MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
May 13, 2003
The Committee on Taxationwas called to order at 2:40 p.m., on Tuesday, May 13, 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 Office Building, 555 E. Washington Avenue, 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. Tom Grady
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
Ms. Peggy Pierce
COMMITTEE MEMBERS ABSENT:
Mr. Morse Arberry Jr.
Mrs. Dawn Gibbons
GUEST LEGISLATORS PRESENT:
Senator Dean Rhoads, Northern Nevada Senatorial District
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Mary Garcia, Committee Secretary
OTHERS PRESENT:
Irene Porter, Executive Director, Southern Nevada Home Builders Association
Michael Lee, Lee Brothers Leasing
Dino DiCianno, Deputy Executive Director, Department of Taxation
Karen Winchell, Program Manager, Motor Carrier Section, Department of Motor Vehicles
Peter Krueger, representing the Nevada Petroleum Marketers and Convenience Stores Association
Greg Ferraro, representing the Nevada Resort Association
Bonnie Parnell, representing the League of Women Voters
Charles Chinnock, Director, Department of Taxation
Carole Vilardo, representing the Nevada Taxpayers Association
[Prior to the start of the meeting, Ted Zuend distributed Bill Explanations for S.B. 313, S.B. 370, and S.B. 471 (Exhibits F, G, and H, respectively).]
Chairman Parks:
I’d like to call the Assembly Committee on Taxation to order. [Roll taken.]
We have three bills to deal with and then a continuation of the hearing on Assembly Bill 281. I see our colleague Senator Rhoads in the audience. If you’d like to come forward, we will deal with Senate Bill 370.
Senate Bill 370 (1st Reprint): Authorizes board of county commissioners to impose additional tax on transfer of real property for control of invasive species and certain endemic pests and weeds. (BDR 32-39)
Senator Dean Rhoads, Northern Nevada Senatorial District (Elko, Eureka, Humboldt, Lander, Lincoln, Pershing and White Pine Counties and portions of Nye County:
[Introduced himself.] Senate Bill 370 authorizes a board of county commissioners to impose additional tax on the transfer of real property for control of invasive species and certain endemic pests and weeds. Rural Nevada, particularly northern and central Nevada last year, had a major disaster due to a heavy invasion of grasshoppers and Mormon crickets. After the damage was done, my wife and daughter and the neighbors in the valley were requested by the Cowboy Poetry organization to put this video together on what we went through and I’d like to play it for you right now so you can see the damage that was done.
[The video was shown to the Committee. Audio from that video is transcribed below.]
Riding through the fields on his way home, the cowboy mentioned he had seen baby grasshoppers in the Fairchild field. He noticed, because they were there last year. Spring was at hand with its usual worries and so the sighting of the grasshoppers didn’t seem so ominous just then. This was our sign, but we missed it.
For a rancher, each season brings different activities. It had been an unusually warm spring, the meadows tinted green, and the daily grind of feeding the stock was giving way to turning the cattle out on the range. An essential job in the spring is spreading water so we can grow enough hay to feed the herd through the cold months. Unfortunately, the past winter had once again been mild and so the runoff would be short. Then there was the turnout, a looming springtime task that involves branding the calves and trailing the herd up into the mountains. The process takes several weeks.
While the ranch buzzed with these seasonal activities, the rancher also worried about what lay ahead. A rancher always expects something unexpected. One of those worries is the weather. Our area has been plagued with several years of drought. With less water there is less grass and so the cow is in thinner condition in the fall. While less water decreases the forage available, it increases the likelihood of fire. Fire not only consumes a ranch’s precious range but also wildlife and the native plant species that reside there. The spring work and worries were forefront on everyone’s mind and the foreshadowing of a new fight for our land was overlooked when the cowboy saw the baby grasshoppers.
When the turnout was over and we got back to the ranch we saw more grasshoppers in the Fairchild field, more than last year and much earlier. Even without water, this field produces our most promising hay so we decided to deal with the grasshoppers with hand-spread bait. Using poison or a chemical to combat any invader, be it weed, rodent, or insect, causes some anxiety: How safe is it for livestock? For wildlife? For humans? We were assured the bait was the safest available and yet still very effective, but not very affordable especially with cattle prices being down. At $77 for a 44-pound bag it is not cheap nor does it go that far. The theory of the bait is based upon the fact that grasshoppers are cannibalistic. With one pass we spread a three-foot swath of bait. The grasshoppers are babies at this stage, less than one-half inch long. They crawl along the ground, eat the bait and die. Those following eat the dead and dying and the poison is passed on.
[The video, continued] At this point our mode of operation was almost primitive. One person drove the pickup; another sat on the tailgate and pulled a long fertilizer spreader behind it. We see dead grasshoppers. They cover the ground, but as many live grasshoppers march over the dead. We run out of bait and go off to Winnemucca to purchase more. Our stuff seems effective and we are optimistic about getting ahead of the pesky critters.
It is June and the wind picks up about 10:00 a.m. The window of time to spread the bait is limited and because this is a chemical our manpower is limited as well. Even though this bait is supposed to be totally safe in our minds, it is still a poison and as such carries risks. We choose not to have the ranch hands do the spreading.
Facing the grasshoppers is unreal. Unless you have seen this phenomenon it is hard to visualize. It looks like a moving rug. All you see is a dark brown mass moving in a west-southwest direction marching, slowly marching, relentlessly marching, devouring whatever lies in its path. Proud stands of rye grass bend under the weight of these invaders; a badger hole is even shrouded.
The irrigator sees another bunch. The cowboys see some somewhere else. On a trip to check the water ten miles away there are more. They are everywhere. The severity of this invasion sinks in. We kill millions but there are billions left. We strengthen our arsenal. More bait is purchased. A piece of equipment is rented to spread it more efficiently. We look into aerial spraying; it is out of the question because of its enormous cost. The battle carries on in the non-windy hours early in the day and just before dusk.
When referring to them politely they are “hoppers.” Most of the time, though, they’re referred to less politely. When you walk through their territory your pant leg is covered from the knee down. The gray gravel road has become black polka-dotted. You hear their “tk,tk,tk” hit the windshield on the sides of your vehicle.
While the ranchers see the hoppers ravenously devouring next winter’s hay, the mail ladies see them differently: “It looked like a black cloud and it was slick driving through them. The radiator in the truck would just get covered. By the time I’d get back here with the mail the truck was beginning to heat up and you’d have to take the hose and hose them out of there as best you could. And stink, they just smelt terrible and if you had a flat tire and had to change it, oooh. It was a mess.”
[The video, continued] And then they start flying. Our hearts sink, our stomachs are sickened, our will is weak. There’s a swarm out there in front of me and you can hear the air; there’s a hum. I thought this was some movie we were watching. When they begin to fly the bait is ineffective. It seems the only option left is aerial spraying. The valley teams up. As a last resort an airplane is brought in and once again the question of safety keeps gnawing away at you as does the enormous expense of this battle. With cattle prices being down it is more difficult to break even. Factor in the thousands of dollars to combat grasshoppers and this challenge looks insurmountable.
We spray. We spray again and wait. There are lots of dead grasshoppers. In some areas they are completely gone. A few days go by and we feel as though we have won the war but then, five miles southwest of the ranch, it looks as if they have only relocated and are busily mating. In another area that was grasshopper-free, we find baby hoppers. We learn there are several hatches in a season and we begin questioning the effectiveness of our eradication efforts.
Overall it is better, but the damage inflicted upon our livelihood is huge. The bottom line is, instead of putting up 700 tons of hay we only put up 60 tons of hay on our main ranch. That’s going to be a loss in production that may be twofold in that the quality of the forage was depleted and the quantity of the forage was depleted for this year. For next year some of the hay that we’re going to be feeding these cows this winter is of pretty low quality because the grasshoppers had gotten in it and removed most of the leaves from the plants. It could affect us next year in that the quality of the feed that these cattle are getting this winter is not going to be as good and we may see some loss in production next year, not only in weaning weights but in conception rates.
The other thing they damaged was the inside pasture. They probably got 70 or 80 percent of our pasture along the fringes of the meadow that we couldn’t use by the time we needed it. They wiped it out just like a lawnmower.
I would say that 50 percent of the range grass that the grasshoppers had gone through was lost in quantity, but the quality of the other 50 percent of the grass that was left standing was reduced in nutrition. Even if we do have good water runoff, if we have the grasshoppers back I just don’t know how to cope with it.
As we write this, a new season and its work are upon us. The hoppers are gone now and there is snow on the ground, but not enough. The winter has been mild again so far. A mild winter and a warm spring are the perfect combination to incubate a grasshopper invasion of the proportions we dealt with in 2002. They were here; they ate their way through our land and laid their eggs in the dry summer earth. The experts tell us they will return in 2003; that is not the question but rather in what magnitude they will return. For now, we deal with the work of this season, feeding cattle and calving out the herd for a new year. Usually, we look forward to spring with eagerness. This year it is with dread and the realization we are caught in a primordial cycle beyond our control, and so we wait.
Senator Rhoads:
As I said on the video, the damage to the hay crop was enormous. We normally put up 2,000 tons of hay a year on this one place and our neighbors are the same way. Because of the drought, we thought we’d put up 700 tons and by the time we got through, we actually put up 60 tons of hay and the pasture was practically completely gone. A rancher depends on the winter and the fall to bring his cattle in and let them graze on the meadows, but we don’t have any feed and the meadows look like the top of this table. You have to buy hay early, so it really, really hurt us and a lot of other ranchers and farmers.
What S.B. 370 does is a board of county commissioners “may,” they are not mandated, impose a tax rate of up to 5 cents for each $500 of value on each deed that’s transferred in real estate. It allows the county recorder to collect the tax, then the money will go to the State Treasurer for use in the state’s plant industry program and they will send it back to the counties as needed.
Page 12, line 8, of S.B. 370 explains that invasive species means “Any living organism not native to this state that may present a threat to the economy, environment or public health of this state.”
It passed out of the Senate unanimously. I believe Clark County has an amendment they want to put on this bill that would exempt them because I guess they already have a tax for weeds and invasive species. I told Mrs. Porter of the builders association I didn’t have any problem with that.
Assemblyman Marvel:
Senator, how many acres were infested in Elko?
Senator Rhoads:
I don’t know if they ever made an estimation of that. In our valley we sprayed the whole valley. I think it cost almost $200,000 to rent the spray plane and they spray a lot of acres for $200,000. Starr Valley had them, and of course around Winnemucca they had Mormon crickets. We just mainly had grasshoppers. I guess grasshoppers actually eat more than the Mormon crickets, but they’re both bad. Ruby Valley had them too. I imagine in our valley probably 10,000 acres were infested. That’s just a wild estimate. The Spanish Ranch was also hard hit. We really didn’t spray as much as we should have because we just couldn’t come up with the money. We did spray two or three times, though. Once they get flying it’s very hard to kill them. They’re supposed to be back.
Chairman Parks:
Why was the real estate transfer tax selected as the revenue source? Did you consider other revenue sources?
Senator Rhoads:
I had this bill two years ago and I had other revenue sources at that time. I think somebody suggested to me to put it on the real estate transfer tax and I think that person is neutral, as far as I know.
Chairman Parks:
Do you have any estimate as to how much revenue this would generate?
Senator Rhoads:
I do but I didn’t bring it with me. I can’t really recall what it is but it’s not a huge amount of money for these rural counties and this would probably be mandated mostly in the rural counties, I would think. Clark County is going to ask to be exempt.
Chairman Parks:
Do you know if Washoe County made a similar request?
Senator Rhoads:
No, I don’t.
Chairman Parks:
Those were the questions I had. Are there any further questions for Senator Rhoads? [There were none.] Several other people have signed in to speak on S.B. 370.
Irene Porter, Executive Director, Southern Nevada Home Builders Association:
[Introduced herself.] As Senator Rhoads said, I’m here to present what I call a friendly amendment we agreed upon prior to the hearing today. On page 1 of S.B. 370, line 4, after the word “commissioners” we would insert, “in a county under 400,000 population.” That would be the amendment to exempt Clark County from the bill (Exhibit C). The reason for that is not that invasive species or pests don’t exist in Clark County, they certainly do, but we have other means of funding and paying for their removal within Clark County and do not need the real estate transfer tax.
[Ms. Porter, continued] We currently have the highest real estate transfer tax in the state of Nevada, but aside from that we have a great deal of money in the multi-species fund and the long-term habitat conservation fund. There are monies being used out of the multi-species fund for invasive weeds, pests, and other things to protect the environment. There is also money from the Southern Nevada Public Lands Management Act, there is property tax, and there are federal grants. The industry that pays a great deal of those funds and pays all of the multi-species [fund] is the development industry. This would be a second tax on them for the same thing, so we felt that Clark County should be exempt.
I can certainly sympathize with the problem. I know what grasshoppers, fires, weeds, and such things can do to beautiful farmland and it’s very costly for them. The rest of our counties don’t have the same financial resources and plans available to be able to fund this type of thing that we do in Clark County.
Assemblyman Marvel:
Are you using this money for the fire ants and the African bees, too?
Irene Porter:
I’m not sure of that. I know that we’re doing grants out of the multi-species fund for weeds in the Las Vegas Wash and throughout the County. There are also general tax dollars being used and there’s a weed infector control fund, if I recall, at the County and in some of the cities. There might even be some things at the health district for bees and weeds and fire ants. The pest control business is a big business in southern Nevada. Most of the people I know pay for it at their own homes. The desert tortoise is part of the long-term habitat conservation plan. Keeping the tortoise alive is one of the functions of that program.
Chairman Parks:
Further questions for Ms. Porter? [There was no response.]
[See Exhibit G for bill explanation.] Not seeing any, is there anyone else who would like to speak on S.B. 370? If not, we’ll close the hearing on S.B. 370. Do we have anyone here to speak on S.B. 313? We’ll go ahead and open the hearing on S.B. 313.
Senate Bill 313 (1st Reprint): Clarifies provisions governing administration of sales and use taxes on sales and leases of motor vehicles to governmental entities. (BDR 32-295)
Michael Lee, Lee Brothers Leasing, Reno, Nevada:
[Introduced himself.] I’m here to comment on S.B. 313 and inform you that what we’re trying to do with this bill is correct an inequity that has been in our statutes. You have to exempt a city, state, or county from paying sales tax. In current statute a leasing company is not exempt from use tax so a leasing company is not able to compete or do business with cities, the state, or counties on an equal playing field.
There is a letter I provided from Mr. John Balentine, head of purchasing in Washoe County, who wished to state that he was very much in favor of this (Exhibit D). We have done business with the city of Reno and the state of Nevada, and not only Lee Brothers Leasing but most people in the automobile industry, so this is not a bill that only affects our company; it affects everyone in the automobile leasing industry. I believe it was rewritten once to exclude any other type of transaction.
Chairman Parks:
As I understand this, if you as a lessor lease a vehicle to any governmental entity you must include the sales and use tax on the vehicle as part of the cost?
Mike Lee:
Yes. The state, city, or county is exempt from the tax, but the leasing company itself is not exempt so the tax has to be collected in some way.
Chairman Parks:
And of course in that case you have to pass that cost on to whomever you’re leasing it to?
Mike Lee:
The 7.5 percent tax, yes, sir.
Chairman Parks:
Are there any other questions for Mr. Lee? [There were none.] Not seeing any we have Mr. DiCianno from the Department of Taxation.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
[Introduced himself.] I think it would be beneficial to provide a little background with respect to this particular issue. What occurs for Mr. Lee under the current statute is that if a lessor leases, as he does, to, let’s say the city of Reno, without the passage of title, the lessor would owe the use tax. If title does pass to the exempt entity, then there is no tax paid. In essence what Mr. Lee is referring to is an equity and fairness issue. If he was to sell the vehicle to an exempt entity, or anyone was to sell a vehicle to an exempt entity, there is no sales tax due.
[Mr. DiCianno, continued] The particular situation that Mr. Lee is in is that, since he does lease vehicles to an exempt entity but does not transfer title, he has to bear the use tax consequence. The original bill that was on the Senate side had this stated as “all tangible personal property,” so the original fiscal note would have been significant. The language was amended on the Senate side to deal with only motor vehicles that are leased if title does not pass to an exempt entity, so this levels the playing field.
Assemblyman Marvel:
Does title ever pass along on your leases? At the end of a lease does title pass or do you just take back the vehicle?
Mike Lee:
If title passes it’s determined at the end of the lease term. It’s a lease with a purchase option in most cases. If the city or county decides to purchase the vehicle then the title transfers at that point in time.
Assemblyman Marvel:
Is there a taxable incident then?
Mike Lee:
No, there is not with a purchase.
Assemblywoman McClain:
What is the fiscal note on this bill?
Dino DiCianno:
I believe you have the revised fiscal note (Exhibit E). Based upon our research—and we went back and looked at the returns with respect to this kind of transaction—at any point in any particular fiscal year, the amount could be anywhere from zero to maybe $30,000. The fiscal note is insignificant.
Chairman Parks:
Are there further questions? Is there anyone else who would like to speak on Senate Bill 313? [There was no response.] [See Exhibit F for bill explanation.] If not, we’ll go ahead and close the hearing on S.B. 313 and open the hearing on S.B. 471.
Senate Bill 471 (1st Reprint): Revises provisions relating to certain taxes and fees regarding petroleum products and fuels for motor vehicles and aircraft. (BDR 32-584)
Karen Winchell, Program Manager, Motor Carrier Section, Department of Motor Vehicles:
[Introduced herself.] It is my pleasure to present Senate Bill 471. This bill is the result of a cooperative effort between the DMV and Nevada’s fuel industry. I would like to take a moment to thank Peter Krueger, for the Nevada Petroleum Marketers Association; Daryl Capurro, for the Nevada Motor Transport Association; Neena Laxalt, for the Nevada Propane Dealers Association; and the motor carrier team for their assistance and dedication to the development of this bill.
Through S.B. 471 the Department expects to:
Assemblywoman McClain:
So right now the one that is licensed gets a 2 percent collection fee?
Karen Winchell:
Yes, currently if they file timely they’re entitled to 2 percent of the amount of fuel tax they collect and remit to the state as a fee for collecting that for us.
Assemblywoman McClain:
What do you consider timely?
Karen Winchell:
They’re required to report on a monthly basis by the last day of the month following the month of activity. If the return was postmarked by that date it would be timely filed.
Chairman Parks:
Any further questions? [There were none.] I think for the most part that collections are [due] 30 days after the close of the reporting period.
Peter Krueger, representing the Nevada Petroleum Marketers and Convenience Store Association:
[Introduced himself.] We arise this afternoon to support this bill. It’s a bill that was worked out during the interim between industry groups and DMV. We’re very supportive of elimination of the collection allowance for those people who are delinquent and don’t pay in a timely way. Most fuel suppliers pay their taxes in a way that’s acceptable.
To clarify the collection allowance question, it’s not only a collection allowance, but in fuel we experience what’s commonly referred to in the industry as “shrinkage.” The gallons of fuel that you purchase may or may not be the same gallons that come out of that particular storage tank because a liquid, because of its temperature, can contract or expand. That’s part of the reason we have that particular collection allowance.
Chairman Parks:
My truck has a gas tank holding 26 gallons but I can put 27 gallons in. Does that mean there’s shrinkage there, too?
Peter Krueger:
Probably, Mr. Chairman, the accuracy of the owner’s manual is not exactly true or the fuel is up at the filler neck as opposed to what’s supposed to be in the tank.
Chairman Parks:
You know we’re not supposed to top off the tank.
Peter Krueger:
That’s an environmental problem. Actually, with the closed systems now that exist in automobiles we don’t experience the shrinkage and contraction that you do in underground storage tanks.
Assemblywoman Pierce:
Under Section 22, subsection 2(b), I was wondering what that means. The part about “evaporation, spillage, and other similar causes,” I’m not sure what this means.
Karen Winchell:
That specifies what Peter Krueger was just discussing about the shrinkage, expansion, and contraction of the fuel. And it specifies that the 2 percent of the collection allowance is actually to cover the supplier’s cost of collecting the tax in compliance with the chapter of the Nevada Revised Statutes and any expansion or contraction of the fuel.
Assemblywoman Pierce:
So if the supplier has a loss, it’s made up for in the collection allowance?
Karen Winchell:
That’s correct.
Chairman Parks:
I guess this seems to be a rather long rationalization as to why the retention of the 2 percent for collection purposes. I certainly understand covering the supplier’s cost of collection in compliance with the NRS chapter, but the last part [concerning] the suppliers’ handling losses occasioned by evaporation, spillage, or other similar causes seems to be a little bit of a stretch.
Assemblywoman Pierce:
Don’t businesses have insurance for that kind of thing?
Peter Krueger:
No. What this does is simplify the process. Over the years this has been legislative policy and instead of having to worry about what we call “net gross gallons,” we pay the tax on the amount of fuel we receive at the wholesale level. The Legislature saw fit to also cover our cost for collecting the state’s tax, which is sizeable because our bonding requirements are huge. We have to bond because we handle public monies. One member in northern Nevada has an $11 million bond that costs close to 10 percent.
[Mr. Krueger, continued] The attempt of the 2 percent collection allowance is to cover those kinds of costs and also to simplify the procedure so we’re not worrying about net gallons or gross gallons each month. We simply say, “Okay, the state will grant you a 2 percent allowance and we’ll forget about how much you lose or gain and just be done with it.” It’s more a simplification of the process as opposed to going in and starting a very complicated auditing process to cover those net and gross gallons.
Assemblywoman McClain:
If you look in the bill right above that language where it talks about a “user,” what’s the difference between a dealer and a user and why are we eliminating users?
Karen Winchell:
A fuel user is somebody that uses fuel on the road. The dealer is the person or the supplier that sells it. This section deals with motor fuels such as gasoline and so we were basically making this section the same as the special fuels. A user of the fuel is not entitled to retain a collection allowance.
Assemblywoman McClain:
Is that something they were
getting before or was that something no one
really …?
Karen Winchell:
No one applied for it. It’s cleanup language.
Chairman Parks:
Any further questions? Not seeing any, thank you very much. Is there anyone else who would like to speak either in favor or against S.B. 471? [There was no response.] [See Exhibit H for bill explanation.] We’ll close the hearing on S.B. 471 and before we open and discuss A.B. 281 I would like to turn the microphone over to Mr. Zuend with regard to S.B. 475. Ms. Pierce had brought to our attention an amendment we had adopted.
Ted Zuend, Committee Fiscal Analyst:
Senate Bill 475 was the bill principally for Lincoln County to allow them to collect most of the revenues regarding a power plant that is situated in their county. It would apply of course to any county under 100,000 [in population]. There was also an amendment that Duke Energy proposed. During the hearing the Committee took action and basically amended the new subsections 6 and 7 to, in essence, exempt those power plants that simply produce energy and do not carry the energy from the possibility of central assessment.
[Mr. Zuend, continued] After I reviewed the amendment and had considerable discussions with the Department of Taxation as well as the folks from Duke Energy, we determined the amendment you passed amended both of those subsections, but the amendment to subsection 7 of that bill, which is on page 2, was really not appropriate. The amendment to subsection 6 did do what Duke Energy requested, which was to not have them participate in central assessment if there were separate functions performed.
The problem I initially had with subsection 7 and with further discussions with Taxation was that, by amending subsection 7, you would take them out of central assessment even if they did have property that crossed county lines and that really wasn’t appropriate. This morning I received a call from Mr. Richard Hyde from Duke Energy and he agreed, after consultation with Department of Taxation, that only the amendment to subsection 6 accomplished what they wanted to do.
As a result of that I don’t believe the Committee has to take action again. Your action was basically to accommodate Duke Energy’s request and they happened to propose it in two separate subsections. I believe, since only the amendment to subsection 6 is necessary to accommodate the request, the Committee can do that without further action unless the Chairman chooses to take further action.
Chairman Parks:
What we’ll do on this bill is inform the bill drafter, since we haven’t introduced or approved the amendment on the Floor yet. We’ll get that corrected so that it appears in subsection 6 but is not necessary in subsection 7 and proceed to approve the amendment on the Floor.
What I’d like to do for the time remaining [today is] discuss Assembly Bill 281. For today we are going to talk about the gross gaming revenue provisions that were placed in A.B. 281. We’ll open the floor for comments with regards to the gross gaming sections as they pertain to A.B. 281. I believe there is probably a representative here from the Resort Association and gaming.
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)
Greg Ferraro, representing the Nevada Resort Association:
[Introduced himself.] As it relates to Section 171 of the Task Force bill, A.B. 281, I’d like to talk just for a moment about the genesis of this section and our role in proposing this tax.
In June of last year the Board of Directors of the Nevada Resort Association met and unanimously agreed among themselves to propose for consideration to the Task Force, which was about halfway through its deliberation, that the gross gaming tax be increased by 0.25 percent. That gesture was made in an effort to demonstrate to the Task Force, to members of this body, and to the general public that that we knew a fiscal crisis was on the horizon. We also knew that this industry, which is the state’s largest employer and a fairly significant economic producer for the state, needed to take an active role in helping to solve what was an imminent financial crunch. And at the same time that this proposal was made we also made a statement that recognized that we wanted to be a part of that solution, and the best way for us to be a part of it was to lead by example.
Moreover, our position was, and it was expressed to the Task Force, that we were hopeful our gesture would be followed by other industries and by other large businesses. If we all were to advance a similar cause and if we were all cognizant of the state’s needs, that would go a long way to helping solve the problem.
That is the genesis of what I believe manifested itself by November 15 as Section 171. It is 25 times the rate being proposed on all businesses by the Task Force in their broad-based tax known as the gross receipts tax. I’d be remiss if I didn’t also emphasize this point: In our proposal to the Task Force we also were strongly stating that our position, this proposal or recommendation, would stand as long as others would pay on some comparable basis that we knew would be ultimately decided by you in this body. That is it in a nutshell.
I would be happy to answer any questions you might have about the evolution of this idea. I can’t speak to the construction of this and the interrelationship that the Task Force chose when it built the measure but I do know that this has been a fairly prominent piece of the Task Force bill.
Assemblyman Hettrick:
A flat 0.25 percent rate seems to hit significantly harder at the smaller people and becomes an 8 percent increase. An 8 percent increase on 6.25 percent is 0.50 percent. A 0.25 percent increase on a tax of 6.25 percent is only a 4 percent increase. Why are we making it so the lower-profitability groups are paying an 8 percent increase and the higher ones are paying a 4 percent increase? Why not just do a flat percentage increase?
Greg Ferraro:
That’s a very good question and one that we pondered a year ago. A decision was made by our Board, and we have members in each of these categories in terms of their gross revenue, but we thought the statement would be best made if we applied it equally across all tiers and by doing that, encourage businesses to respond accordingly. I know you have a different kind of proposal in this same area of the chapter but our view at this stage, and it has been our view all along, is that we ought to apply it uniformly for simplicity’s sake, if nothing else.
Assemblyman Hettrick:
I’m not commenting on the rationale. I understand why. It seems to me it makes sense from your standpoint, from the Resort Association’s standpoint, that if you’re going to support a 0.25 percent gross receipts tax you’d like to see that all tied together and be one number across the board. Is that a part of the rationale?
Greg Ferraro:
I think that’s fairly well stated. When we discussed this in detail in advance of making our proposal to the Task Force we were aware of the fact that there has been, and there has been previously in this Legislature, discussion about breaking that out. Again I think the simplest way to say it is our decision was to not do that and to have it apply uniformly across all tiers.
Chairman Parks:
Are there any further questions from Committee members? Not seeing any, thank you. I don’t see any other individuals who may have signed in specifically with regard to this bill other than Ms. Parnell.
Bonnie Parnell, representing the League of Women Voters:
[Identified herself.] This is really a generic statement regarding A.B. 281 and not specific to any one section. I have been asked by the president of the League of Women Voters to have a very short note from her read into the record:
The League of Women Voters wholeheartedly supports the passage of Assembly Bill 281. The Governor’s Task Force has spent many hours deliberating this issue. Its membership was diverse and represented various stakeholders. It is time to pass legislation that ensures that education, senior services, and important necessary state services are funded adequately.
[Ms. Parnell, continued] As I have testified previously to this Committee, I want to reiterate the importance of the study and ask that you remember why it was done in the interim. A diverse group was brought together and a common thread came out of that Task Force. I think you find a number of groups in support of this particular tax package because of its deliberation and diverse group. Both the president of the League of Women Voters and I, representing them, thank you for your time.
Chairman Parks:
Is there anyone else here today who’d like to speak to A.B. 281 with regard to the gross gaming revenue provisions in Section 171? If not, I’d open the floor for comments in general. I know that Mr. Mortenson had asked for a couple of minutes to comment so what we’ll do in the time remaining is permit an open microphone and take comments.
Assemblyman Mortenson:
I was waiting to talk on the room occupancy tax and apparently it came up while we were in the Assembly Committee on Constitutional Amendments hearing, so I missed it. The Chairman has given me a chance to propose something at today’s hearing.
We have been listening over and over again to the criticisms of the gross receipts tax and why it’s so unfair. We have listened to the criticisms of the service tax and why it’s so unfair. Everyone who seems to criticize these taxes has said the fairest tax is a tax on income so my proposal is to give them what they wish for. I believe we should institute an income tax. Why haven’t we done that? I’d like to answer that question: Income tax takes a long, long time, possibly as long as four, five, or six years to implement and we need money before that.
In A.B. 342 I introduced a room occupancy tax. As I understand it not all taxes are ever dead in this session because they can be resurrected and this would be a perfect vehicle to implement an income tax. The room occupancy tax would bring in $365 million every biennium, which is far more than the gross receipts tax would bring in, so it could substitute for the gross receipts tax or a broad-based business tax, for four, five, or six years until we could implement the income tax. We could then sunset the room occupancy tax. I was hoping that possibly we might get some kind of approval for a short-term occupancy tax or support from the Las Vegas Convention and Visitors Authority. I know the gamers want very badly to implement a broad-based business tax; I think this is a wonderful opportunity.
[Assemblyman Mortenson, continued] In addition to being able to replace or substitute for a short-term broad-based business tax like gross receipts, the room tax brings in about $230 million over and above what the gross receipts tax would bring in. This money could be used to finance the infrastructure of the income tax. It’s very costly to the Department of Taxation. They need probably hundreds of millions of dollars to institute a whole new computer system and they need to hire a lot of people to train and to implement the income tax. There would be $130 million extra every biennium for that. It’s a proposal. I’m just trying to think outside the box and I would like my Committee members here to consider it.
Why a room occupancy tax over an increase in room tax? There are several good reasons. The room occupancy tax, which is a flat $3 tax on each room, is more stable than the room tax, or transient lodging tax. The occupancy tax dropped 2 percent in 2001 over 2000 whereas room tax, the transient lodging tax, the existing tax, is very unstable. It dropped 8.5 percent [so it was] more than 4 times greater in instability. The reason for that of course is that when business gets bad, when something happens, room rates drop like a rock in order to try to bring more people in. The transient lodging tax just drops in the quantities that are collected. It’s a more stable tax and that’s why I had the idea for the flat room tax, which I call the occupancy tax.
Assemblyman Hettrick:
Maybe Chuck [Chinnock] could come down and confirm or deny for me something about net tax on corporations. My understanding is that we have a sharing agreement with the federal government that allows us to share information with the federal government that the Department of Taxation is in the process of implementing. If we have a share program like that, why is it that we couldn’t do a net tax to the taxpayer? Bring in the back page of your tax return and pay 2 percent of the amount on line 29 and we’re going to verify that amount with the federal government using your I.D. number. Can we do that?
Charles Chinnock, Executive Director, Department of Taxation:
I think something like that could be feasible. We do have a sharing agreement with the Internal Revenue Service. It is currently a one-way agreement where they provide information to us.
Assemblyman Hettrick:
Can you request what information you want?
Charles Chinnock:
Yes, they provide us with several options and formats of information for different categories from businesses to individuals.
Assemblyman Hettrick:
So the relative cost of establishing net tax would not be perhaps as great as Mr. Mortenson envisioned, simply because I think he was probably not aware that there was a sharing arrangement in place?
Charles Chinnock:
My comments in the past have been account driven [because] it would be a matter of how many people would be eligible to pay the income tax.
Assemblyman Hettrick:
I just wanted to let people know that there is a sharing mechanism available. That doesn’t mean that’s the way to go it just means that we need to be aware that it’s out there. I wasn’t sure all the Committee members were aware that we can do it.
Assemblywoman McClain:
Is the prohibition in the [Nevada] Constitution against income tax strictly [against a] personal [income tax] or does that include corporations?
Charles Chinnock:
Personal income and wages, I believe.
Assemblywoman McClain:
So if you had a business, a sole proprietor, then you couldn’t tax their net income either?
Charles Chinnock:
I believe [it has been determined] that an income tax on businesses would be feasible.
Assemblywoman McClain:
But not a sole proprietor that’s not incorporated?
Charles Chinnock:
I guess it would be a determination of what a “business” is. I think if it was a business and not classified as personal income or wages, then it could be taxed. I’m not sure that answers it, but yes.
Chairman Parks:
Ms. McClain, can Mr. Zuend clarify [the issue] for you?
Ted Zuend, Fiscal Analyst:
Let me first read the language of the constitutional provision. It says, “No income tax shall be levied upon the wages or personal income of natural persons. Notwithstanding the foregoing provision, except as otherwise provided in subsection 1 of this section, taxes may be levied upon the income or revenue of any business in whatever form it may be conducted for profit in the state.” I believe the interpretation of that is that any business can be subject to an income tax, whether gross or net, as long as it was the actual income of the business and not of the individual. So a partnership or even a sole proprietorship would be based on the schedule that the partnership or proprietorship would have to submit. In the case of a proprietorship it’s a Schedule C, and whatever amount is going on that line could be subject to tax, for example.
Assemblyman Mortenson:
It would seem to me it would be a very good idea. We have a lot of laboratories in these United States, which are the many states that have instituted an income tax. Probably every one of them is different so I think it would be a good idea to investigate every state and see which seems to be the most successful and the fairest and adopt that. Pass it in a skeletal form and flesh it out in several sessions to come and when it’s up and running we sunset the room tax ideas.
Chairman Parks:
Further questions? [There was no response.] I think that there was another area that I’ve been asked if we were going to have hearings on and that dealt with the amusement tax provisions that have been discussed previously. I thought we had covered that issue; however, if there is anybody who would like to add any further recommendations, be it in A.B. 281 or elsewhere, I certainly invite their comments at this time.
Carole Vilardo, representing the Nevada Taxpayers Association:
I realize that there have been some concerns raised about potential imposition of an amusement/entertainment tax as part of this tax package that is evolving at this point in time. I think there are some points that need to be considered on this. If you take a look at it, the reality is that this is one of the growing areas of our economy, which in effect means that it will be a stable point of the economy.
[Ms. Vilardo, continued] It is, interestingly enough, actually a service tax on transactions. Or it could be a service tax on sales if you chose to put it to the voters. The idea that you need revenue, that you need a stable base and that you should have something that reflects the economy is embodied in that. Probably most important for a number of people is the fact that, in all areas you can track on what constitutes amusements and entertainment, it is totally progressive. It is not regressive at all. With all of the angst that has been raised about movies, bowling, and pool halls, I would submit to you that it is within your power to make a policy decision to flat-out exempt those. There is a bill that has a provision where you would have a $10 exemption across the board, but that becomes problematic because of audits. It would be much easier to say that we prefer to exempt some levels of entertainment.
My concern is, whether anybody likes it or not, sales tax and gaming taxes, no matter what else you put in at this point, are still going to represent two of our greatest revenue generators and both of them are problematic. If we’re going to stabilize the overall tax base with those taxes that fund the state, irrespective of what you come down with on new taxes, something has to be done to ensure the stability of those two sources because they will remain your largest sources. To that end, it is almost inevitable that when you’re dealing with sales tax you not look at a base expansion to services.
This tax concept as the beginning point would be relatively easy and could be followed by other things, as possibly the oversight committee could look at. I hope this Committee will [set up an oversight committee] and have that as one of its charges. But I think the other issue that you have in addition to that is that at least the mechanism would be set up and be in place and you would go a long way toward stabilizing the base.
If you choose not to do this then I have an alternative, which goes back to the discussion last week on exemptions. We have more and more venues that are not subject to the entertainment tax by nature of how they’re excluded as we discovered when we started researching this area to see how progressive it was. Our original presentation to the Task Force eliminated the 10 percent entertainment tax and rolled it into the amusement and entertainment tax so that you would not have a bifurcated system. I still think that is viable. What we found was, taking the midrange of all of the categories, you would wind up with approximately a 3.7 percent rate, probably closer to 4 percent, that would generate around $58 million. There’s been all this discussion about video rentals, but you can’t tax video rentals under this because they are already taxed under the existing sales and use tax law. To have newspapers and people upset about taxing amusements because we’re going to tax video rentals is ludicrous because they’re taxed right now.
[Ms. Vilardo, continued] If you wanted to have a comfort level in doing this, it takes nothing more than an amendment to, probably the Task Force bill, which says if an item is taxed under the provisions of NRS 372 it cannot be doubly captured by also imposing it through this [bill]. But again, if you take a look just in Las Vegas and the fact that the hotels have created destination resorts, the way the law reads right now, the Celine Dion show is not a taxable entity under the current entertainment tax because it fits into an exclusion. I’m submitting to you that we need to review the exclusions, these exemptions within the entertainment tax, and include those so that we pick up that revenue base which is constantly growing. Arena sports are also exempt from the current entertainment tax, and it goes on and on.
All the exclusions that we have to this tax are in NRS 463.403, but I submit to you that it would make more sense to put all of these venues, everything that would be encompassed, spectator or participatory, into an amusement tax and drop it from the 10 percent rate. That might be more viable and more acceptable and not have us, if we were to do a room tax increase, look like we were trying to gouge the tourists. We would be giving a break on one hand and yet we would have an increasing revenue stream. I truly think it’s important that this be part of the discussions, either one way or the other. You could add some limited services to that and generate a fair amount of income and have the start of a mechanism to selectively continue expanding that base as services becomes more and more a part of our economy in this state. Or, in lieu of that, review the exemptions on the entertainment tax and start removing those so we get revenue off of things like Celine Dion, the separate theaters, the Arena at the Orleans, and some of the venues that are up here in northern Nevada. I think there are important policy issues and, again, you can go back and exempt bowling and the movies.
Chairman Parks:
Are there any questions for Ms. Vilardo? [There were none.] Mr. Zuend, do you want to comment on that provision?
Ted Zuend:
The casino entertainment tax is identified in NRS 463.401 through 463.406 and there are different provisions that create an exemption, for example the definition of casino showroom. The reason the Celine Dion show is exempt is because it is limited to 2,749 persons at an event in which live entertainment is offered and a cabaret is, in effect, exempt from the casino entertainment tax.
Chairman Parks:
We can get a detail of that for all the Committee members to consider.
Assemblywoman McClain:
I disagree with exempting some of these sporting things out of here. I think we could make a fortune taxing golf games, but if we do include some of these in here there’s a couple of items listed that I do not see as anything sporting or fun, such as aerobics and calisthenics.
Chairman Parks:
Is there anyone else in the audience who would like to make any comments for the record with regard to A.B. 281? The microphone is open for a couple more minutes. [There was no response.]
We did get another bill sent over to us today and we still have seven bills we either need to act on or not.
Ted Zuend:
We’ve heard six that have not been acted upon.
Chairman Parks:
What we’ll do is look at the possibility of a work session at the beginning of our hearing tomorrow and go from there. If there is nothing further to come before the Committee, we are adjourned [at 4:01 p.m.].
RESPECTFULLY SUBMITTED:
Terry Horgan
Transcribing Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: