

Assemblyman Parks:

Thank you, Mr. Vice Chair.  The rationale was to try to set receipts consistent with the increase in the cost of construction, rather than have periodic requests to adjust the rate after enough time had slipped by that the rate was no longer generating the level of revenue that it had previously generated consistent with the cost of construction.

 

Marvin Leavitt:

I might just add that the attempt is to try to do with an excise tax what happens automatically with some of our other taxes, say, for instance, property taxes, which have an automatic adjustment mechanism to deal with inflation by assessed value.  Sales tax is based on the price of the goods, so it has an automatic inflation mechanism built into it.  Gasoline tax and other excise taxes like those on cigarettes and liquor do not have that mechanism, and, of course, your business activity tax based on a flat amount per employee does not do that, either.  So, over time, you get a problem if you do not make some adjustment to that.  This is an attempt to have a gradual change instead of the stair steps we have seen. 

 

Assemblyman Marvel:

Marvin, using this indexing, how much would the gas tax be increased today?

 

Marvin Leavitt:

Using the indexing that is in this bill, of course, it starts out in 2004–2005 so there would be no increase immediately.  It is all future.  There is no attempt to make up the difference for any past loss of purchasing power. 

 

Ted Zuend:

The latest time I looked at the Consumer Price Index as far as the…this includes a five-year moving average, so that the CPI is even smoothed out, in part because of things like jumps in gasoline prices that tend to affect the index periodically with sharp increases or sharp declines, at least in the rate of the increase.  That has been about 2.6 percent per year, so our gas tax is, I believe it is like…what are we indexing?  We are indexing up to 33 cents, so it would be something less than a penny per year.  It would be about eight-tenths of one cent, perhaps.  That would be the increase that would go into effect in 2004–2005, approximately.

 

Vice Chairman Goldwater:

Can you show us what eight-tenths of 1 percent is?

 

Ted Zuend:

No, but the reason it was expressed in tenths is because fuel dealers price in tenths of a cent per gallon, not in cents per gallon.

 

Marvin Leavitt:

I think I have pretty much said everything that I intended to as relates to the bill. 

 

Vice Chairman Goldwater:

Is there any chance that the Committee looked at possibly sunsetting some of the provisions relating to these taxes or at least having a review period?

 

Marvin Leavitt:

No, we did not consider that.  We felt that technically the fuel tax can go up and down, depending on inflation or lack thereof or deflation.  We figured that as long as we have inflation or deflation, it provides some mechanism to keep up with it.

 

Vice Chairman Goldwater:

It might be something worthy of consideration.  Chairman Parks, thank you.  Mr. Madole, if you are going to testify, I will disclose that you sit as a trustee on a trust that I work on in my private life.

 

John Madole, Executive Director, Associated General Contractors of America, Incorporated, Nevada Chapter:

[Introduced himself and had Exhibit O distributed.]  I am here today to support Assembly Bill 516.  I have had the privilege of watching the gas tax issue for a lot of years here in Nevada, and in my opinion, very humbly, our problems go back to 1956 when this state went 25 years without raising gas taxes.  In a sense, we have been playing catch-up ever since.  You heard earlier testimony that suggested that we have a pattern of addressing this problem once every ten years or thereabouts, which does not really address the issue. 

 

Mr. Goldwater, perhaps just to address one of the issues you raised about the Consumer Price Index and the energy component, I would suggest that in the last 24 months perhaps the energy factors were one of the driving deflators in that index.  It averages out over time, but there is a serious problem with the erosion of purchasing power. 

 

[Mr. Madole, continued]  My feeling on gas taxes has always been that there are two ways to address the issue.  One is to come up with a sensible, incremental way of addressing the problem so that, as prices go up and the needs of the fastest-growing state require infrastructure, we can make those purchases.  A.B. 516, I think, addresses that.  If we do nothing, and we wait long enough, eventually the public will clamor for an increase in the gas taxes, but, in my opinion, it is not very sensible to wait until there is a crisis and then address it.  I think the committee that developed this proposal came up with a sensible way of saying that as a very predictable, or at least not sporadic, increase in the Consumer Price Index is seen, the taxes could be raised to address that.  I am not suggesting that we should be irresponsible with the way we spend that money, but if we are looking at 6 or 8 tenths of a penny, most of us would agree that, even though no one likes to index any kind of a tax, perhaps, at least it is going up incrementally so that maybe at some point down the road we are not looking at an increase of five cents or ten cents or maybe even something more substantial. 

 

I know the hour is late and you have already heard a lot of testimony on this bill.  I would be prepared to answer questions.  As far as the diesel goes, I would not have a problem.  A lot of our members do use diesel, and they do use the roads, but I understand the sensible explanation of why diesel was not in here.  If something needed to be addressed on diesel, I certainly would not have any problem with that.  Thank you for the opportunity to comment.  I would be glad to answer any questions.

 

Chairman Parks:

Were there any questions for Mr. Madole?  Not seeing any, thank you.

 

George delCarlo, representing American Ready Mix, Reno, Nevada:

[Introduced himself.]  I, as well as our company, support A.B. 516.  I think our infrastructure down the road is going to have problems, and we need to do something now to work on it.  After using a Band-Aid approach and not enough early enough, it is tough to catch up, and we are trying to play catch‑up.  If we do not have the money and incrementally provide it towards our infrastructure, it is not going to be there, and drastic steps never make anybody happy.  So, again, I strongly support this bill

 

Gary Fried, Road Manager, Lyon County Road Division:

[Introduced himself.]  I want to say I support A.B. 516.  I have been in this business for over 20 years, and, as you say, the gas taxes usually get addressed every 10–12 years.  They currently have not been touched in 15 years.  I have seen road construction costs for a two-lane road go from almost $45 per linear foot to currently $65 per linear foot.  Our buying power and our ability to take care of and maintain the system is eroding.  If we do not see something to help aid in this, we will continue to decline in our infrastructure. 

 

[Mr. Fried, continued]  I do not know, maybe this is not the total support, but it is a step in the right direction to help offset the costs that these county and local governments are incurring.  Washoe and Clark Counties both addressed those issues this year, wanting ways to increase their revenues for road construction.  I just want to say I support A.B. 516 because I know what it takes to operate a road division, and what our buying power is, and where I have seen it go in the last four years.  I feel the bill has some merit and value.  Thank you for taking your time and listening to me. 

 

John Sande, representing the Western States Petroleum Association:

 [Introduced himself.]  Three states have indexing:  Wisconsin, Florida, and, I believe, Maine.  I know one state had it, and they rescinded that.  California, I understand, recently had a bill come in to index gasoline taxes, and I understand it was defeated.  They thought it was horrible timing with the Iraqi situation. 

 

There is nothing to stop the proponents of this legislation from coming in today and asking for an increase in gasoline taxes.  My client, the Western States Petroleum Association, does not oppose states increasing taxes on a cents‑per‑gallon basis if there is a demonstrated need.  What A.B. 516 does is separate the budgetary process from the taxation process.  Obviously, the reason the proponents do not want to come in is because they are afraid that the Legislature will not increase the tax because they believe it is too high.  In the last bill there was some talk about whether a business pays a tax or the consumer pays the tax.  Well, this one will go directly to the bottom line of the consumer. 

 

If you look at the handout I gave you from the American Petroleum Institute, Historical Trends In Motor Gasoline Taxes, 1918–2002 (Exhibit P), as of July 2002, the state of Nevada had the second-highest motor vehicle fuel tax in the nation, at 51.7 cents per gallon.  We are only behind Hawaii, which is at 52.5 cents per gallon.  In my opinion, if you pass this tax, we will quickly be the number one state in the country. 

 

If you look at the bill, it provides that it will be indexed to inflation.  It will go up a maximum of 4 percent.  If, for some reason, the inflation index for the last five years is more than 4 percent, that amount of money is then tacked on as soon as the inflation rate drops below four percent, so you are going to have a continual increase in taxes and compounding of taxes.  I thought there was a good point in that there was no proposal to index diesel.  I think if you look at a lot of the trucking lines and how they pay their diesel tax, indexing it might be difficult to do, but very soon you are going to have a large discrepancy between diesel and motor vehicle fuel tax. 

 

[Mr. Sande, continued]  Our point is that the budgetary process is in place where you, as legislators, should review annually the needs of road construction on the state as well as the local level, and you should determine whether or not gasoline taxes should be increased.  It should not be left to the whims of the inflation rate.  Thank you.  I will be glad to answer any questions.

 

Lisa Foster, American Automobile Association (AAA), Nevada:

[Introduced herself.]  AAA is a motor club with 45 million members nationally and 300,000 in Nevada.  We are opposed to indexing as a way of raising fuel tax.  Because it is automatic, indexing limits the ability to directly tie the increase to current need. 

 

Although gas prices are currently decreasing, which you all know if you filled your tank this last week, at $2.02 per gallon today, Las Vegas is still only $0.04 less than the all-time high of $2.06 per gallon.  We think most motorists would not feel comfortable with an automatic increase in gas tax at this time. 

 

Teri Baltisberger, Tax Administrator, Nevada Department of Motor Vehicles:

[Introduced herself.]  The Department would like to go on record as being neutral for A.B. 516, but would like to request a delay on the effective date for Section 6 from July 1, 2003, to October 1, 2003.  This will afford us a chance to make the necessary computer revisions to change that distribution from directly to the counties to the counties and the cities.  As this bill proposes to index motor vehicle fuel taxes, except the aviation and jet fuel taxes, based upon on a five‑year average of the Consumer Price Index for all consumers and all items, the Department has filed a fiscal note indicating an expense of $100,030 in fiscal year 2003–2004 that is to make necessary changes to our computer system for the indexing.  Additional revenue of $9,106,768.01 is to be collected in the fiscal year 2004–2005, and additional revenue of $44,733,735.99 for the 2005–2007 biennium. 

 

Peter Krueger, representing the Nevada Petroleum Marketers:

[Introduced himself.]  We are a wholesale and retail trade association representing Nevada’s petroleum marketers, retailers and wholesalers.  I am here today in opposition of A.B. 516, and I will tell you the reasons why. 

 

Currently, the state tax is 33 cents per gallon in those counties that have exercised local option.  If this bill was processed, we have nine counties that have not even bothered to take the extra nickel they are entitled to do, and let us just put them on the record:  Douglas, Elko, Esmeralda, Eureka, Lander, Lincoln, Nye, Story, and White Pine counties are not even at the statutory limit that they are entitled to now, yet they want to take advantage of indexing.  We have had this debate over the years, and I think that those counties ought to be required to raise their taxes to the statutory limit. 

 

[Mr. Krueger, continued]  Secondly, as Mr. Sande has indicated, every time this association and trade group and others have been asked to support a tax increase, we have stepped to the table and supported that tax increase.  I think this is a bill that is not necessary.  All we have to do is simply have the proponents, if they want more money to build roads, come with a bill to raise gas taxes a nickel, and then be done with it, as we did last time.  We phased it in two and a half cents at a time, and everybody supported that bill. 

 

Under this proposal, the gas taxes go up a penny a year.  The gasoline industry does not raise taxes to $2.026 per gallon.  It is always nine-tenths.  We are going to round up to nine-tenths every time.  Why that is, I have no idea, but that is how it is done, and it outlives me.  It has always been nine-tenths; as long as I am alive it will always be another nine-tenths.  So, it is going to be a penny a year increase under this proposal. 

 

Another issue that concerns us is the idea that we need more money for roads.  That is fine; I do not think we have ever found that to be a problem for the Association.  To take Nevada to the highest gas tax in the nation at this time and make it automatic, take this authority away from this Legislature and our judgment, makes no sense.  I would ask that you consider long and hard.  If you do feel obligated to pursue this bill, I would ask you to look at S.B. 237, which is the Washoe County indexing, which they have made a wonderful case for, and I am sure is going to pass.  They had a vote of their citizens that said, “Tax me,” so they are going to tax them.  The language in indexing there, I believe, is far superior to the language that is contained in A.B. 516.  Those are my remarks, and if there are any questions, I would be happy to answer them.

 

Debbie Smith, representing Operating Engineers Local No. 3:

[Introduced herself.]  We would like to register our support for this bill.  We so desperately need the money to adequately take care of our road systems, and I can tell you, as a former legislator, that I received more constituent comments and complaints about road and highway issues than any other issue.  I happen to live about a block away from what has become the busiest intersection in town, and the citizens in that district are very, very frustrated about the lack of funding needed to adequately address the growth and traffic levels in our areas.  We appreciate your consideration of this bill.  Thank you.

 

Chairman Parks:

Thank you.  Any questions for Ms. Smith?  Okay, not seeing any, thanks.  Ms. Vilardo.

 

Carole Vilardo, representing the Nevada Taxpayers Association:

[Introduced herself.]  I signed in neutral on A.B. 516.  We attended the committee meetings.  There was a capping mechanism that was put in place, but I have a concern from phone calls that I have gotten, which I am sure you have also, because of the price of gas and because of indexing.  So, my comment is, depending on how the Committee feels about processing the bill and what you do, we know that Washoe County voters have already approved that.  There is a bill that is moving from the Senate side, which actually should have come over here, that addresses both of the ballot question issues.  You might want to consider deferring this until we think there is a point where the tax comes down, and I wanted to represent some of the constituent calls that I have gotten from our membership. 

 

It is not my happiest point on indexing, because the biggest concern, and I expressed this to the committee, is that at one point or another, we are going to have to address the issue of non-traditionally fuelled vehicles.  We have no tax in place for hydro-cell vehicles and some of the other things that are being developed, and I have seen a Wall Street Journal report in November that says, I believe, it is Nissan or Honda who have now found that it is cost-effective and profitable for them to market, and they expect it to be in production with 50,000 vehicles this year. 

 

So, while you index, and I understand the need for it because we have sat through that and we have supported many of these revenue issues for highways, there is still a problem, and maybe the 557 Committee or another committee or your staff could look to other states and come back with something next session, or we are going to find no amount of indexing is going to give us the revenue we need in the future, because I would think within five to six years, we are going to see a marked increase, enough to make a difference in what is being received, from non-traditionally powered vehicles.  That is the reason I wanted to share that with the Committee.

 

Assemblyman Mortenson:

Carole, where else do we get money for road construction, other than gasoline tax?

 

Carole Vilardo:

You get money from the first part of the vehicle registration fee, for which those people on the finance committees are being asked to increase the assessment from 22 percent to 29 percent that is used for operating, which is going to further deteriorate those funds.

 

Assemblyman Mortenson:

Why are we so high in both our vehicle registration tax and our gasoline tax?  What do other states do that they do not have to get so regressive when we are so regressive in our road construction?

 

Carole Vilardo:

I think there are a couple of elements, quickly.  The first element is the fact that not every state has a highway trust fund.  You cannot use a broad-based business tax in Nevada, because of the way we worded this, to fund roads.  You would need changes in the way you operate.  That is number one, because we have a dedicated highway trust fund, which benefits us because it holds harmless the revenues we do get, if you will.  I also neglected to mention that federal funds are a great deal of money that we receive for highways. 

 

The other issue that you have if you take a look at a place like Arizona or California, now these numbers are old, I would say at least five years old, but when one penny of fuel tax was generating something like $14 or $16 million in Nevada, one penny of fuel tax, because of their population centers and the population, was generating something like $30 million in Arizona.  One penny in California was generating, I believe, $114 million.  It is a function of population; it is a function of the size of the state with the amount of road miles we need to maintain to accommodate.  We literally have nothing.  You know, when you drive up on Highway 95, you have Tonopah.  We have no gas stations left in, I believe, Esmeralda County, so there is a definite need.  Now, I can get you the new numbers as to what one penny generates, but it is a two-fold problem.  It is our population base coupled with the amount of road miles, both in the urban areas, the cities and counties, and the state, that we have to build and maintain.

 

Assemblyman Mortenson:

You would consider gasoline tax as a regressive tax, would you not? 

 

Carole Vilardo:

Again, it depends on income level whether it is regressive or not.  The gasoline tax is probably the best example of a user tax that is well earmarked; now I am seeing considerations.  For an earmarked tax, it is the best example of a user/benefit relationship that is derived with a good nexus.  It is regressive to anybody who is lower-income, who relies on a vehicle to travel.  However, where you are most likely to have that is Clark and Washoe, which is why there has been such a tremendous investment in mass transit. 

Assemblyman Mortenson:

The automobile registration is regressive, so we just…

 

Carole Vilardo:

There is no tax that is not regressive to somebody because there is no tax that ultimately is not paid for by the consumer.  You do whatever you can to avoid that, but be that as it may, I am sure staff may have some comments in addition. 

 

Russ Law:

Chairman Parks, if I could, I would like to add one thing to what Carole had to say to Mr. Mortenson about the reasons for our tax rate being higher.  Number one, as she mentioned, we fund all our highways out of a dedicated fund, and, as she mentioned, we have a big state with a lot of miles and a relatively low population.  The one thing that I think she should have added there is that we are the fastest-growing state in the nation, and we are building infrastructure to accommodate that growth.  For example, North Dakota’s rate is lower than ours.  They have a big state and a low population also, but they are also declining in population.  I will be happy to answer questions if you have any.

 

Chairman Parks:

Thank you very much.  The only other comment I would like to add is that, in vehicle registrations, the government services tax does not go to street and highway construction. 

 

Assemblywoman Pierce:

I do not know about the state level, but it is my understanding that on the federal level only 60 percent of roads are paid for out of gasoline taxes.  The rest come out of what you and I pay in taxes, so it does not all come out of gasoline taxes.

 

John Madole:

Mr. Chairman, I would just like to state for the record, if there was an appetite to do what Mr. Krueger suggested, to amend A.B. 516, go with a fixed amount.  I do not think we are necessarily tied to the inflation that seems to bother everyone, but we have a need that must be addressed.  If it were to state a fixed price like two and a half cents a year, that would be all right.  However, the problem remains.  I hate to see us just brush this thing off for a couple more years, because it just gets that much more difficult to address each time we delay it. 

 

Chairman Parks:

Thank you.  Is there anyone else who would like to speak on A.B. 516?  Not seeing any, we are going to close the hearing on A.B. 516.  Looking at the Internet monitor, it appears that the Committee on Elections, Procedures, and Ethics is ready to commence.  I do not want to hold them up.  What I would like to do is keep the Taxation Committee working as a subcommittee to complete the review of the bills that we have in work session, and I would ask that the members of Elections, Procedures, and Ethics go to their committee and then return to Taxation so that we can vote out these bills.

 

Assemblyman Anderson:

Mr. Chair, if I may, if your subcommittee has reached a decision and you want to call us back up, I would be happy to come up.  I have made my determination on several of the pieces of legislation here, and if you need us back for the purpose of a roll call, I would be happy to play in both fields simultaneously.  It occasionally happens here at the end of the session.  I know we are on a tight timeline.  I see on the work session document that Ms. McClain has a bill in Elections and Procedures, and I know that she wants to be there.  I have a bill here that I would like to see considered in Taxation, so I have a vested interest to be in both places.

 

Chairman Parks:

Thank you.  I know we need to do a fair amount of work with A.B. 533, and we have people in Las Vegas waiting to assist us on our needs for A.B. 533, so I think what we will do is go ahead and get started with A.B. 533, and, as soon as Elections, Procedures, and Ethics has concluded, or at some agreeable time, we will try to get everybody back for a vote on our work session bills. 

 

 

Assembly Bill 533:  Makes various changes to provisions governing the recordation and taxation of property. (BDR 32-122)

 

We are back as a subcommittee of the Assembly Committee on Taxation.  We have a lot of material with regard to A.B. 533.  We would like to go through that and see if we have a consensus of information from which we can craft a final bill for recommendation to the full Committee.  In Las Vegas we have the county assessor, Mark Schofield.  Would you like to lead off with your recommendations for an amendment?

 

Mark Schofield, Clark County Assessor:

Certainly, Mr. Chairman.  I would like to take the opportunity to thank you and your Committee for the patience you provided when we were there last week.  It was rather lengthy, complex testimony, and we do have several amendments.  I would like to commend Mr. Zuend.  He was able to capture the majority of those amendments.  It is also my understanding, Mr. Chairman, that you have some amendments as well.  If it pleases the Chair, could we move forward with the amendments that you have to offer to the bill?

 

Chairman Parks:

Yes, we can start with mine.  In the work session document (Exhibit Q), I am recommending an amendment to A.B. 533.  It would amend Section 19, page 20, by deleting lines 25–27 and inserting new wording.  That wording would read:

…make available to the public such lists and valuations on or before January 1 of the fiscal year in which the assessment is made.  The lists and valuations must be printed and placed for inspection in all public libraries and branch libraries in the county and in public areas of the county courthouse or the county office building in which the assessor’s office is located and posted on a Web site or other Internet site that is operated or administered by or on behalf of the county or county assessor or, if there is no Web site or other Internet site operated by or on behalf of the county or county assessor, to publish once in the newspaper of general circulation in the county. 

 

In effect, if a county can provide sufficient opportunity for the citizens of the county to review, to have access to the assessor file, the county would not be required to do the annual publication in a paper of general circulation.  Are there any questions with regards to that proposed amendment?

 

In this time of very high budgetary considerations and need for additional revenue and looking for ways to streamline our processes, this is a good place to start.  I believe that in Clark County it will save in excess of $350,000 per year. 

 

I think we had some other recommendations and if I might mention there was a proposed amendment by Mr. Chuck Fulkerson, who is asking that we make various changes with regards to the provision for contributions made to the Veterans’ Home.  That was how the bill was drafted; however, within that section of statute, NRS 417.145, there is a subsection 7, or paragraph 7, that refers to the Veterans’ Homes Gift Account.  This is an account that does not revert back to the General Fund at the end of the fiscal year.  Anybody who would make a contribution from their license plate account or their veterans’ exemption on their property tax, wishing to donate it to the Veterans’ Home, certainly does not want it to revert at the end of the fiscal year back to the General Fund.  This is really a cleanup and a clarification on behalf of the Office of Veterans Services.

 

[Chairman Parks, continued]  Another amendment that we have was suggested by the Audit Department of Clark County.  The intent was to remove Sections 1 and 20 and return the bill to existing law as it relates to audits.  I think we had fairly extensive testimony on behalf of this suggested amendment at our previous hearing on the bill.

 

I believe the other provisions are provisions that were from the Assessors’ Association.  [Mr. Schofield verified that.]  Would you care to quickly try to summarize those for the members of the Subcommittee?

 

Mark Schofield:

In regard to the topic you have just touched upon relative to the audit, or all of the amendments?

 

Chairman Parks:

Why don’t we go ahead and have your recommendations for cleanup language for A.B. 533.

 

Mark Schofield:

We have tried to capture within these amendments language that would be palatable to those that initially opposed our original language in A.B. 533.  We have suggested a compromise on Sections 1 and 20 as it relates to the ability of local governments to perform performance audits on the various assessors’ offices in the 17 counties.  The language before you simply reads, “The Department or Legislative Auditor shall not perform an audit other than a financial audit of the receipts generated in the office of the county assessor unless such an audit by the county is approved by the Legislative Commission.”

 

I have some additional language to add to that.  To give you a little background, this issue is not about not having performance audits.  This issue relates to the balance of power and who has the authority to do them.  I must be very specific that all of the assessors go through rather stringent performance audits once every three years by the Department of Taxation.  What we have crafted into this amendment is the county’s ability to do the same thing upon being authorized by the Legislative Commission to do so, as a compromise.  The additional language that I have to add to that, and I spoke to Mr. Zuend this morning, and I had not thought of this until I was driving down here to give you our testimony, is just add a sentence or add two where it says, “is approved by the Legislative Commission,” add this additional language, “and done in conjunction with the Department of Taxation,” meaning if the Legislative Commission would approve the county’s internal audit division to do a performance audit on the assessor’s office, they would have to do it in conjunction with the experts who already do it once every three years. I offer that as a compromise. 

 

[Mr. Schofield, continued]  Mr. Chairman, I might add if there is discomfort or you cannot reach a majority to agree to this language, we certainly do not want this language to jeopardize the rest of the bill.  I will entertain any questions.

 

Assemblywoman Gibbons:

I did have a concern, and I expressed it during the Committee, on page 17, line 16, with the inclusion of water rights.  I did speak with Mr. Grady and he clarified it with some of his water rights people that he consults with.  They had great concerns with this as well.  So, I would not be in favor of that inclusion in the bill.

 

Mark Schofield:

Mr. Chairman, if I may respond to that?  [Chairman Parks agreed.]  Thank you, Assemblywoman Gibbons.  We do not have a problem with removing that language as long as we can imbed into the legislative record the purpose for it being there.  There are some individuals who would like to characterize water rights as “intangibles.”  Water rights are no more intangible than views or zoning or any other attributes to growth property in the valuation therein.  That is why we put it in there.  I understand that the Nevada Taxpayers Association also has some difficulty with this, and I think I know where the concern stems from.  At one point, there was some deliberation relative to whether or not we should segregate water rights and assess them separately.  That dialogue took place at the Nevada Tax Commission.  The final analysis was, “No, they should not, because they are inherent within the value of the property.”  With that said, Mr. Chairman, we are perfectly willing to remove water rights from that section of the bill.

 

Chairman Parks:

Thank you.  I would like to ask for a representative from the Department of Taxation. 

 

Chuck Chinnock:

[Introduced himself.]  If you were to look at the definition of “real property,” NRS 361.035 specifically defines certain items that are real property: land, buildings, those kinds of things.  It then goes on to say that anything that is not specifically named is personal property.  So, as a result of issues that came before the Nevada Tax Commission, there was a discussion and determination.  It happened to be with respect to the Truckee Meadows Water Authority when it went over to public ownership.  They had requested a refund on their taxes when it went from Sierra Pacific to public ownership.  It was the determination that, if you were to read the refund statutes, they could only get a refund on real property taxes paid.  As a result of that, we had to make a specific split because water rights were then considered as personal property.  That is how the issue came up. 

 

[Mr. Chinnock, continued]  In accepted appraisal theory and in property law, water rights are typically considered a bundle of rights as of real estate or real property, but, in the case of property taxation, because of the way that statute is constructed, it ended up that the water rights could be considered as personal property.  That is how this all came about. 

 

Mark Schofield:

I concur with Mr. Chinnock.  As I indicated in my previous testimony, water rights are a stick in the whole bundle of rights.  In appraisal theory, it has always been that way.  This language was put in there specifically so those who attempted to manipulate the statute—there have been individuals who have done so before boards of equalization—would no longer be able to characterize a water right as an intangible.  It was not designed in any way, as I indicated in my previous testimony, to create a property tax increase or to put the taxpayers in harm’s way.

 

Chairman Parks:

Thank you.  Are there any other questions?  Mr. Schofield, would you like to proceed?

 

Mark Schofield:

I will take it in the order in which you have the amendments before you.  Let us talk first about the veterans’ exemption.  As you recall, in the bill, until it is amended, there is a provision to allow all veterans to enjoy the veterans’ exemption, regardless of when they served.  We know that there is not significant appetite in your Committee, or perhaps even the majority of the Legislature, to pass this as it is written because there is a huge concern about fiscal impact.  We certainly empathize with that.

 

So, with the help of Mr. Zuend, we have gone back and changed that language.  We deleted the sections that would incorporate all veterans.  We have gone back and what we have essentially done is captured the “notch” veterans—those who served on the DMZ in Korea after the police conflict was concluded and were still stationed there up to the Vietnam War.  I get many calls from post-Korean War veterans who served in Korea on the DMZ and put their lives in danger.  They walked the DMZ armed, and they essentially do not enjoy the benefit of having that exemption.  In fact, one individual said he thought it was rather unfair that he put his life on the line for the United States after the Korean conflict by still being stationed there, yet someone who served as a mess hall cook stateside during Vietnam received the veterans’ exemption and he did not.  We tried to correct that inequity.

 

[Mr. Schofield, continued]  Additionally, what we have done is we have taken from the Gulf War forward and tried to capture every conflict that the United States was involved in and allow for those veterans who contributed and participated in that conflict on behalf of the United States to also enjoy that exemption.

 

Chairman Parks:

I guess I am one of those mess hall cooks who is enjoying it.  Let me ask you a question.  I remember the Suez conflict, and I know that there was involvement there.  If my recollection of dates is correct, that would have been about 1956.  Would this include those individuals?

 

Mark Schofield:

I believe, if Mr. Zuend concurs with my opinion on this, the way this is written, it would.

 

Chairman Parks:

Thank you.  Mr. Zuend has some additional information from LCB Legal. 

 

Ted Zuend:

Yes, Mr. Chairman.  Brenda Erdoes has crafted a separate veterans amendment that takes up the idea that I had originally proposed to Mr. Schofield (Exhibit R).  I am sorry he does not have a copy.  I just had it handed to me in an envelope before I got into the meeting.  For those conflicts that have been officially declared in some manner, it establishes dates for those and adds it to the date section that is in the first part of the section.  In her amendment, it says, “Or between July 1.”  Actually, she misses the point you wanted, but, nevertheless, she goes on and establishes dates between September 26, 1982, and December 1, 1987; between October 23, 1983, and November 23, 1983; between December 20, 1989, and January 31, 1990; between August 2, 1990, and some date she is still trying to verify; between December 5 and March 31, 1994; or between November 20, 1995, and some date she is still trying to verify.

 

That said, she also added a provision that I think is a spin-off on something in California law that says, “Has served on active duty in connection with a campaign or expedition for service in which a medal has been authorized by the government of the United States regardless of the number of days served on active duty.”  That is her amendment.  Assuming the Committee, when it meets as a whole committee, decides to go along this line, we can probably work with her to clean up everything.  You can go with what is included in yours as well.

 

Mark Schofield:

Let us skip, if we may, to the issues regarding the recorders and the suggested amendments that they had provided to us.  I believe we have worked through all of those issues and there is a consensus.  I do not think I need to render any further testimony on those issues unless you so require. 

 

Assemblyman Goldwater:

Mark, I received a fax from some people that evidently are very upset by a couple of the provisions in Section 16.  I would like to hear your thoughts on them.

 

Mark Schofield:

That is the water rights section?

 

Assemblyman Goldwater:

No, I am sorry.  It is attempting to add Section 4 to NRS, which would allow intangible components to be assessed and taxed as tangible real estate for locally assessed properties.

 

Mark Schofield:

That was going to be the next topic of discussion.  I know as of this morning there seemed to be some communications that have come in from individuals that have some discomfort with this language.  I will explain that to you.  However, if I may, could we go back to the recorders’ section?  Is there any question relative to the changes we made in the recorders’ section of the amendments, or can we bring that issue to closure? 

 

Chairman Parks:

Is there anybody who has a question with that?  I am of the opinion that those particular changes are okay and in conformance with the satisfaction of the recorders as a group in their entirety.  I do not believe there are any further questions on that portion.

 

Mark Schofield:

To go back to Assemblyman Goldwater’s concern relative to the section dealing with the intangibles.  As you recall, our testimony last week centered upon the purpose for the NRS 361.228 even being in existence.  The purpose of that particular language was to exempt the assessment of intangibles in the state of Nevada.  Prior to the language being imbedded into the statute, the local assessors never did assess intangibles.  Intangibles were an element of assessment when you were centrally assessed by the Department of Taxation. 

[Mr. Schofield, continued]  In 1999, the various entities that were being assessed by the Department of Taxation came to the Legislature and convinced the legislators that the intangibles should be removed from the assessment of their property by the Department of Taxation.  Subsequently, they convinced the Legislature to do so.  This is not something unusual throughout the country; it is being done from state to state.

 

Initially, we had the language in both 227 and 228.  We removed it from 228 and put it into 227 due to the sentiment of those people who came before you to plead their case and to get this language into the statute.  They were concerned we were opening a Pandora’s box, this whole issue would be revisited again, and they might possibly lose that section of the law.  That was not our intent.  Our intent was to make it very clear in the law, and I think it is as succinct as it can possibly be for people who appeal their assessments in front of boards of equalization, that when we are talking about intangibles, that does not apply to the definition of full cash value, which is market value.  Not knowing what concerns have been advanced to you it is difficult for me to articulate what the answer is.

 

Assemblyman Goldwater:

They seem to think that it would be double taxation.  Added language will enable intangibles to enhance and be reflected in the valuation of real property, land and improvements, or personal property. 

 

Mark Schofield:

That is one viewpoint.  Some individuals out there that are manipulating this law to take advantage of it before the respective boards of equalization would have you believe that, yes, sir; however, that is not the case.

 

Assemblyman Goldwater:

That leads me to my next point.  That is a very good answer.  They also had concerns that the county board of equalization may not reduce the assessment of the county assessor unless the appellant shows clear and satisfactory evidence that the valuation established by the county assessor is excessive or inequitable.  They felt that “clear and satisfactory evidence” was a vague and ambiguous standard, though it seems unusual that “vagueness” would be used to describe “clear and satisfactory evidence.”  

 

Mark Schofield:

I can appreciate their concern, Mr. Chairman.  That was not the intent.  Actually this is redundant language.  Let me draw to your attention the fact that there is a section in the statute as it deals with the Board of Equalization that says that if we do not receive cooperation from the taxpayer, and the end result is we have to estimate the value of the property, the taxpayer loses all appeal remedies available to them.  Neither the county board of equalization nor the State Board of Equalization nor the court can hear the case.  They have lost their right to appeal for not cooperating.  This basically is a clarification.  It is probably redundant.  Again, we have no heartburn removing that language.  We were just trying to clear things up and make it very clear to people who go before the Board of Equalization that we want them to present their case, but they have to cooperate with providing us the information that they have. 

 

[Mr. Schofield, continued]  If I may, I would like to return to the veterans’ language.  I was asked if we would have any concerns with removing this language from our bill and inserting it in to Assemblywoman Chowning’s bill, A.B. 366.  I can assure you we have no problem with that at all.  If you would like to remove this language for the final version, once Mr. Zuend and Ms. Erdoes get together and come up with some final language dealing with the veterans’ issues, we have no problem at all with you removing it from our bill and putting it in to Assemblywoman Chowning’s.

 

I believe that concludes the major amendments.  I thought we might have more dialogue as it relates to the “intangibles” issue.  You may have individuals in the audience who want to address that particular issue.

 

Gaylyn Spriggs, representing the Nevada Taxpayers Association:

 [Introduced herself.] I want to make a quick point.  It was important to have that language on the intangibles in 227 and not 228 so that it is very clear that it applies to the test for market value and does not infringe on the centrally assessed intangibles.  Thank you.

 

Mark Schofield:

Mr. Chairman, we concur with Ms. Spriggs.  That is exactly why we did that.  We thought we had agreement with most of the concerned parties that had an issue with the placement of this language.  Ms. Spriggs brought it to our attention that we did not.  We compromised and removed that language.  Actually, she had suggested it earlier and we did not feel it was necessary.  As it turned out, Ms. Spriggs, as usual, was right.  We removed it from 228 and inserted it into 227, so it deals exclusively with locally assessed issues, deals exclusively with full cash value, and makes it very clear that when it comes to intangibles there is no relative bearing and you cannot exclude them from the definition of full cash value.  I know Mr. Zuend and I had a lengthy conversation this morning about that issue, and he may have some ideas to offer as well.

 

Ted Zuend:

When the concern was raised that this was going to increase the valuation of property, my inclination was no, it does not.  Obviously, not being a lawyer, I asked Brenda Erdoes, our Legislative Counsel, if she was in agreement with my assessment of that fact.  She did agree that this simply keeps market value, meaning actual market value, and not some sort of modified market value.  It is market value as defined in the statute, I believe it is NRS 361.025.  We use the term “full cash value” as market value in this state.  She basically agreed that NRS 361.025 is market value and that this provision simply says that somebody cannot challenge that test.  Remember, that is not a valuation.  That is just a test of whether the property exceeds market value by somehow arguing that intangibles should not be included in that term.  Market value remains market value. 

 

Chairman Parks:

Ms. Spriggs, are you happy?  I guess the only thing that is now left up in the air, as I see this, is Section 1 and Section 20.  There was some wording for Section 1 suggested by Mr. Schofield and I wondered if we could ask if there is comment here. 

 

Mike Alastuey, representing Clark County:

[Introduced himself.]  We, too, have been in communication with county internal audit, taxpayers associations, and the Department of Taxation.  As we conclude this week, we have perhaps an additional language option to offer.  I think, to paraphrase Mr. Schofield, this has been an issue of “balance of responsibility” here.  I am being careful in my choice of words.  I think we have some language you many want to consider that embodies a lot of what both parties have in mind.  One thing the Committee has an appetite to do is to entertain ideas that avoid duplication.  The testimony before indicated that there were a number of areas that were not duplicative of the Department of Taxation.  Some testimony offered before could be interpreted as perhaps stepping into some of the responsibilities that statutorily belong to the Department of Taxation.

 

If I can offer the following language (Exhibit S) for Sections 1 and 20:

 

Not withstanding any other provision of law to the contrary, audits performed by a local government entity or state agency on an assessor’s office shall not duplicate the scope of responsibility of the Nevada Department of Taxation regarding assessment practices and determination of taxable value of property and shall be conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States. 

 

[Mr. Alastuey, continued]  We think that presents a reasonable option for the Committee’s consideration and perhaps answers some of the assessors’ concerns as well, and I think that, at least in part, it answers some of the local auditors’ concerns.  With that, we would offer the language for your consideration.

 

Chairman Parks:

Mr. Schofield, were you able to hear that and do you have any initial comment on it?

 

Mark Schofield:

Yes, I was able to hear it, and certainly it was a valiant attempt on Mr. Alastuey’s part to reach a compromise; however, I respectfully disagree.  The issue, again, is the balance of power; it is not the performance audit itself.  The issue is balance of power and who has the authority to go in and—I too will choose my words carefully—direct elected officials on how they shall do their jobs.  It is unfortunate. I thought we had reached consensus on this issue many, many years ago.  I believe we have reached an honest diplomatic impasse. 

 

Certainly, as I stated earlier, if the Committee does not accept the language I provided, which gives the county the authority they are requesting, which we do not believe they currently have, regardless of the DA’s opinion they currently have… I have a conflicting DA opinion that was written several years back, and in the interim the law has never changed.  Therefore, again, if you choose not to accept the language that we have presented—I appreciate Mr. Alastuey’s efforts in this, believe me; he has been a longtime colleague of mine, and he always offers very sage advice—I have to respectfully disagree.  If you do not agree with the language that we have proposed, I would respectfully request that we pull these sections as the county originally intended or proposed to amend. 

 

Chairman Parks:

So, you are saying that you would prefer what the county initially proposed?  I did not understand that last part.

 

Mark Schofield:

I am sorry, Mr. Chairman, perhaps I did not make myself clear.  If the Committee does not have an appetite to accept the initial amendments we have provided to you today, that Mr. Zuend helped us craft with the additional language that I added, then I would much prefer that you just pull Sections 1 and 20 out of the bill.  Although I understand what they are attempting to do in Mr. Alastuey’s proposal, I do not agree with that particular language.  The language we provided you initially this afternoon, which you have in your amendment document with the addition I provided to you, is what we would like to see.  If the Committee would not like to see that language in this particular bill, we would prefer it not be an impediment to the bill’s passage.  So, therefore, you can pull Sections 1 and 20 and we will continue the debate in another venue.

 

Chairman Parks:

Thank you.  That is what I thought you were saying; I just was not quite certain.

 

Gaylyn Spriggs:

[Introduced herself for the record.]  We had originally spoken in opposition to Sections 1 and 20, believing that it was the purview of the Department of Taxation to do those types of audits.  I just wanted you to know that the Nevada Taxpayers Association’s concerns with the language proposed by Clark County have been taken care of.  It would not duplicate those concepts or be a duplication of effort.  That is all I wanted to say.

 

Chairman Parks:

Unless there are other individuals who have something they would like to bring up with regards to A.B. 533, we will conclude this part of the work session as a subcommittee.  When we resume as the full Committee, we will take care of this entire issue at that point.  I see that Mr. Anderson is back.  Did you conclude with Elections, Procedures, and Ethics?

 

Assemblyman Anderson:

No, Mr. Chairman, I was told you were in need of a vote and to come up here, so I left that committee to be here.  I believe you have a quorum with my presence.

 

Chairman Parks:

We have 8 out of 12 members.  We certainly do have a quorum.

 

Ted Zuend:

I will quickly go through a summary of A.B. 533.  As you all know, there are proposed amendments to the bill, offered by the Assessors Association.  There is Mr. Parks’ bill regarding avoiding the publication of the assessment roll if other alternatives are provided.  You must do two things, one of which is to print it and place it in all public libraries and branch libraries plus where the assessor’s office is located, plus you either have to post it on the Internet or website that is maintained on behalf of the county.  In the case where there is no Web site or Internet site, you must continue to publish it in a newspaper with general circulation in the county.  That would relieve the burden of publishing some of those huge documents that now go into the paper.

 

[Mr. Zuend, continued]  Mr. Schofield’s amendments, I think, are fairly acceptable, with the clarification that we will work on the language regarding the veterans’ amendment.  Since we are running into a deadline, it probably would be wise to keep the veterans’ language in there, which he offered to take out.  His proposal would narrow the scope of the exemption.  Of course, you have every right to pick and choose, and if you do not like any change to the veterans exemption, you could also do that.

 

You have the difference between Clark County and the assessor’s office regarding the Sections 1 and 20.  It seems your only issue there is whether you keep them as he proposes in the amendment or eliminate them from the bill.  Finally, there is the amendment proposed by the veterans’ representative which I do not think is controversial at all.  That simply changes the donation to the Gift Account rather than the Home Account, so it will be a gift and not be reverted to the General Fund for other spending. 

 

There is an issue regarding water rights.  Mr. Schofield said he would eliminate the language.  It is not clear what it does by eliminating or keeping it in.  Much like several of the amendments in the bill, it simply is to clarify language that apparently has been challenged at boards of equalization.  Several of those amendments are in that same vein.  I believe the fee-simple interest in property is simply a redundant amendment because apparently there is someone who wants to modify full cash value from what it says full cash value is.  Mr. Schofield said he would take water rights out if that were the pleasure of the Committee.

 

Chairman Parks:

Okay, thank you.  I think we have two issues to deal with.  One is, do we leave amended language in for Sections 1 and 20 and approve the bill with that in there, or do we approve the bill without that?  The other question is the removal of water rights.  We have a couple of choices on that.  The question was, is this a Clark issue or a statewide issue?  Mr. Mortenson. 

 

Assemblyman Mortenson:

I wonder if we could have a discussion of the consequences of removing water rights or leaving them in.  Who has water rights?  Who would then pay additional tax with water rights and who would not in the general context of things in the state?

 

Assemblyman Hettrick:

My understanding is that that was an attempt to clarify what could be included in valuation of property.  Their feeling was they do it now anyway, but they wanted to clarify that they could, so it could not be argued that they could not.  That is the way I understood it.  It does not change the actual action that they do right now.  It just clarified it in law so that nobody could say, “You can’t.”

 

Assemblyman Mortenson:

If that is it, then it is a good explanation.

 

[Van Heffner, Executive Director, Nevada Restaurant Association, distributed a handout (Exhibit T) regarding concerns about and proposed amendments to A.B. 533, but he did not speak.]

 

Chairman Parks:

Okay, do we have a motion?  I will entertain a motion on the whole bill [A.B. 533].  Do you want to make a motion to approve it with or without Sections 1 and 20?  I think the consensus seems to be that we will take the water rights portion of it out.

 

Assemblyman Hettrick:

Mr. Chairman, if you want me to take a shot at it I will.  I would move to amend and do pass, removing water rights, accepting the non-controversial amendments.  Since there appears to be no agreement on Sections 1 and 20 and Mr. Schofield said that without an agreement he would rather have it out, I would suggest we take out Sections 1 and 20.

 

ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS ON A.B. 533.

 

ASSEMBLYMAN MARVEL SECONDED THE MOTION. 

 

Chairman Parks:

Is there any discussion on the motion?  Three Committee members have just returned.  To recap, we have just gone through A.B. 533 and the amendments that have been suggested.  As a result, there seems to be general concurrence on all aspects of the amendments, with the exception that we would remove the words “water rights” on page 17, line 16. 

 

The other part of the motion is that we would remove amendments to Sections 1 and 20 dealing with the audit.  The only other thing I will indicate is an amendment requested by me that would remove the requirement for publishing the secured rolls if the county had an Internet site in operation.  They would still have to place copies of the secured rolls in all public libraries and branch libraries as well as make them available in the county office buildings in which the assessor’s office is located.  Further questions or clarification?  Mr. Grady. 

 

Assemblyman Grady:

Just to make sure on water rights, I was thinking it was in there in more than one spot.  If it is, would we be removing it from wherever it appears?

 

Chairman Parks:

Perhaps Mr. Schofield could answer that question.

 

Mark Schofield:

Yes, we would be removing it.  It is only in the one spot, however.  If it were in other sections of the bill, we would remove it in its entirety.

 

Chairman Parks:

Okay, thank you.  Further questions on the motion?  Yes, Mr. Anderson.

 

Assemblyman Anderson:

Clarification—we are keeping the sections referring to the veterans?

 

Chairman Parks:

Yes, that is correct.  Further questions?  All in favor of the motion please indicate by saying “aye.”  Any opposed?  [There were none.] 

 

THE MOTION CARRIED UNANIMOUSLY. 

 

Thank you very much.

 

Mark Schofield:

Thank you, Mr. Chairman, for your courtesy and professionalism.  We really appreciate it.

 

Chairman Parks:

Thank you for staying all afternoon.  We will move forward.  I see that Assemblyman Goicoechea is present in the audience, so let’s take A.B. 229.    

 

Assembly Bill 229:  Increases amount of tax that county of origin may impose on certain transfers of water. (BDR 48-1083)

 

Perhaps Mr. Zuend could give us an overview.

 

Ted Zuend:

I understand there is going to be a proposed amendment, or perhaps more.  The bill would increase the tax that a county of origin may impose on a transfer of water to another county in this state, or to another state, from $6 per acre/foot to $60 per acre/foot.  The arguments were that the $6 figure was arbitrary and insufficient to get potential users of the water to bargain in good faith; proponents also noted that the amount is very low compared to the amounts for water transfers that have been negotiated elsewhere. 

 

[Mr. Zuend, continued]  Opponents argue that the $60 is too high and is just as arbitrary as the $6 figure.  They note that the imposition of such a tax by a county of origin would discourage, rather than encourage, negotiations for the use of water. 

 

Proponents and opponents offered amendments to the bill that are attached.  I assume that they may be null and void by now, but, nevertheless, they are attached.  Well, they are not attached to document you have.  I am sorry, but I guess Mr. Goicoechea can address whether those are still on the plate or not. 

 

If the Committee were to process this bill favorably, I have suggested one amendment to the language on Section 1, page 1, lines 5 and 6.  By changing it, I ran this by legislative counsel, and she agreed that it is very confusing in that portion because it describes the same county in two different ways.  My proposed amendment would delete lines 5 and 6 and insert the statement “Another county in this state or in another state, the county of origin may impose a,” so that it clearly means a county where the water is appropriated is the county of origin.  There is no great point to having two different descriptions of the same county.

 

Chairman Parks:

Okay, Mr. Goicoechea.

 

Assemblyman Pete Goicoechea, District No. 35 (Eureka, Pershing, White Pine Counties and portions of Churchill, Humboldt, Lander, and Washoe Counties):

Thank you, Mr. Chairman.  [Introduced himself.]  We have submitted some amendments (Exhibit U).  Clearly, the biggest one came about after we talked to Southern Nevada Water Authority (SNWA), and they countered back with an $8 figure.  It is hard to win a fight from the bottom, so this is why we are proposing $8.  Also, we are proposing that we change “tax” to “fee” as it is in the bill, because, clearly, it is a fee rather than a tax that is being imposed.  I believe we can concur with Mr. Zuend; that clarification is fine.

 

Assemblyman Hettrick:

I heard Mr. Anderson say, “What is the difference between a fee and a tax,” and I think the only difference is that SNWA is not, as a political subdivision, subject to tax, but it would be subject to a fee.  That is the difference.  That is why they want to change it.  If I may, Mr. Chairman, if you want a motion, I would proceed to make that.  [Chairman Parks consented.] 

 

ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS A.B. 229 WITH THE AMENDMENTS OFFERED AND THE CLARIFICATION SUGGESTED BY MR. ZUEND.

 

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

 

Chairman Parks:

Is there any question on the motion?  Yes, Mr. Goldwater.

 

Assemblyman Goldwater:

It’s not on the motion; I just want to explain my vote.  I want to commend Assemblyman Goicoechea for working hard for his region, but you know, as we are increasing taxes and fees, we are all working on a one-Nevada sort of frame of mind.  I always have.  I just do not think increasing something tenfold in statute, for the reasons that we have outlined, is absolutely necessary.  Coming from southern Nevada, with whom these rural counties are in negotiations, it is counterintuitive to me that we should be raising, or allow these fees to be raised at this time.  It just does not make sense to me. 

 

The rationale behind the bill was that it would encourage negotiation.  I do not see how it encourages negotiations.  I think if negotiations are going to take place, they are going to take place, and if raising the fee encourages negotiations, part of that negotiation is going to be with whom besides the rurals the SNWA can negotiate.  That is going to be no good for the rurals. 

 

I am going to vote no on this motion.  No disrespect, but I just feel like it is in my constituents’ and southern Nevada’s best interests to keep the law just like it is.

 

Chairman Parks:

Thank you, Mr. Goldwater.  Any other questions on the motion?

 

Assemblyman Goicoechea:

Could I respond, Mr. Chairman?

 

Chairman Parks:

I think we are already at the point where we are discussing the motion itself, and not the issue.  No further questions?  All in favor of the motion please indicate by saying “aye.”  Any opposed? 

THE MOTION FAILED.  ASSEMBLYMEN ANDERSON, McCLAIN, GOLDWATER, MORTENSON, GIBBONS, AND ARBERRY VOTED NO.

 

The motion dies for lack of majority; it was 6-6.  Sorry.  Thank you.

 

Why don’t we proceed on to Assembly Bill 348, Mr. Carpenter’s bill?  Mr. Zuend, did you have any comments on that?

 

 

Assembly Bill 348:  Revises provisions governing development of certain factors used in determination of taxable value of improvements to real property for assessment of property taxes. (BDR 32-1121)

 

Ted Zuend:

A.B. 348 establishes procedures for the Nevada Tax Commission to follow before adopting factors that are applied annually to the taxable value of improvements for property that has not been reappraised (Exhibit Q).  The prime sponsor noted that the factors for improvements that are provided to assessors by the Tax Commission sometimes cause property to be overvalued.  There was some disagreement among the assessors, at least as forwarded in written commentary, regarding the need for the bill, although no one directly recommended that the bill be killed.  Every assessor agreed, however, that the bill, if it is going to pass, should be amended to eliminate the ability of a board of county commissioners to object to the factors in an attempt to have them changed.  The amendment would simply delete all references to “board or boards of county commissioners” in Section 1.  The Nevada Taxpayers Association also supported the bill and the proposed amendment. 

 

Chairman Parks:

Any questions or comments by Committee members?  The amendment would be to remove the reference to boards of county commissioners.

 

ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS ON A.B. 348.

 

ASSEMBLYMAN HETTRICK SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

Thank you.  The next bill we had on the work session was Assembly Bill 351. 

Assembly Bill 351:  Proposes to exempt medicines and medical devices that are ordered for senior citizens by providers of health care and sold over counter, without prescription, from taxes on retail sales. (BDR 32-74)

 

I did have a brief discussion with the author of the bill today, and she indicated to me that she had asked for a review of the fiscal note.  She had gotten some numbers and thought that they were much higher than she had anticipated, so it appears that, as much as she would like to pursue the bill and have it proceed forward, the fiscal note seems to be a strong deterrent, especially in the situation we are in (Exhibit Q).  So, I guess that at this point we will just proceed forward to the next bill.  The next bill we have on our schedule is A.B. 366. 

 

Assembly Bill 366:  Provides exemption from governmental services tax for vehicles registered by resident of Nevada who is on active duty in Armed Forces of United States. (BDR 32-347)

 

Ted Zuend:

As written, the bill would provide a $2,000 exemption from the valuation of a vehicle for purposes of the government services tax for a resident of Nevada who is on active duty.  The bill would also provide for indexing the $2,000 to inflation beginning in 2005-2006 (Exhibit Q).  The argument for it was that it is a fair thing to do to show appreciation to those who served their country in the military.  It was also pointed out that federal law already exempts non-resident service members from being compelled to pay taxes, at least vehicle taxes, in the state where they are stationed.  Currently, the only service members that are being taxed are those that happen to be residents of the state where their vehicle is located.  There was no opposition expressed.  I do not remember if the Taxpayers Association came up on this one.  The Department of Motor Vehicles submitted a fiscal note that estimated a revenue loss of between $400,000 and $1.6 million, and that was just on the $2,000 exemption. 

 

An amendment was proposed that would effectively bring the exemption in line with the exemption for non-resident servicemen, that the full value of the vehicle would be exempt.  I was remiss in that I did not provide a fiscal note.  On that portion of the amendment, the Department of Motor Vehicles was very broad to begin with—the $400,000 to $1.6 million—because they did not have a number on servicemen that would fall into this category.  It would effectively double it based on the average value of a vehicle.  It could be anywhere from close to $1 million to $3 million if you did that.

 

Also, they would expand the veterans’ exemption to cover all of the veterans as originally proposed in the A.B. 533 bill, which of course has since been amended to cover just those veterans who have been connected with an actual war or engagement by the United States armed forces.  Those are the two proposals.  That was a considerably higher fiscal note, predicated on, at least from the Department of Taxation’s point of view, the fact that all veterans would take advantage of the exemption.  The current exemption is only used by approximately 10 to 20 percent of eligible veterans.  It is unlikely that the full impact that the Department of Taxation proposed would actually occur; however, the Department of Motor Vehicles submitted a “no impact” statement based on these changes, which is somewhat hard to believe.  I do not know that we have a good fiscal note on the bill.  It could be as much as $16 million per year if every veteran took advantage of it.  Based on our current exemption, assuming many veterans, it may double the impact, which could be several million dollars for the value of the exemption.  That is not much help. 

 

Chairman Parks:

What is the recommendation of the Committee?

 

ASSEMBLYMAN MARVEL MOVED TO INDEFINITELY POSTPONE A.B. 366.

 

ASSEMBLYMAN GOLDWATER SECONDED THE MOTION.

 

THE MOTION CARRIED.  CHAIRMAN PARKS VOTED NO.

 

Okay, that takes care of that.  I guess members of Elections, Procedures, and Ethics need to get back downstairs.  Mr. Anderson? 

 

Assemblyman Anderson:

We were under the impression that you had bills you wanted to move in the Committee, and we were in a work session down there, also.  We stopped the work session down there so that you could proceed with this one up here, but they have, I think, six bills.  I would think maybe 30 minutes.

 

Chairman Parks:

Could we do one quick bill first, A.B. 515?  I know we have some people that have sat and waited very patiently, so, if we could consider A.B. 515, I would appreciate that.

 

Assembly Bill 515:  Makes various changes to provisions governing property tax assistance for senior citizens. (BDR 38-499)

 

Ted Zuend:

This is of recent vintage, so most of us probably have it somewhat familiar in our minds.  It makes various revisions to the property tax assistance program for senior citizens, including, among other things, revising the method for calculating the refunds and the qualifications for obtaining such refunds. 

 

The proponents were mostly from the Division of Aging Services.  They noted the bill was intended to simplify the existing schedule to provide a more equitable distribution to eligible claimants and to limit eligibility by prohibiting benefits for persons with at least $400,000 in liquid assets, with $30,000 or more in real property in Nevada or another state, or with a home in Nevada with an assessed valuation of $75,000 or more.  The proponents also noted that the bill provides a 100 percent refund up to the $500 maximum amount to claimants with income below the poverty level, and would hold those benefits harmless if there were insufficient funds available to pay all claims (Exhibit Q). 

 

There was no testimony in opposition to the bill, and no amendments at that time were proposed.  Some members of the Committee expressed concern over changing the program in a way that could have unanticipated budgetary consequences when the state is experiencing revenue shortfalls.  The biggest issue for the Committee seemed to be whether or not to refer the bill to Ways and Means if it is approved.

 

Chairman Parks:

Thank you.  I will accept a motion, but I really had quite a concern over the fact that the limit on liquid assets of no more than $400,000 was really quite significant.  I cannot help but think that if somebody were blessed with that much in liquid assets, they could conceivably pay their own taxes.  I would certainly think that we would want to lower it.  That is in Section 5.  Yes, Ms. McClain.

 

Assemblywoman McClain:

I do not know about the assessed value of $75,000.  I do not think that is too far off, though, do you?  I think you are probably right on the liquid assets of $400,000.  If this is assessed value, market value would be what?  $240,000?

 

Chairman Parks:

Divide that by 0.35. 

 

Assemblywoman McClain:

Yes, so it would be right around there.  I know, but you know, Mr. Chair, that is not that great in Las Vegas any more.

 

Chairman Parks:

Right, that is a $214,000 home.  What is the pleasure of the Committee? 

Assemblywoman McClain:

That is what I was going to suggest.  May we leave it the $30,000?

 

Assemblyman Hettrick:

Are we just now implementing a $400,000 liquid assets, $30,000 real property, $75,000 assessed value cap?  Does that cap not exist presently and we are adding it?

 

Ted Zuend:

The only cap that currently exists is the $30,000, only on property in Nevada.  This expands that to outside Nevada.  The other two do not now exist.

 

Assemblyman Hettrick:

So, we could lower these amounts somewhat to limit the people who are eligible?  These are pretty high levels for people who are eligible to get their property tax paid.

 

Chairman Parks:

Right, given the fact that there is no provision for subsequent repayment of that exemption, like at time of demise or time of sale of the property or whatever.  Pick a number, $50,000 for assessed value and $100,000 for liquid assets.

 

Assemblyman Hettrick:

Second.

 

Chairman Parks:

The second number was to reduce the $400,000 liquid assets to $100,000.  I think that is quite liberal.  [More background conversation]  Okay, the Chair will entertain a motion.  We have a motion from Mr. Marvel to amend and do pass, changing the assessed value to $50,000 and the liquid asset limit to $100,000. 

 

ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS ON A.B. 515.

 

I see Mr. Dawley coming forward.  Yes, Mr. Dawley, please.

 

Dave Dawley, Carson City Assessor:

Mr. Chairman, frankly, I believe those are too low, because an assessed value of $50,000 is going to be right around $160,000.  Frankly, with no cap on it now, I do not think you want to lower it that much, but I do think it should be lowered a little bit. 

Chairman Parks:

In your professional opinion, would you like to make a suggestion?

 

Dave Dawley:

Not really.

 

Chairman Parks:

No?  I did not think so.   

 

Carla Watson, Administrative Services Officer, Division of Aging Services:

[Introduced herself.]  When we selected these numbers, we literally did just want a starting point to generate conversation.  As far as the assessed value, $75,000 was proposed that would be an approximate cash value of $214,000.  $50,000 at 35 percent would be $143,000.  $60,000 would land us around $171,000, and $70,000 would put us at about $200,000.

 

Chairman Parks:

Thank you.  $70,000 makes it a nice round $200,000, and I am hearing that there is an interest in liquid assets of $50,000 or less.  [More background conversation.]  I guess I am hearing $70,000 for assessed value and $100,000 for liquid assets. 

 

ASSEMBLYMAN HETTRICK SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

Thank you very much. 

 

Assemblyman Anderson:

I wanted to indicate to the members of the Committee, although it is an A.J.R., and thus not subject, I believe, to our rule on whether we have to get it out of the Committee or not, the information that came along from the City of Sparks is finally there for the Committee to look at.  It has been some time coming, and I apologize for that, but I thought I would bring it to your attention. 

 

Chairman Parks:

Okay, we will take a look at that.  Thank you.  We are going to be in a minimum of a five-minute recess, and then we are going to return as a subcommittee.  Thank you.  [Meeting was recessed at 5:43 p.m.]

 

Chairman Parks:

[Meeting was reconvened at 6:25 p.m.]  We are back to order as a subcommittee.  There are two bills that we have to further consider.  They are A.B. 514 and A.B. 516.  We need to receive a subcommittee report for A.B. 387 and any other discussion on any other bills.  I think we want to talk about the possibility of a letter of intent on A.B. 364, and I do not know what the appetite of the Committee is for A.B. 517.  So, why do we not start with receiving the subcommittee report for A.B. 387?  Mr. Goldwater.

 

 

Assembly Bill 387:  Makes various changes to provisions governing taxation. (BDR 32-173)

 

Assemblyman Goldwater:

I appreciate the ability to work on A.B. 387(see Exhibit Q).  The subcommittee met this morning, and we brought everybody together in a very informal discussion.  This may shock you, Mr. Chairman, but all those who were included to either have their exemption repealed or have an increase in the rate of the tax that they currently pay were against having that done, even if it meant a decrease by half of what they paid with motor vehicle privilege tax. 

 

Evidently, if we repeal the home office tax credit, every insurance company in the world is going to move out of Nevada and vacate our state immediately.  If we increase the real estate transfer tax, thousands upon thousands of first-time home buyers are going to be excluded from the market and will no longer be able to pay the tax and, more importantly, it would be a burden on the rural clerks’ offices, because they would then have to explain more where the tax goes. 

 

However, Assemblyman Griffin and I felt that it is important to lower the burden on people who pay the most onerous tax in the state, for the common person who owns a car has to register that car.  If possible, we would like to be able to at least reduce that burden somewhat.  How we are going to do it, we do not know. 

 

We came to the conclusion, and we are drafting the letter as we speak, that any of the taxes that were included in the Governor’s package should be looked at independently and not be worked by us as well.  The one identifiable tax that was there was an increase in the gross gaming, so we want to take gross gaming off of the table and keep in there all of the other taxes.  The letter is going to ask you to request that A.B. 387 be an exempt bill by the Speaker, and that, as we consider the entire tax package, we put a great deal of emphasis on perhaps reducing the tax burden for the working men and women of this state.

 

Chairman Parks:

Would you like to make that in the form of a motion?  We look forward to seeing your letter for the file.

 

Assemblyman Goldwater:

Thank you, Mr. Chairman. 

 

ASSEMBLYMAN GOLDWATER MOVED TO REQUEST A WAIVER OF DEADLINE ON A.B. 387.

 

ASSEMBLYMAN GRIFFIN SECONDED THE MOTION.

 

THE MOTION FAILED.  ASSEMBLYMEN HETTRICK AND GIBBONS VOTED NO.  (Mr. Anderson, Mr. Grady, Ms. McClain, and Ms. Pierce were not present for the vote.)

 

Chairman Parks:

I am sorry.  Okay, the motion for the waiver fails because we have insufficient numbers.  Let us go ahead and consider A.B. 364, the authorization to impose additional tax on motor vehicle fuel by cities and counties.

 

 

Assembly Bill 364:  Authorizes imposition of additional tax on motor vehicle fuel by cities and counties. (BDR 32-1119)

 

It was the intent of the 557 Committee to continue to study this distribution in the next interim period, and what has been suggested is a letter of intent from this Committee directed to the 557 Committee that it consider the content of A.B. 364.

 

ASSEMBLYMAN MARVEL MOVED TO SEND A LETTER OF INTENT TO THE 557 COMMITTEE CONCERNING A.B. 364.

 

ASSEMBLYMAN GOLDWATER SECONDED THE MOTION.

 

THE MOTION CARRIED.  ASSEMBLYWOMAN GIBBONS VOTED NO.  (Mr. Anderson, Mr. Grady, Ms. McClain, and Ms. Pierce were not present for the vote.)

 

Let us go ahead and move to A.B. 514, the streamlined sales and use tax agreement (Exhibit Q).

 

Assembly Bill 514:  Provides for enactment of certain provisions that are necessary to carry out Streamlined Sales and Use Tax Agreement. (BDR 32-1292)

A handout has been provided to you (Exhibit Y).  It is about a half-inch thick, and it says “Explanation of Proposed Amendment to Assembly Bill No. 514” across the top, prepared by Legal Division.

 

ASSEMBLYMAN GOLDWATER MOVED TO AMEND AND DO PASS ON A.B. 514.

 

ASSEMBLYMAN HETTRICK SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

Chairman Parks:

That now leaves us with A.B. 516.  We heard testimony on that earlier today. 

 

Assemblyman Goldwater:

This applies to all counties, correct?  [Chairman Parks answered in the affirmative.]  Clark County voters did not address indexing specifically, correct?  [Mr. Zuend verified that.]  Is it possible to put some sort of ceiling on what they are allowed to index up to, and perhaps put a sunset on at least the indexing part of the bill?  I am not comfortable with putting one over on the voters, because they could have considered indexing when they passed it.  They removed it, and now we are putting it back in.

 

Chairman Parks:

Right.  The proponents of Question 10 had initially placed it on as a component of Question 10, and it was removed from the final approved question that was submitted to the voters.  Ms. Vilardo, would you like to expound on that at all?

 

Carole Vilardo:

I think I sat on both of the RTC Committees, and the indexing was considered because the Legislature has not wanted to give blanket authority to the local governments to raise fuel taxes as needed to make up for lost revenue.  Because it is a flat-based tax, and you have more fuel-efficient cars, even though you have more people driving, you are not making any headway with generating revenue.  So, the indexing came up.  In both cases, we recommended that there be a cap of 4.5 percent.  Now, there are some other ways of treating that.  It is a very real problem, and I understand the need for it.  It is not my favorite, which is why we recommended the cap, but I can also attest that I know we need the money. 

 

[Ms. Vilardo, continued]  Be that as it may, in Clark County, very honestly, there was a poll taken prior to the ballot question being finalized, and it was found that would have caused a defeat on the question, which is why the sales tax was increased.  The problem is you are in a no-win situation, and I know that because we had to be called back in as the committee to reaffirm the change from what we originally approved as the RTC Committee down there.  It is a no-win situation.  There are a couple of things that probably could be done that might mitigate some of the concerns, and as I expressed, even some of the concerns from our own constituents.  Obviously, the biggest impact right now is that people have become aware of indexing and what it could do on these gas tax prices.  I can remember probably a year ago when I was paying $1.19 per gallon.  What you would be indexing on the CPI would actually be less than two cents.  It might even be less than that, so that is not a major problem. 

 

At any rate, you could, in effect, allow the provisions to go through because, again, you have also got the indexing bill across the board for all components on the fuel tax as well as the regional issue for Washoe County.  If you let it go through for all components, you could do it effective January 1, 2005, with the hope that by that point we would have a better idea of where we are with fuel.  You could turn around and create a rolling average as we have done with property tax issues, where you allow the indexing to occur.  You look at the prior three years, create whatever the amount is, and you put it in maybe every other year so you are not constantly ratcheting up.  I think there are a couple of things you can do.  There is no question that revenue is needed.  I do not know if that helps the Committee or just adds to the confusion.

 

Assemblyman Goldwater:

I do not know what you just said.  I really do not.  You want to index or you do not want to index?

 

Carole Vilardo:

I would love not to see indexing, but, unfortunately, it is one of the mechanisms, because of the restrictions on the taxes, that you have available to you for roads.

 

Assemblyman Goldwater:

Okay, so there is a perpetual need, a bottomless pit, for roads, so to speak.

 

Carole Vilardo:

There is because, as the tax is currently imposed, it is eroding.  It is not keeping up with the costs, and that is how indexing came up to begin with. 

 

Assemblyman Goldwater:

And public bodies cannot vote just simply to raise a tax.

Carole Vilardo:

No, because you have not given them the authority to do that.

 

Assemblyman Goldwater:

We could, though.

 

Carole Vilardo:

You could.  You could turn around and say that, as you did with locals, but you need to structure it so that you would be dealing with all of the components, including what the state gets, that are allowed to increase under “X” conditions, this amount for this component, that component, and the other, and then let them do it as they see fit.

 

Assemblyman Mortenson:

After hearing the testimony, I am with Mr. Goldwater.  I really do not like indexing.  If the RTC determined that the people were against the indexing, then that is where I stand, right there. 

 

Assemblyman Hettrick:

I have a problem with indexing as well, but I think the real problem I have with this is that we have got nine counties that will not enact the nickel, and what we are doing here is coming back and saying, well, but the Legislature should then give us the indexing and let us get our money anyway, even though we want to vote it down, or we do not want to support the tax.  I think that is unfair to the counties that voted it in.  That is the problem I have with it.  If we want to standardize everything and then take a look at something like this, all right, but I would not do it without fixing the problems that Carole addressed as well, and add diesel.  Otherwise, it is a patchwork again.  We are right back to this “half of this, one of those, part of this,” and I just do not think this makes sense. 

 

Assemblyman Griffin:

I guess I would say the policy reasons why it may be a good idea is that there is such a wide variation in the prices of fuel, which is why you would not base a fuel tax on a percentage, like you do with any other consumption that has a little more consistent pricing.  That would be also the same reason I am opposed to it, in the sense that when you start indexing and creating an even higher and higher rate, that is probably okay when it is at $1.19 per gallon, but excessively burdensome when it is $2.02 per gallon, which is a little bit more indicative of what the consumer of fuels has to go to.  So, that would be the reason I am opposed to the indexing. 

Carole Vilardo:

Washoe County voters did, in fact, agree to the indexing.  The voters in the poll that was taken did approve that increase on the local percentages.  It was one of those 400-person polls.  Was it a good poll?  Who knows?  I do not know who did it or whatever.

 

Chairman Parks:

Thank you.  I would like to comment that within A.B. 516, there were four distinct items, and the one on indexing covered, I believe, Sections 1‑5 and Section 9.  Sections 6, 7, and 8 covered the other aspects as to the much fairer distribution of gasoline revenue within counties, the intercounty and intracounty calculations.  I hope that when we consider this bill, we keep in mind that these other three sections are the result of a tremendous amount of work by the subcommittee and the committee to the 557 Committee, as well as staff from Taxation and Transportation.  Is there any further discussion on A.B. 516? 

 

Assemblyman Hettrick:

Since you were on the committee, when we say the formula is better, and it is a better distribution, what is the impact on Clark County, and what is the impact on somebody else?  Maybe Ted has an answer.

 

Ted Zuend:

I do not have the exact data, but all the little counties it would not affect most, because they are guarantee counties.  They are all hold-harmless, and it continues the hold-harmless provision.  There is a slight difference, and I think it was a slight benefit to Clark at the expense of Washoe, but you have to keep in mind that the bill, as actually approved in 2001, did not conform to the recommendation of the committee at that point in time.  It was not caught, and when they started working with the formula, we understood that it was not designed to do what it was intended to do. 

 

Further review of it, when some of those counties start kicking over, under the current law they would immediately go from whatever their hold-harmless amount is to something like 30–40 percent above their hold-harmless amount because of the way the formula works now.  When you become a donor county, so to speak, under the current formula, because you are only dividing up that increment of revenue above the top, you immediately get a windfall.  That is fixed, and it would conform.  This bill would conform to the way it was intended to be done based on the recommendation out of the 1999–2000 interim.

 

Assemblyman Marvel:

How badly would it impact Washoe County?

Ted Zuend:

There is not all that much money to divide up.  It is maybe $20,000 or $30,000 total out of a huge pot, a lot more money than that.  One thing you could consider doing, if you want to hold them harmless based on their prior distribution, is simply to rebase the hold-harmless to 2003, as opposed to 2001.  That would not change, obviously, any of the guaranteed counties, because it is still the same amount.  All you have done is let Washoe keep the little bit of windfall they got in this two-year period here because of the incorrect distribution, if that is a concern, but then they would also gain into the future from that.  That is an alternative.

 

Assemblyman Marvel:

Well, Washoe County has a real problem right now.

 

Ted Zuend:

Yes, if you rebased 2003, then last year’s distribution becomes the benchmark, so that they would get, in essence, to keep the additional revenues they got because the bill was drafted wrong in 2001.  Then, as the pot of money continues to grow, Washoe will get its proportionate share of that increase, as well as Clark and all the so-called “donor” counties.  So, that is an alternative. 

 

Before you go, you do need an amendment, and perhaps two.  They are sort of technical.  I think Marvin Leavitt pointed out that this intracounty distribution should not be messed with at this time.  There was no recommendation to mess with that.  We have got to get that back to the existing language.  Also, Russ Law pointed out that there is a possibility that the total pot could shrink in a year.  Not much of a possibility, but there is a possibility.  It was Fiscal’s fault, not bill drafting’s fault, but in the bill drafting we stripped that provision and provided the distribution only if it is above the 2000–2001 level, which, of course, would now be the 2002–2003 level.  I think we may have to fix that language just a hair in the event gas tax revenues in the state actually decrease from that base year amount, but it is totally technical. 

 

Chairman Parks:

If I might just also comment on one other aspect of that, by removing the state highways that the counties do not maintain but that the state maintains, it does improve some of the distribution to some of the incorporated cities.  I am not certain, but I think a city like Sparks would be one of the benefactors of that.  However, we did put in place the hold-harmless so that they at least do not lose immediate revenue.  I think that it is a great bill with the exception of the fact that it does not appear anybody has an appetite for the indexing feature.  Other than that, I think it is a lot of work on it, and at least as far as the members of the subcommittee and the technical committee to the 557 Committee, they felt like they had generated a very good product.

 

Assemblyman Hettrick:

I would make a motion, then, to remove from the bill the sections relating to indexing, to remove back to the original language the redistribution to the counties, to do the technical amendments as necessary, and to rebase the bill at the year 2002–2003.

 

ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS A.B. 516.

 

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

 

Chairman Parks:

Okay, we have a motion from Mr. Hettrick, a second from Mr. Marvel.  Does everybody understand the motion?

 

Assemblywoman Ms. McClain:

Mr. Chair, can I abstain from this until I figure out what is going on with it?  I have heard none of this discussion.  I will abstain, but I will vote on it on the Floor one way or the other.

 

Chairman Parks:

Yes, I am sure that we can do that. 

 

THE MOTION CARRIED.  ASSEMBLYMEN ANDERSON AND GIBBONS VOTED NO.  ASSEMBLYWOMEN McCLAIN AND PIERCE ABSTAINED.

 

I think we are almost done here.  I guess the question at this point is what measures do we have further to consider.  The only thing that I can think of is that I have suggested to leadership that A.B. 204 and A.B. 281 be requested to be waived of the time requirement.

 

 

Assembly Bill 204:  Provides revenue in support of state budget. (BDR 32-1210)

 

 

Assembly Bill 281:  Imposes and increases certain taxes and fees and makes various changes to provide additional state revenue and to stabilize revenue base of state. (BDR 32-756)

 

A.B. 204 is the Governor’s early tax bill.  We obviously do not know what is likely to happen in the next two and a half months, and it might be wise to have a ready vehicle if something catastrophic were to happen with regard to our revenue picture.  A.B. 281 is the A.C.R. 1 Task Force bill that was presented.  I might note that the Senate Taxation Committee has requested that the Governor’s tax bill have a waiver from Senate Taxation.  We are probably covering all bases if we ask that the A.C.R. 1 Task Force bill also have a waiver.  Any comments? 

 

ASSEMBLYMAN GOLDWATER MOVED TO REQUEST WAIVERS OF DEADLINE ON A.B. 204 AND A.B.281.

 

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

We have hearings on some other bills that we have not brought up for a final vote.  I think that what is likely to happen is that, even though action is not taken by this Committee, there may be life after house-of-origin committee on these bills when we get down to crunch time and put the final bill together.  It is called a “lege-o-matic.”  With that, I think we have concluded everything that we have to conclude today.

 

Assemblyman Anderson:

I finally received the material that I had anticipated at the original hearing from Ms. deBraga.  I had it reproduced and distributed to the Committee today (Exhibit V).  It shows an ongoing problem with the loss of revenue in many of the cities, particularly older cities in the state and in mine.  One of the possible solutions is a constitutional amendment.  I thought that it only fitting that it come before the Taxation Committee first before it went to Constitutional Amendments, so that they might be aware of the nature of the issue. 

 

It is a solution that might help some of the smaller communities and older communities of the state that are impacted in a way that I do not think was ever intended when the law came into being.  You can see material (Exhibit V) that has been developed over time by Mr. Zuend and others, which shows the history of this problem.  I would appeal to the Committee for the passage and re-referral to Constitutional Amendments of A.J.R. 8.  If the chair will entertain a motion, I will make a motion on my own bill.

 

Assembly Joint Resolution 8:  Proposes amendment to Nevada Constitution to authorize reassessment of real property for taxation purposes upon transfer of ownership and, under certain circumstances, upon its conversion to another use. (BDR C-348)

Chairman Parks:

Does everybody have a copy of the handout (Exhibit V)?  It would have been a handout today that had some tabs on the right margin.

 

Assemblyman Anderson:

On the top of the document, it says March 31, and it is dated to Ms. deBraga from Terri Thomas, the financial director who worked with you on the 557 Committee.  Most of the material is in regard to a Senate bill that was tried in the last session, but the information is still applicable today with some updates.

 

Assemblyman Goldwater:

With all due respect to my colleague from Sparks, I am against A.J.R. 8.  I think it opens a door to allowing Proposition 13 problems, Proposition 6 problems.  I think the whole assessment issue is a balloon where you push one place and it pops up someplace else.  There is inherent unfairness to somebody no matter how you do it, but certainly it opens the door for something that could be potentially disastrous to this state.  I will be voting against it if there is a motion.

 

Assemblyman Marvel:

I have to agree with Mr. Goldwater, Mr. Chairman.  I think that it will probably cause increases in taxes.

 

Chairman Parks:

I think I will take the initiative of the Chair and ask that we schedule this for further hearing at a date and time when we are probably a little more refreshed.  I think that is okay with everyone.  We have a question from Mr. Griffin.

 

Assemblyman Griffin:

I obviously had some questions I wanted verified.  We talked about this a couple days ago.  I got those questions answered, but I do not believe that the memo that was just handed out addresses what A.J.R. 8 addresses, if I am reading it right.  The memo says, “to amend the Constitution of the State of Nevada to eliminate depreciation of improvements to real property as part of the property tax assessment procedure.”  I have not read the whole memo, but the resolution does not get rid of depreciation, it just resets the depreciation at the time of some purchase or title transfer, which is different from what the memo would suggest.  That is the way I am reading it. 

 

[Assemblyman Griffin, continued]  When you look at all the statistics that say “the decline of revenues to local governments,” that is true.  If you got rid of depreciation it would solve that, but this resolution, in my opinion, does not do that, and could have the unintended consequences, actually, of reducing revenues to local governments, because you increase the amount of a property valuation, what you can depreciate.  That is my understanding from our many conversations, Ted, which I am still confused by.  I know we are going to talk about this at another time; I just want to make sure that we are reconciling the same information.  I think the memo and the resolution are competing with each other somewhat.

 

Chairman Parks:

Now we are all confused.  So, at this point, the Committee is adjourned.  Thank you.  [Meeting was adjourned at 7:04 p.m.]

 

[Also included are Exhibit W, Bill Explanation for A.B. 516, and Exhibit X, Bill Explanation for A.B. 517.]

 

 

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Mary Garcia

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Assemblyman David Parks, Chairman

 

 

DATE: