MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
May 6, 2003
The Committee on Taxationwas called to order at 1:51 p.m., on Tuesday, May 6, 2003. Chairman David Parks presided in Room 4100 of the Legislative Building, Carson City, Nevada, and via simultaneous videoconference, in Room 4412 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.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
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. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
Ms. Peggy Pierce
COMMITTEE MEMBERS ABSENT:
Mr. Lynn Hettrick
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Ted Zuend, Deputy Fiscal Analyst
Kyle Wentz, Senior Page
Mary Garcia, Committee Secretary
OTHERS PRESENT:
Charles Chinnock, Executive Director, Department of Taxation
Robert E. Campbell, representing Duke Energy
Renny Ashleman, representing Mirant Energy and Clark County
Derek Rowley, President, Nevada Resident Agent Association
Ken Lange, Executive Director, Nevada State Education Association, and member, Governor’s Task Force on Tax Policy
Carole Vilardo, representing the Nevada Taxpayers Association
David Schumann, from the Independent American Party
Bryan Harrison, representing Alticor
James Jackson, representing the Direct Sellers Association
Good afternoon, I would like to call the Committee on Taxation to order. [Attendance was taken.] Today we are going to continue our review of A.B. 281. We are going to look at three areas contained in that bill: Secretary of State fees, the business activity tax, and business license fees. Before we kick that off, I would like to go ahead and have a quick work session to hear the bills that we have previously considered and to try to move those out. We will start with Senate Bill 465. Mr. Zuend, did you have any comments?
Senate Bill 465: Makes certain changes concerning calculation of amount of basic governmental services tax distributed to county school district. (BDR 43-623)
Ted Zuend:
I believe all the members have a work session document [Exhibit C]. I will just read from that. Senate Bill 465 repeals provisions enacted during the 2001 Legislative Session that require any property tax rate authorized for school capital projects to be included as part of the property tax rate used to determine the school district’s portion of the basic governmental services tax. The 2001 change resulted in a significant transfer of revenue within Elko County from the county, cities, special districts, and the operating budget of the school district to the capital projects fund of the school district. After understanding the effect of the legislation, which applies only within Elko County at this time, all entities, including the school district, support this bill, which returns the government services tax distribution formula to that which existed prior to 2001. The bill was recommended by the Legislative Committee for Local Government Taxes and Finance. There was no testimony in opposition to the bill, nor were there any amendments proposed.
ASSEMBLYMAN MARVEL MOVED DO PASS ON S.B. 465.
ASSEMBLYMAN GOLDWATER SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblymen Anderson, Arberry, Goldwater, and Assemblywoman Gibbons were not present for the vote.)
Chairman Parks:
The next bill is Senate Bill 467. Mr. Zuend.
Senate Bill 467: Authorizes special district to pledge revenue received from supplemental city-county relief tax for payment of certain bonds. (BDR 32-630)
Ted Zuend:
Senate Bill 467 authorizes a special district to pledge revenue from the consolidated tax distribution for the payment of general obligation and revenue bonds issued by the special district (Exhibit C). The bill was recommended by the Legislative Committee for Local Government Taxes and Finance as well, and will provide special districts with financing options similar to those granted to other local governments. Proponents noted the bill principally corrects an anomaly in the existing law that allows a special district to pledge the revenue for bonds issued by a local government, while excluding a special district from the definition of local government. Basically, it is a technical correction to the existing language. There was no opposition to the bill nor were any amendments needed.
ASSEMBLYMAN GRADY MOVED DO PASS ON S.B. 467.
ASSEMBLYWOMAN McCLAIN SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblymen Anderson, Arberry, Hettrick, and Assemblywoman Gibbons were not present for the vote.)
Chairman Parks:
The next bill we have is S.B. 469. Mr. Zuend.
Senate Bill 469: Revises formula for distribution of certain revenues among local governments. (BDR 32-624)
Ted Zuend:
Senate Bill 469 was also a recommendation of the Legislative Committee for Local Government Taxes and Finance (Exhibit C). It basically makes three minor technical corrections to the consolidated tax distribution formula to prevent certain unintended and inequitable distributional consequences from occurring in some very atypical circumstances. The bill is designed to ensure that the formula responds correctly to the growth of local governments. Proponents pointed out that the existing formula provides distributional results that run counter to the formula’s intent to provide more revenue to faster-growing entities. These situations occur under very limited circumstances and only when certain factors in the formula are negative. The bill corrects these inconsistencies and will have only very minor effects on the future distribution of consolidated tax revenues. No one testified in opposition to S.B. 469. Again, the Committee was composed of different members who represented the Committee Chaired by Mr. Parks during the interim, and they did realize that the changes made in the 2001 Legislative Session did not cover every particular contingency, so this bill addresses those.
There was one amendment proposed to this bill by the Department of Taxation. Basically, that amendment is to standardize certain provisions in the formula that are not consistent from one subsection to another. That amendment is attached. It starts right behind the work session document. Mostly, it just corrects the language so that the different subsections parallel each other. Right now they are not parallel. That amendment itself has no effect because it would mirror how the Department is now handling the somewhat awkward language in the statute. It just mirrors the current distribution formula.
Charles Chinnock, Executive Director, Department of Taxation:
We are, of course, in support of that bill.
ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS S.B. 469.
ASSEMBLYMAN GRIFFIN SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblymen Arberry and Hettrick and Assemblywoman Gibbons were not present for the vote.)
Chairman Parks:
The next bill is Senate Bill 470. Mr. Zuend.
Senate Bill 470: Makes various changes concerning imposition, distribution and use of certain taxes on aviation fuel and fuel for jet or turbine-powered aircraft. (BDR 32-628)
Ted Zuend:
Senate Bill 470 is another recommendation from the Committee for Local Government Taxes and Finance (Exhibit C). It authorizes the governing body of the city to impose a tax of not more than $0.04 per gallon on fuel for jet or turbine-powered aircraft and $0.08 per gallon on aviation fuel sold, distributed, or used at an airport that is owned or operated by the city. Currently, only the county is allowed to levy these taxes. The bill also makes changes to the manner in which these taxes are allocated to ensure that the revenues are provided to the governmental entity that owns or operates the airport or to the county when an airport is neither owned nor operated by a governmental entity.
Proponents noted that the bill requires that the entity that owns and operates the airport to levy these taxes rather than relying on county government, which may not receive any benefit from levying the tax. There was no opposition to the bill, although a representative of the Air Transport Association proposed an amendment to limit the scope of the bill to counties with a population less than 100,000, and an existing statutory provision relating to the use of the proceeds for marketing to counties with a population less than 400,000. The amendment was agreed to by one of the principal supporters of S.B. 470, and that proposed amendment is the last page of your work session document.
The first amendment simply would limit the ability of a city to impose the aviation fuel taxes to counties other than Clark or Washoe. Of course, in Clark and Washoe Counties, the airports are owned by only a single entity, anyway, so it does not have much of an effect in those counties. The second amendment limits the use of the proceeds from the tax for marketing purposes in counties other than Clark. The proponent of this amendment suggested that the Clark County Aviation Department had no problem with the amendment.
ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS S.B. 470.
ASSEMBLYMAN GRADY SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblyman Hettrick was not present for the vote.)
Chairman Parks:
Thank you very much. I believe we have one more bill, and that is S.B. 475. Mr. Zuend.
Senate Bill 475: Revises manner of assessing value of certain electric light and power companies. (BDR 32-1242)
Ted Zuend:
Senate Bill 475 requires the Nevada Tax Commission to segregate from the collective unit the value of a facility placed into operation by an electric light and power company on or after July 1, 2003, in a county whose population is less than 100,000 (Exhibit C). The value of the facility would then be assessed in the county where the facility is located rather than in all of the counties in which the company is operating. The principal support of the bill is Lincoln County, which believes it will enhance economic development in the rural counties by providing incentives for rural counties to support the location of utility power plants within the county to produce power for larger urban areas. No one spoke in opposition to S.B. 475.
An amendment, which was not opposed by the proponents of the bill, was proposed by an independent power producer to clarify existing law by explicitly declaring that such plants that do not own transmission lines are to be assessed by the county assessor. That amendment follows, and basically it amends Section 1, page 2, line 45, after “nature,” by inserting “or that holds an exempt wholesale generator certificate from the Federal Energy Regulatory Commission.” I think it is just a clarification amendment, because those plants should only be assessed by the local assessor now under existing law. I do not know if Mr. Chinnock had any comments on that, if it was needed or not. That is the bill.
Robert E. Campbell, representing Duke Energy:
[Introduced himself.] Yes, the language that was submitted in your prior hearing is still pertinent, which is line 45 on page 2. After that meeting, we did have a meeting at the Department of Taxation with Mr. Chinnock and his staff and other people who are interested in this bill, including Clark County and Lincoln County. The language is still the same. The only change that came out of that meeting, and is now being passed out [Exhibit D], is the very same language, except that at the suggestion of the Department of Taxation, it is being put in there twice. In addition to line 45 on page 2, the Department of Taxation felt it would clarify the situation much better if it also appeared on line 42 of page 2. It has the same intent, the same language, and we believe that all of the stakeholders in this are supportive of this clarification.
Charles Chinnock:
I will echo what Mr. Campbell said. Looking at the original language, it was in paragraph 5 of the statute, which is now Section 6. We were concerned that if we did not add that language, it would be counter to what was provided with that amendment. We feel that this would clarify it for sure.
Assemblywoman Pierce:
So lines 42 and 43 and 45 are new today, is that right?
Robert Campbell:
The same language was repeated in the previous testimony before this Committee. Based on Mr. Chinnock’s suggestion, the language that you see on line 45 is the same language that we are suggesting also be placed in line 42. It is the same language, same amendment that was previously presented, just put in two different places so it is sufficiently clear.
Assemblywoman Pierce:
Was this put in here for any particular holder of an exempt wholesale generator certificate?
Charles Chinnock:
No, it would permit any holder of an exempt wholesale generator certificate to go ahead and comply with that. The reason we support the amendment on line 42 is that the language in the bill under paragraph 6 was intended, when it came out in 1997, to ensure that when a generation facility that was located entirely within a county, that county would not receive the total benefits of that property. That was because that was a time when they were facing deregulation, and what was going to happen was an unknown. Because of that language, we were concerned that if we did not put that additional language in the amendment, paragraphs 6 and 7 would be in opposition to each other.
Renny Ashleman, representing Mirant Energy and Clark County:
[Introduced himself.] Thank you. I just want to say that we concur in the amendment.
Chairman Parks:
Thank you. We like hearing that.
ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS S.B. 475.
ASSEMBLYMAN GRIFFIN SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblymen Arberry and Hettrick were not present for the vote.)
Chairman Parks:
Thank you. That takes care of our work session document. I see that Mr. Lee just arrived, and I would like to let him know that the amendment was approved to S.B. 470. What I would like to do now is to go into the hearing on A.B. 281.
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)
Today we are going to try to cover three different areas. Those areas include the Secretary of State filing fees. We have a number of sections dealing with that. Within A.B. 281, the recommendation was to increase all Secretary of State fees by 50 percent. What I would like to do at this time is open the Floor to individuals who would like to comment on any of the sections, starting with Section 91 and extending through most of the bill through Section 186.
Derek Rowley, President, Nevada Resident Agent Association:
[Introduced himself.] It is good to be here with you. We are here in opposition to A.B. 281. We feel that the combination of the filing fee increases that you are discussing here today, in addition to the other components of the bill, could potentially bring about catastrophic consequences in Nevada’s incorporation industry. Our position differs somewhat from the testimony you heard from other business organizations in that we are not necessarily concerned about issues such as profit margins and the like. We are really talking about the death of an industry that Nevada has carefully cultivated over the years. The development of that industry has been the result of a very healthy public/private partnership.
As you know, the Legislature spent decades establishing and building a pro‑business public policy and environment. The lynchpin of that in the past has been the fact that Nevada is tax favored, and there have not been any corporate taxes. On top of that, there is a vibrant resident agent industry here in the state that spends an estimated $10 million per year promoting the advantages of doing business in Nevada. That is not “chump change”; that is money the state does not have to spend in order to attract corporate filings in the state. As a result of that effort over the decades, Nevada now has a great reputation. It is a state that people look to when they make a decision as to whether or not to incorporate. We feel that A.B. 281 has the potential to destroy that reputation, and once that reputation is damaged, it is lost. It is not easily gained again.
[Mr. Rowley, continued] Just by way of information for the Committee, the resident agent industry has done a study of the corporate filings in the state of Nevada and has determined that the public/private partnership that I mentioned is responsible for approximately 80 percent of all the commercial recordings in the state, and, therefore, 80 percent of the revenues. Currently, over a biennium, it is estimated that the commercial recordings bring in approximately $100 million over the biennium, therefore, $80 million of that is money that is brought into the state from outside the state.
On a national average, there is one new corporation filed for approximately every 170 residents. In the western states, the number is a little higher. It takes about 190 residents for every incorporation. In the state of Nevada, however, we file a new corporation for approximately every 40 residents, and when I mention “corporation,” I am talking about limited liability corporations (LLC) and partnerships, all of those commercial recording entities. That tells you that the population of the state of Nevada does not support the number of incorporations that we attract every year.
If Nevada were incorporating at only the national average, instead of 50,000 new entities filed in the state every year, we would file approximately 10,000 entities. Instead of bringing in $100 million over a biennium, you would be looking at about $20 million over a biennium as a result of commercial recordings. We are second only to Delaware. Delaware leads the nation in that statistic; they file one entity for every 16 residents in that state.
In the year 2000, the start-up costs, in order to incorporate in the state of Nevada, included the minimum filing fee of $125 and the fee for the initial list of officers and directors, which was $85, bringing the total start-up cost to $210. In the 2001 Legislature, those fees were increased. Incorporation went from $125 to $175, and the initial list fee went from $85 to $165, making the total start-up cost to file an entity in the state of Nevada $340. This proposal would raise the incorporation fee to $265 and the initial list fee to $250, making the total start-up cost over $500, which is well over a 100 percent increase over 2000.
There is a simple cost/benefit analysis that occurs when people make a decision about where to incorporate. One of the reasons Nevada has been so attractive for corporate filings is that we do so well in that cost/benefit analysis. People come to Nevada because of the benefits Nevada offers. Those benefits include the no-tax environment and the policies of the state that are pro-business in many ways. Balance that with affordable, competitive costs within the sectors that Nevada does compete with for new corporate filings, and Nevada has traditionally done very well.
[Mr. Rowley, continued] What this bill does is completely alter that cost/benefit relationship. It removes, for example, the primary benefit that attracts Nevada incorporation by instituting the gross receipts tax. Then, it increases the cost significantly, taking us out of the realm of competitiveness with the surrounding states. For example, when you compare the cost of incorporation with the seven states that surround us, including Hawaii, the incorporation cost there on average is $122 in start-up fees. If you compare us with the four states that also attract corporations that we compete with, Wyoming, Colorado, Florida, the average start-up fee to file a corporate entity in those states is $82. When you take a look at the two states that do not offer a state corporate tax, South Dakota and Wyoming, the average start-up fee there is $105.
It is pure fantasy to assume that, by increasing these fees the way this bill proposes, we are going to be able to maintain our competitive nature with the states that we compete with. The $10 million that is spent by our industry to promote the state will have to be spent elsewhere when that cost/benefit analysis shifts so dramatically. It may be of interest to you to note that there are several companies located in other states that have already begun an aggressive marketing campaign to companies formed in the state of Wyoming, for example.
The transitional shift from Nevada being a corporate haven and an incorporation center can happen very dramatically. Wyoming has adopted a set of laws that allows a corporation to transfer itself into the state of Wyoming and maintain the corporate fiction that it has always maintained. It is basically adopted as a Wyoming entity. We have already seen e-mail and direct mail marketing attempts at the list that is provided by the Secretary of State’s Office of officers and directors to get them to convert those entities to Wyoming on the basis of legislation that is pending before you.
We are quite concerned about the impact that that would have. We believe that if A.B. 281 is passed as it is written, Nevada will rapidly turn toward the national incorporation average figures. We believe that the potential exists to immediately lose 40,000 new filings every year and, in a very short term, we believe that Nevada stands to lose $90 million per biennium just in corporate filing fees as we drop to the national average because of the shift in the cost/benefit analysis.
[Mr. Rowley, continued] I do want to state for the record that it is not, however, the position of our industry that there is not room to make changes in the fee structure. It is not our position to come before you telling you that there is no way that the fees can be increased appropriately; however, we do stand opposed to A.B. 281. I will be happy to take any questions.
Assemblyman Marvel:
Do you have any suggestion what the fees could be to keep us competitive? Did you work up a schedule?
Derek Rowley:
We spent considerable time putting together a proposal of fees that we can support. In fact, there were two bills introduced this session. S.B. 298, which is currently in the Assembly Judiciary Committee, has the fee structure that we recommend. It is a radical shift from what is before you now. We estimate that the proposal we have brought forth would add up to an additional $50 million per biennium in state revenues without seriously damaging the reputation of Nevada.
Assemblyman Marvel:
Earlier, you said you were opposed to A.B. 281. Did you refer to the bill in totality or just certain sections of it?
Derek Rowley:
We are completely opposed to the fee increases, especially for the incorporation, the start-up fees.
Assemblyman Marvel:
There are several components to this bill.
Derek Rowley:
There are several components to the bill. We are opposed to the gross receipts tax mechanism as well. That would, in and of itself, destroy Nevada’s position as a tax-favored state, which attracts most of the corporate filings. It may be interesting for you to note that in 2000, when the corporate filing fees were lower, before they were raised by the 2001 Legislature, Nevada was regularly seeing double-digit increases in the corporate filings in the Secretary of State’s Office. When the change was made in 2000 to that increase, the commercial recordings division reported a flat number. In fact, if you look at the new corporations form, you will see that those numbers actually fell back, so the fee increase, we believe, will have, in and of itself, a dramatic impact on corporate filings. You combine those two mechanisms, and you have destroyed an industry that Nevada has worked decades to build.
Assemblyman Marvel:
Would it be an imposition on you if you could provide this Committee with these fee schedules that you gave the Judiciary Committee? Some of us do not serve on the Judiciary Committee, so we will not see it until the bill comes out of there.
Derek Rowley:
In answer to your question, we would be happy to make those numbers available to you. They are available in S.B. 298. I was not in the Judiciary Committee this morning. I had it reported to me that the decision was made that that bill was not going to come out of the Committee this morning, so we currently do not have a vehicle to provide to you.
Assemblyman Marvel:
I am sure staff can get them for us. Thank you.
Assemblyman Griffin:
That was essentially my question. To follow up on it, obviously we can get them from staff, but if you can, give us what they were. I do not know what the other issues were with the Senate bill, but if we could look at the fee structures and find a way for it to make sense, I think that would be helpful.
Assemblyman Goldwater:
Are there other issues besides fees and taxes that attract businesses to incorporate in Nevada?
Derek Rowley:
There are. Nevada has a set of laws that deal with, for example, the privacy aspects of doing business and the indemnification of officers and directors and managers and LLC’s that are very attractive. We compete stiffly with a number of other states that have similar provisions in their law. It is not something we stand alone on, necessarily. However, it is an added attraction. It is the total package that Nevada provides that is so attractive.
Assemblyman Goldwater:
So there is something other than fees and taxes that attracts people to Nevada.
Derek Rowley:
Yes, but I would have to tell you, Mr. Goldwater, that of those people who come from out of state, the taxes and fee issue is the predominant one.
Assemblyman Goldwater:
Okay. In the business that has taken decades to build, does your Association charge for your services, or do your members charge for that service? [Mr. Rowley replied in the affirmative.] When out-of-state corporations incorporate here, are your members able to see, or are your clients able to see, the difference between what the state of Nevada charges and what the overall cost is that includes your fee? For example, I saw a package sent to a corporation that showed a fee to incorporate in the state of Nevada. Whoever saw this would never know that a portion was what the state charges and a portion was clearly what the commission or fee was, which you are absolutely allowed to charge. It did not seem to affect that particular corporation’s willingness to locate in Nevada.
Derek Rowley:
It is interesting to note that the average incorporation fee that members of our industry have charged, which is inclusive of the filing fee and the mark-up and service fee that is added to that, has actually dropped over the last ten years. That is partly the result of stiffer competition. There have been a number of additional resident agents enter into the business. The environment is a lot more competitive. In answer to your question, though, yes, there are package prices. When individuals ask, as they regularly do, which portion of that comprises the state fees, they are given that information, and it is readily available publicly on the Internet. So much of this new business filing these days takes place online that it is becoming increasingly rare that someone has not addressed the Secretary of State’s site and is familiar with the fees. They use the services of members of our Association for convenience.
Assemblyman Mortenson:
I missed what you were saying about Wyoming. Did you say they have passed the law, or are considering passing a law, that would allow corporations to transfer their charter, as I presume you said, to Wyoming?
Derek Rowley:
Wyoming currently has that law in place, and has had for a number of years. I would estimate it has been about four or five years that the law has been around.
I do not have a whole lot of additional testimony for you, Mr. Chairman, other than I think it is important for you to understand there are competitive market forces in play when Nevada is looking at an incorporation environment. Many states do not have the luxury of looking to corporate filings as a revenue source. They simply do not generate sufficient corporate filings for it to be of any significance. Nevada has that rare luxury. However, we can price ourselves well out of the market. We can eliminate the benefits that are attracting corporate filings, and that revenue source will go away. That is my testimony to you today.
Assemblyman Griffin:
In Delaware, our number one competitor for corporate filings, there is a gross receipts tax. Is this industry exempt from the gross receipts tax?
Derek Rowley:
The state of Delaware does impose a state corporate tax. It is my understanding that it is not a gross receipts tax, per se. Further, it is my understanding that the gross receipts tax in Delaware is applied only to business that takes place within Delaware. They exempt all activities outside the state of Delaware, which forces a company that incorporates to make a choice about reporting income in Delaware and paying that tax or reporting it in another state and paying that tax. The reason that Nevada’s tax advantage is so strong is because there is no corporate tax in Nevada. There is not that choice to make. You are not choosing between different jurisdictions to the extent that the tax nexus in the business activity of that entity can be established and based in Nevada and solely in Nevada.
Chairman Parks:
Yes, that is the way I understand it. I want to thank you for your testimony. Welcome to Ken Lange, member of the ACR 1 Task Force. Thank you for being here.
Ken Lange, Executive Director, Nevada State Education Association (NSEA), and member, Governor’s Task Force on Tax Policy:
[Introduced himself.] Whether we find a way to balance out the interests of the resident agents or not, the revenue derived from the three sources that you are considering today is an important part of a total package. I think that while the debate rages over the services tax versus gross receipts tax, it is important to note, without speaking for the Task Force but as a member, that we developed all of these smaller subsets so that it would take some pressure off the size of the bigger pieces. We carefully looked for ways that we could balance that interest.
From the NSEA perspective, I do not think that these fees are excessive in terms of creating a competitive disadvantage. We do offer to corporations, as was testified to, some significant benefits. There is still a marketability aspect that is available to the resident agents. I hope that they would be up to the task. The increases, from our perspective, were not onerous and were more in keeping with other standards and fees. Thank you.
Assemblyman Marvel:
Ken, did you compare these fees with other states?
Ken Lange:
Yes, we did. They are within a range. I would have to go back to the report to look at that, but my understanding is that we looked to keep things always in a relative . . .
Assemblyman Marvel:
But Nevada had the edge?
Ken Lange:
Right now, Nevada does have the edge. The testimony you heard before was accurate.
Chairman Parks:
Have you had an opportunity to look at Senate Bill 298 and compare it to what the Task Force recommended?
Ken Lange:
No, I have not, but we will do that.
Carole Vilardo, representing the Nevada Taxpayers Association:
[Introduced herself.] We supported the inclusion of Secretary of State fees. In fact, we presented information to the Task Force about that. We are concerned because we have looked at just using that much more nominally than was used ultimately in the bill because of the increase that had already taken place last session. That was a concern because, for as long as I have tracked the taxes in this state, one of the problems you have with business is that businesses will pay taxes, but when you are constantly moving that target, as you would be in this case, businesses then start looking and saying, “If they are going to change it every year, I cannot look at the predictability of it, so I am going to rethink.”
I preferred what the resident agents did on this point. They “back-ended” the fees so that, literally, you would get somebody in here and then hit them on the back end. The concern I have with the resident agents’ bill, and I was going to express it when you took the next section, is that encompassed within the total revenue of that bill is not just the back-end Secretary of State fees, but also a provision for a $50 renewal fee on all businesses, so you have that slight bit of conflict. That is not necessarily a problem. There are other ways of adjusting to get to the revenue that you need, but that is something that you should know. As I say, we have no problem with the Secretary of State fees, but feel that the resident agents’ bill, to that end, is a much better bill. I will address a couple other issues on the renewal fees and business license when you come to that.
Assemblyman Marvel:
Carole, do other states have renewal fees?
Carole Vilardo:
No other state exactly has a business license tax, but it is not uncommon for states that have a tax, such as this might be, to have registrations so you know the businesses that you are dealing with and you can notify them on different issues.
On income tax, I am not aware of any state that has a registration for business for an income tax. The laws for the income tax are set in such a way that it is like you are going to comply if you know about the law because the penalty provisions wind up being very severe. To that end, the registration has not been deemed necessary.
If you take a look at the local business licenses that we have in this state, effectively those are revenue-generating licenses. You apply and make necessary notifications as to change of address or change of ownership as a matter of course. I hope that was sufficient.
Assemblyman Marvel:
That was more than I asked for.
Derek Rowley:
I would like to clarify a point. The statutes in Nevada already currently provide for a business license registration, which is currently administered as a $25 one‑time fee, as you know. We are not aware of any jurisdiction anywhere that issues a perpetual business license for $25. The concept that Ms. Vilardo referred to properly that exists in our bill was that, if the state is going to be in the business of issuing a business license, as it already is, it would make sense that that license be renewed annually. Where the vast majority, the 80 percent of the corporations that our Association essentially represents, is out of state and does not pay anything additionally into the head tax, it is not unreasonable for them to pay that additional annual business license registration, and there is a perceived value in having gotten that state business license that they are paying for. I just wanted to add that for the record.
Chairman Parks:
Thank you very much. If there are no questions or comments on that, we will move on to the business license tax. That is in Sections 78–81 of the bill. What we will do is open the Floor for comments from individuals relative to that.
David Schumann, from the Independent American Party:
[Introduced himself.] I am here just to talk about Section 79, but in order to put that in context, I need to draw your attention to Section 11, because it frames everything in this bill. It is an attempt to repeal laws of economics. Somebody who has the chutzpah to do a thing like that and has that weak a grasp of economics is not going to understand that Section 79, which applies to tiny micro-businesses as well as big businesses, is going to be a deterrent.
As a recent escapee of California, I can tell you there are a number of people who have come here. There are a number of them in Douglas County who set up little micro-businesses or buy apartment buildings and lease them out. This tax is going to be burdensome on them. They are going to have to pay tax for their maintenance man.
We do not need to collect this additional revenue, much as the Governor’s Task Force seems to think we do. That is the basic lack of economic knowledge Mr. Hobbs has. As in many states, New Mexico’s Governor Richardson cut taxes. You have been provided a copy of the American Legislative Exchange Council’s study on this. In all cases where states raised taxes, they cut their prosperity and they suffered. In cases where they cut taxes, they prospered. There is no need to raise this tax because the state does not need it. The state will do quite nicely if it, in fact, cuts taxes, because that will generate business.
Business and the private sector generate wealth. State and government entities do not generate wealth. You are penalizing the private sector for generating wealth. That is not smart economics, and the Governor’s Task Force reveals their lack of a basic grasp on that in Section 11, which is just so revealing of how poorly they understand the subject matter they are in charge of. Anyway, Sections 79, 80, and 81 should be cut out. Thank you very much.
Assemblyman Goldwater:
Sir, of course taxation in its purest sense will—I would not say slow down economic growth, but maybe inhibit it to a certain degree, because you do not really accrue the benefits on a balance sheet of the services that taxation provides. It is hard to say that the road leading to my store does not provide some value, but the fact that taxes paid for it certainly creates some value. Do you have kids in school in southern Nevada, by any chance?
David Schumann:
My son went to nine government schools and is now a student at the University of California at San Diego. I understand the role of taxes in providing basic government services. However, along with this is a whole scheme to increase government. We are getting more government than we deserve out of all of this. Taxes are necessary. We pay real estate taxes to help pay for police and fire. I certainly expect the firemen to come if my house catches on fire, and I am more than willing to pay taxes to pay for that. There is a space for them.
It is when you start to increase them beyond the basic necessities [that you have problems]. Look, I am a refugee from California. I have been there and seen this. I lived there for 30 years and saw that place get into magnifying taxes, and now it is reaping the whirlwind that it has sown. This is just the first little step down that path.
The gross receipts tax is indicative of all the rest of this. I mean you do not have to make a profit to pay the gross receipts tax. The very minimum that equity in taxes requires is that they be on a profitable transaction, and gross receipts often are not.
Chairman Parks:
Mr. Schumann, I had one other question, and that is you indicated your willingness to pay property taxes to cover police, fire, and schools as well. What happens when those revenues are not sufficient to adequately fund education, police, and fire?
David Schumann:
Then, sir, with the growth in population in this state, I would have to look at what those services are doing that they have outstripped the increase. For instance, Douglas County has grown tremendously, and I am sure the rest of the western part of the state has as well. How has the cost of the services outstripped the increase in people paying the tax? There surely has been an increase in the people paying the tax.
We do need those basic services. In education it is obvious, and Milton Friedman will tell you, that there is an inverse relationship between the amount of money the state spends on education and the academic results achieved thereby. There is absolutely no need to cut class sizes from 35 to 20. I went to classes that were 35. Everybody my age was in classes, and we got a better education than they are getting in classes with 20.
[Mr. Schumann, continued] There is a lot of bogus philosophy going on things like education, where they are inflating the cost. We are 46th in the country in cost per pupil, but there is no indication that we are 46th in the country in academic results achieved thereby. There are states that are at the bottom in spending that are at the top as far as academic results. I would want to have a good, close examination of what the government is providing for the dollars it is getting from us.
Chairman Parks:
Thank you. One other thing is that I remember working on the general plan when I was Department Director at the City of Las Vegas over 20 years ago. In all the modeling we did, we knew the tax revenue that the City of Las Vegas was generating on a residential development came nowhere close to paying for the services that were being provided.
I think 40 years ago the City of North Las Vegas thought they had a solution by being an industrial center. They figured that they would not have to pay a lot of the costs that a residential development would require by going for the industrial development. Obviously, it did not work the way they had hoped it would work, but, nonetheless, it was an attempt on their part. I think we see that, especially more so in the state of California, where we have a lot of entities that compete. Well, now we are seeing it here between Douglas County and Carson City competing for the retail dollar, because that is where the revenue for the entity is derived.
David Schumann:
Yes, sir, I never said it was simple.
Assemblyman Goldwater:
We would never know in this state whether there is an inverse relationship between money and education, because one thing we have never done in this state is throw money at education. That is one thing I would like to try just once and let everybody say, “Okay, we will throw money at it and see if it actually works.” If we get some decent human beings in front of these kids, that is what it is about. If you go down there and see a kindergarten class full of 42 kids, and your kid is in that kindergarten class, and you think he is not falling behind . . .
David Schumann:
I am sorry, sir. You misunderstood what I said. I said there is an inverse relationship between the amount of money the state spends on education and the academic results achieved thereby. New York spends twice what this state does. They do not get as good a product as Nevada does. Washington, D.C. spends twice what this state does and does not get as good a product. They are spending a lot more. Iowa and South Dakota spend less, maybe not than Nevada, but they spend an awful lot less than New York and California, and they get far higher academic results. Milton Friedman has been on this planet for 90 years, and he is a student of education. It is very difficult to find a flaw in his thinking.
Assemblywoman Pierce:
Like a lot of people, I used to live in California, and I love to bash California, too, but when I lived in California, it was the eighth biggest economy in the world. Now it is the sixth biggest economy in the world. I am having a hard time understanding how that spells out “business disaster.”
David Schumann:
Can I give you an example, ma’am? The Intel Corporation’s Pentium IVs you are getting are not made in California. Intel was born and raised in Santa Clara, California. I think it was about three years ago that they picked up stakes and moved to New Mexico and Arizona because of the wackiness that was going on in California, specifically with regard to energy. All these ecology freaks were prohibiting the creation of new power plants there.
Assemblywoman Pierce:
That is absolutely not true. Some other time I will explain that to you.
David Schumann:
They said it was. That was their announced reason.
Assemblywoman Pierce:
Who said that?
David Schumann:
Intel Corporation, when it left town.
Assemblywoman Pierce:
That statement is absolutely false, and I will explain that to you some other time. Okay, that is one example. Intel. Something else is making up for it, because it is now the sixth biggest economy in the world. I am still having a hard time understanding how . . .
David Schumann:
I can explain that. When you go into debt $35 billion, that is an artificial inflation of your economy. That state is $35 billion behind, and there is $11 billion coming right on top of that. That is illegal, by the way. California state law requires that they have a balanced budget.
Assemblywoman Pierce:
But California’s budget is, in my understanding, a much smaller percentage of their economy as a whole than is our deficit here in this state.
David Schumann:
That $35 billion? No, ma’am. That exceeds all the other deficits of the nation put together.
Assemblywoman Pierce:
Percentage-wise in comparison to their overall economy. They are the eighth biggest economy in the world. They are bigger than most countries. I think this deficit is a bump in the road for those guys.
David Schumann:
One last question, then. Why is Douglas County growing so well? Douglas County is full of refugee Californians that are coming here at an accelerating rate, buying property, and going into little businesses.
Assemblywoman Pierce:
I live here, too, but there are still lots of people in California. It is not as though you go over there and nobody is there anymore.
David Schumann:
No, it is a big place.
Charles Chinnock:
I did pass out a presentation booklet entitled “State of Nevada, Department of Taxation, A.B. 281” [Exhibit E]. Also, on the back of that booklet, I have some information that we quickly put together in the last couple days regarding some business licenses, requirements, and fees from some of the jurisdictions within Nevada. As you know, I have appeared before this Committee and others on numerous occasions and testified on information. A lot of that information regarding taxation is included within this booklet. Of course, I have talked about staffing, equipment, and information technology, and I do not plan on belaboring those items this afternoon.
Since you have broken A.B. 281 down into various components in your last few meetings, if it is all right by you, I will just touch upon a couple things and then go directly into the business license tax and annual business license fees. There has been a lot said about gross receipts tax already on page 1. Again, I have testified to that. I will not belabor that one, either.
[Mr. Chinnock, continued] Going to page 2, this is the admissions and amusement tax. The one thing I wanted to stress on this one is that A.B. 281 does have that admissions and amusement tax being implemented on July 1, 2003. Because this is a tax upon the consumer, there needs to be a time frame in which we are able to notify all the businesses out there and the businesses are able to structure and prepare to go ahead and place that tax on the consumer. Therefore, we would recommend that it be delayed by one quarter so that we have time to notify all the businesses concerned with that.
I could then go on to page 3 and talk about the business tax. If I could do a little lead-in on this, I would like to give a little background on the business license tax and business license fee. I know that some of the Committee members were here when it was passed back in 1991, so if there is anything I am in error on, I would appreciate a correction. It was passed in 1991, and there were very little resources and time given to the Department to actually implement it. In the next couple of sessions, though, resources were provided to the Department. They were able to automate the business tax through the Automated Collection Enforcement System (ACES) and go ahead and implement a routine for administration of the business tax.
It is interesting when you talk to individuals, both inside and outside the Department, that the answers you get on the reasons why the implementation of the license and tax was done with respect to the sole proprietors. When you talk to individuals, about half will say there was an intent to apply the business tax, or at least the business license, to sole proprietors. If you were to look at A.B. 281, on the last page, the repealed section, that section, NRS 364A.160, does say, “a natural person who does not employ any employees during a calendar quarter is exempt from the provisions of this chapter for that calendar quarter.” So, when you talk to half of those individuals, they will tell you that what that really means, because of the calendar quarter in there, is that it was the intent that the business tax not apply, but that the business license fee should apply. Others will say, because of the wording, that both the business and the annual business license fee should not apply. Of course, when you read it, there is an illogical part that would say if you do employ employees, then you would have an obligation to pay an annual business license fee. The fact of the matter is, for whatever the reason, when it was implemented, it was implemented so that the business tax and the annual business license fee did not apply to sole proprietors.
[Mr. Chinnock, continued] I have been told in the past that some Department directors did request an Attorney General’s opinion on it, and, for whatever reason, that A.G. opinion did not come forth. I guess now, if we were to receive an Attorney General’s opinion, it would apply. After some 12 years of not applying it, it would be difficult for the Nevada Tax Commission to go ahead to make such an administrative change or interpretation. It is for this reason that I have testified before, and I will say it again today, that it would be nice if we had what the statutory intent was with respect to the annual business license fee/business tax.
I do hesitate to get into discussing policy, but I will discuss some changes that might enhance administration of taxes with respect to the business license fee, in particular, the annual business license fee. I know there has been some discussion about whether the annual business license fee is a revenue generator. I would look at it as a vehicle to maintain the current status of accounts. It enables us to find when accounts close; it enables us to determine when changes of address occur, when an operation of a business occurs; it would enable us to identify businesses for purposes such as application of taxes. There is an element of safety in control and oversight. It enables us to also do statistics and demographics, and, of course, it is also there for purposes of tax collection.
As a revenue generator, it is more of a revenue generator, not so much in the manner of direct fees, but also in the manner of passive revenue collections. The Governor’s Task Force on Tax Policy discussed passive revenue generators. In S.B. 382 it also discussed application of use tax to all businesses. The vehicle of an annual business license would permit the identification of sending filing forms, as far as a use tax, and that is where the passive revenue generator comes in.
I would also note that, with respect to NRS 364A, the administration of the business license tax and the business fee, does say that the business license is for the privilege of conducting business in the state. I know that there are those who would sometimes discuss whether it is a privilege, and I will leave that to them. I have attached information gathered in a quick survey from some of the counties and cities with respect to business license fees for sole proprietors and also for home-based and direct sellers, because I know there has been some testimony from that side of the House, as far as the application of the annual business license fee and the business license tax. When we surveyed northern Nevada, one-half to less than half of the entities did require that home-based businesses pay an annual or semi-annual business license. Generally that range of fees was somewhere between $26 and $60 per year, and that did not look at the amount of gross that a business collected or some of the other requirements that the business license bureaus do look at. In southern Nevada, just about every entity requires a home-based seller to have a license, and, in fact, in both northern and southern Nevada, they do require sole proprietors to have a business license for that particular jurisdiction.
[Mr. Chinnock, continued] The point that I wanted to make was not so much that the business license itself is novel, although we had testimony from Carole that, from the State side, perhaps it is. We did receive earlier testimony in other meetings that there were 90,000 direct sellers in Nevada. We do register direct marketers for sales and use tax, and we do that through their parent organizations. We currently have 60 direct marketers registered. If we were to assume that they represent 100 individuals in the state, then we have about 6,000 of those home-based businesses registered. I am sure we have a few others registered on their own. If there are, indeed, 90,000 of those direct sellers registered in Nevada, then there are probably a bunch of those who we are not collecting sales tax from.
If I could go through the presentation booklet, on page 3, going down to the rate, what I would make a point of is that we talk about full-time equivalents as being 468 hours. When people register a business, they will sometimes have several businesses. How this works is they are allowed to report the amount of time that they put into that particular business on a quarterly basis. What I am really saying is if someone puts in four hours per week on one particular business, then the fee that he pays is proportionate to what the fee is. If you were looking at the $25-per-quarter fee, he would be paying about $3.50 per quarter. It is not uncommon to have several businesses. We see this quite often.
With respect to what the yield would be for sole proprietors, it would be $8.4 million for fiscal year 2004 and $8.8 million for fiscal year 2005. I did show total collections of a little over $120 million a year for each year of the biennium. I know in the Task Force bill they showed $130 million. The other comment I would make is that I have testified in the past that we show 60,000 accounts that would be added due to sole proprietors. This was taken off of IRS data that was available from 1999. We just received additional information from the IRS that we are reviewing right now that shows that the number is considerably higher. I do not have that number yet, though.
On the business license fee, on page 4, there is a plan to implement this for two years. The plan would be to kick this off for two years, and then to shut it off for two years. My only comment on that is the two-step process of having to turn it on, then turn it off for two years is a little more complex than keeping it going.
Assemblyman Marvel:
Chuck, is that just a sunset? [Mr. Chinnock replied in the affirmative.] The sun never sets.
Charles Chinnock:
The other thing I would mention on the business license fee is that in S.B. 382 there was a reinstatement fee, and I will note that in A.B. 281 there is not a reinstatement fee for that. At our current stage of information technology at the Department, we are not in a position to immediately do a reinstatement fee. If a person is late in signing up for an annual business license, in the future, perhaps July 1, 2004, we would be in a position to do that.
I will just leave for the record all the other information on taxes there. I would note, on page 10, we do show a recap of the total cost for A.B. 281. It is basically the same as was in the Governor’s proposal for implementation, the same amount of manpower and the same amount of total costs and nearly the same implementation time frame. If I could, I would leave the rest to be placed in the record.
If you could go to the last page, on page 15, I just wanted to show a graphic representation of the workload. Really, what we are talking about on the top line is the amount of filings that we would have to do, looking at both monthly and quarterly filings. You can see that after full implementation in 2005, the amount of filings and workload grows dramatically. The second line shows the workload per employee, and the bottom line shows the staffing that would be required. I think what this shows is that, without some kind of automation and information technology that we assume you would have to have, it would be difficult to implement. That is all I have.
Chairman Parks:
Thank you very much. We appreciate that.
Assemblyman Marvel:
I just read in the paper that you did an analysis of what the cost would be for a business service tax. Do you have that information?
Charles Chinnock:
I do have that here.
Assemblyman Marvel:
You discussed that with the Senate, did you not? It was just brought before the Senate Taxation Committee. [Mr. Chinnock replied that that was true.] The only thing I saw was just what I read in the paper.
Charles Chinnock:
I think I found it. For the services tax, we showed the manpower required was 120 staff, and the cost for the biennium was $13.5 million for the services tax, as compared to 67 personnel and $6.8 million for the gross receipts tax.
Assemblyman Marvel:
Why such a big difference?
Charles Chinnock:
The Department of Taxation is account-driven. Based upon what the original proposal was on the service tax in S.B. 382, we were talking about the potential for 120,000 accounts. When we looked at the gross receipts tax in the Task Force bill, we were talking about somewhere between 25,000 and 30,000 accounts, depending upon whether you used a $350,000 threshold or a $450,000 threshold. If you took a look at the business representatives group with respect to the services tax, they are narrowing the focus of what that service tax would apply to, so it is going to be less than 120,000, so it would be less than that higher amount that I presented. Not knowing for sure what the narrowing would be, it could be 90,000; it could be closer to 60,000. I would guess it would be somewhere between 60,000 and 90,000 accounts.
Assemblyman Marvel:
Is there a bill on services? I am not aware of one. I am getting far afield here, Mr. Chairman. I do not know if you want to do that.
Chairman Parks:
Yes, please proceed. I think this is all helpful.
Carole Vilardo:
There is Senate Bill 382, otherwise known as the Amodei/Care bill, that had a provision for the services tax. Would you allow me one comment? I think what Mr. Chinnock just testified to relative to the differences between costs and number of personnel has to be put into the context of the dollars received under each of those proposals. Obviously, nobody knows at this point what the proposals are, but using the services tax as identified, and the gross receipts tax as identified, you literally have a doubling of cost and personnel, but you have more than a doubling of the revenue received. I think that is something else that needs to be put into context, because it frequently is not. Thank you for allowing me that comment.
Assemblyman Marvel:
Which tax would require a better information system? How long would it take? They had so much trouble with the Automated Collection Enforcement System, (ACES), I was just wondering.
Charles Chinnock:
The way I would answer is that a services tax is, in many respects, similar to a sales tax, so we would be able to implement a services tax using the existing ACES. We would not be able to do it well. With respect to the gross receipts tax, we do need new information technology to implement that.
Assemblyman Marvel:
Can that be done in two-years time?
Charles Chinnock:
Yes, the program is for two years to implement the gross receipts tax. With the services tax, there was an implementation time of January 1, 2004, which would only give us six months, which is probably difficult to do. We projected that it would be tough to implement and hire all the people necessary in one year.
Chairman Parks:
Thank you very much for your presentation. As usual, I found it very enlightening.
Carole Vilardo:
I am speaking in support of the provisions on the business license tax, with a couple of suggested amendments that you might want to consider. Do you want testimony only on the renewal sections, Sections 79–81, right now, or would you rather incorporate everything? [Chairman Parks indicated that he preferred to incorporate everything.]
If I may, then, let me start with the annual renewal fee. I know there has been a great deal of discussion, and I think we were one of the people who recommended it to the Task Force. I cannot remember if it was this Committee or Senate Taxation that wanted some information about industries. We recommended an annual renewal fee previously for this reason. We do not have a database in the state. That is unfortunate. Having an annual renewal would give you that database.
[Ms. Vilardo, continued] Obviously, when you are dealing with a tax, as the members that have been on this Committee before know, you are not going to get a tax or the bases for the tax that satisfies everybody. That is an absolute impossibility. You try to figure out what is logical, what you, as legislators, want for the policy position for the tax. Then, God willing, you come up with a good set of mechanics and procedures that allow those who have to pay the tax to comply with the tax as they understand it and allow the Department of Taxation, who in most cases administers the tax, the ability to administer it without undue costs. Unfortunately, because we have not kept their technology up, it is almost like starting from ground zero to get them the technology they need so future changes can be done much more efficiently.
That being said, on the annual renewal fee, we had recommended a $25 amount, not $50. The reason for that was that what we wanted to do was get a database going, not to create a revenue generator, but to put something in place that at least covered the cost. Obviously, you have heard a great deal of testimony from direct marketers and sole proprietors about the hardships that this would present.
Full implementation would probably create some problems for the Department initially, so there are two things you might possibly do. One is you might look at delaying the sole proprietor implementation for six months or one year until you got the renewal going with everybody else that is on the system. The other thing that you could do is look at language that would say that if you are a sole proprietor, and you meet the conditions in NRS 364A.135C or D, whichever it is that says, ”and you pay wages,” then obviously you are not a person who is doing arts and crafts in a kitchen and then selling at a flea market, but you have a slightly larger business. You might use that as a first step for creating this base, if you will take it.
There has also been a great deal of discussion about how many people we are adding to the list. I have not had a chance to discuss this with Chuck as a possibility, but sole proprietors are not the only ones who are exempted from the business license tax. You exempt independent contractors, and some of the independent contractors I know file what effectively would be reported as sole proprietor. They file 1040 Schedule Cs. You may have a whole section of these independent contractors, which we have not even addressed yet. The independent contractor can be anything from a business consultant to a political consultant to a real estate agent or broker.
I hope you would do something with the annual renewal fee to let us start getting the database. It may be such that we are adding elements and trying to refine this over the next one or two sessions. That would be my comments relative to the renewal.
[Ms. Vilardo, continued] As far as the license tax, we supported the fact that a business license tax would not go greater than $140 to $150 per year, thinking that, with the amount of smaller businesses we do have, this hopefully would not present sticker shock at this level, particularly looking at this economy and not knowing where we are going in the future.
I would like to suggest an amendment for this provision, however, if you were to enact this provision, that you do what we have done previously with similar provisions. In fact, I think we did it when this was first implemented, if I remember correctly. Ted might remember that we put in a provision that said a business that had proof of a non-escalating-clause contract, a contract that did not have reopening provisions, and showed that contract to the Department of Taxation, would not be liable for the tax relative to that contract.
The inclusion of sole proprietors also helps eliminate what is being perceived as a statutory conflict. I think there is a great deal more work to be done on it, but I really do encourage you to look at this. In all possibility, the Department of Taxation might be better able to identify them if we have included the independent contractors. The way that statute reads, you also do not collect from the first person of a non-corporate entity, so you would be capturing the limited partnership, which is another possible filing, and another reason why the numbers are so high on that.
At this point we support those provisions, but we would ask you to look at those amendments and possibly get some input from the Department on phasing in, so that they are not overwhelmed with work. It will be awhile before they get the technical equipment necessary for making a good transition and making the Department more efficient. I will answer any questions.
Chairman Parks:
Thank you very much. Could I see a show of hands of who wants to testify? What I am going to do at this point is ask you to come forward and take up the seats.
Bryan Harrison, representing Alticor:
[Introduced himself.] Alticor is the parent company of Amway and Quixtar, two direct-selling companies. I have had the pleasure of testifying before this body previously, so I will be brief.
James Jackson, representing the Direct Sellers Association:
[Introduced himself.] I have been working with Bryan on this issue, and I will leave it to him, since he has certainly got more expertise than I do. We have offered a very brief amendment to the bill (Exhibit F).
Bryan Harrison:
Mr. Chairman, I just want to clarify a couple points a previous speaker had raised. I think you are aware of our concerns, so I will not go over our philosophy. The number of 90,000 direct sellers was questioned by a previous speaker. Our Association provided that number, based on national numbers. Nationally, the breakdown is about 30,000 direct sellers per Congressional seat. I think they just looked at the three seats that Nevada has and extrapolated the number. It is not necessarily a tried-and-true number, but it is an estimate based on national hard numbers.
Second, in trying to justify those numbers, the previous speaker also raised the point of how many direct marketers they were aware of. “Direct marketers” and “direct selling” are terms that, unless you are in the industry, may seem interchangeable, but they are not. The Direct Marketing Association, for instance, are those people who call you at home, the telemarketers, the people who mail things. Direct sales are the Avons, Amways, and so on. I do not know if there was confusion on the part of the individual trying to arrive at the numbers.
Also, for point of clarification, other entities do, as the previous speaker pointed out, require home-based business permits. However, direct sellers are often exempt by the definition of what a home-based business is. Typically, those are real estate and sales people who work out of their homes. It has been my experience, working with the home-based business ordinance, that direct sellers are often exempted from those, as well. No other state has a business licensing requirement for direct sellers.
Finally, the individual raised the point that it is possible that the original intent of the legislation was, indeed, to include sole proprietors. I would just point out that, even within this bill, looking at the straight cap on page 35, Section 82, paragraph 5, it clearly shows that the original intent was to exclude, not include. As a matter of fact, it states that the owner, if they have no employees, will be excluded from the business activities tax portion of the bill. Now, “exclude” has been stricken, and “include” put in its place. The language here would seem clear to me as far as what the original intent was.
Finally, the business activities tax is based on $25 per quarter, and you can prorate that if you spend less time than full time on your business. Our concern is that a substantial record keeping and reporting requirement comes along with this. The speaker pointed out that if you only worked four hours during the quarter, you may only owe a small fee such as $4 or $5, but there would be a substantial ongoing record keeping burden, which we are concerned about. We have provided an amendment that would address that.
Chairman Parks:
Thank you very much. Does anybody have any questions for either of these two gentlemen? You have been presented with a copy of a proposed amendment to the bill. Is there anyone else that would like to comment today?
Not seeing anybody else, I am going to go ahead and adjourn the meeting. Tomorrow we are strictly going to hear bills that we have not heard yet that have come from the Senate. Then on Thursday, we are going to talk about insurance premium taxes, exemptions, and collection allowances in A.B. 281. Tomorrow we are going to convene upon the close of Commerce and Labor. On Friday, we are going to take up transient lodging taxes and real property taxes. If there is nothing further to come before the Committee, we are adjourned [at 3:29 p.m.].
RESPECTFULLY SUBMITTED:
Mary Garcia
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: