MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
May 15, 2003
The Committee on Taxationwas called to order at 2:24 p.m., on Thursday, May 15, 2003. Chairman David Parks presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
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 (excused)
GUEST LEGISLATORS PRESENT:
Senator William Raggio, Washoe County, Senatorial District No. 3
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
June Rigsby, Recording Secretary
OTHERS PRESENT:
Chuck Chinnock, Executive Director, Nevada Department of Taxation
[Chairman Parks called the meeting to order at 2:25 p.m. Roll was called.]
Chairman Parks:
Good afternoon, I’d like to call the Assembly Committee on Taxation to order. Would you mark Mrs. Gibbons excused and others present as they arrive. This afternoon we have one bill on our agenda. It is a bill by Senator Raggio. We are informed that he is tied up with other issues at this time, so we’ll go ahead and trail that bill hoping that he’ll arrive. The only other thing we have in front of us today is a work session on a number of bills. The one bill that we considered today that we took no vote on was Senate Bill 473. I’d like to ask Mr. Zuend to walk us through an overview that he has provided to us. It is on page 34 of your work session document (Exhibit C).
Senate Bill 473 (1st Reprint): Makes various changes to provisions governing abatement of taxes for new or expanded businesses. (BDR 32-1241)
Ted Zuend:
Thank you, Mr. Chairman, I’ll just summarize the various sections of the bill because there are a number of different provisions in it. I want to make sure that every Committee member is aware of the different provisions and what they do or do not do. I have summarized it on the third page of the work session document. Section 1 has three primary provisions. One reduces from 75 to 30 the number of full-time equivalent employees that must be on a payroll of a business in a county to qualify for abatement. These are the generic provisions that are the basic standards for any abatement, whether it is property business or sales tax. Those apply to a county of at least 100,000 or a city of at least 60,000.
Secondly, there’s a provided reduction in all other counties and cities from 25 to 10 in the number of full time employees to be eligible for any of those abatements.
Third, there’s also a provision that a business that furthers the development and refinement of intellectual property, a patent, or a copyright into a commercial product may be eligible for abatement if it meets two of the following three requirements: First is 10 full-time employees, second is 500,000 of capital investment, and third is that standard third provision, which requires that they meet the average hourly wage, provide health insurance with an option for dependant coverage, and provide benefits to employees that meet a minimum cost standard established by the Commission on Economic Development. In effect, this third part establishes certain lower thresholds for that kind of business, the intellectual property businesses that are provided for other abatements.
[Mr. Zuend, continued] Section 2 has to do only with the property tax abatement. It too has three separate provisions. One would reduce the minimum capital investment from $50 to $5 million for an industrial or manufacturing business, and from $5 to $1 million for any other business that qualifies. Those apply only in a county of 100,000 or more or a city of 60,000 or more. The second part, similarly, for the smaller counties, reduces the minimum capital investment from 5 million to 500,000 for the manufacturing business. The one for the other business remains exactly the same.
The third provision makes a facility for the production of an energy storage device eligible for the partial abatement of real and personal property taxes that is now only authorized for a facility for the generation of electricity from renewable energy. I have a note in there that if this change is approved, page 7, line 16, should be amended after “or” by inserting “production of,” because right now the way the language reads it exempts the battery from property taxes, not the facility. I also point out that in this section because this applies to property taxes, these thresholds are actually higher than the thresholds for the generic provisions. These then apply. Then the ones that are in Section 1 for these certain property tax exemptions.
Section 3 is a pretty simple one. It changes the business tax abatement from declining rates of 80, 60, and 40 percent over a four-year period to a flat rate of 50 percent each year over the four-year period. Section 4 extends the abatement of local sales taxes for the purchase of eligible machinery and equipment to include leases of eligible machinery and equipment for the duration of leaps and makes the lessee the person eligible for such abatement. This applies to sales taxes. It makes a facility for the production of an energy storage device eligible for a partial abatement of local sales taxes that is now only temporarily authorized for a facility for the production of electricity from renewable energy. Again, the same amendment needs to be put in that subsection.
Finally, it specifically excludes aircraft from the definition of eligible machinery and equipment for the purposes of the abatement of sales taxes. Section 5 is just an extension of the expiration date of the property and sales tax abatements for the facility for the generation of electricity from a renewable energy from June 30, 2005 to June 30, 2009. Section 7 sunsets the changes made to the property and sales tax abatements in Sections 2 and 4 on June 30, 2009. That’s it, Mr. Chairman. Thank you.
Chairman Parks:
Thank you, Ted. Is there any discussion on the part of the Committee members on that? Mr. Mortenson?
Assemblyman Mortenson:
Thank you, Mr. Chairman. Yesterday I declared that I was sort of sitting on the fence with this bill. I have been thinking about it, and I guess I think that this is a good idea. The important point is if we never get a company we didn’t lose any taxes on them. If we get the company, eventually they’ll be paying taxes and even every time they are paying some taxes, so we’re getting more than we would have if we didn’t attract the company. Companies are like people. They have a personality. If a company comes to a state and the state is just totally cold, has no personality, doesn’t want to help them out, doesn’t try to encourage them and say, “We’ll do this for you and do that for you,” personality-wise, they’re likely to go elsewhere. If they get the impression that the state really wants them badly… Everyone loves to be wanted, and I think psychologically it’s a good thing. If we just lose one company, and it’s true, I agree with Mr. Goldwater’s point that all these companies aren’t just looking for tax rebates. I’m sure some of them are looking. They’re just on the fence like I was and one little thing can tip them. I would hate to lose, for example, this battery company. I think they would be incredibly good for our state. So I’m going to vote yes on this.
Chairman Parks:
Thank you, Mr. Mortenson. Mr. Goldwater?
Assemblyman Goldwater:
Thank you. All the same reasons that I stated yesterday are the reasons I still today save the arm-twisting that must have gone on. I certainly want to compliment our Director of the Economic Commission, Mr. Schriver, who does as fine a job in this area as anybody in the world. I will point something else out if we lose just one company. Do you want to know why you don’t have a letter in front of you that says, “If you pass this tax abatement and you make this eligible, I will move to your state.” Do you want to know why you don’t have that letter? I know too, because they won’t. It doesn’t matter. Will they take free money if we throw it at them? Of course. That’s what we’re doing. We’re throwing them money that we would have used for our kids, for our schools, for our social services. Why are we doing that? I have no idea, but we are. That seems to be what this bill wants to do.
Assemblywoman McClain:
I understand where Assemblyman Goldwater is coming from, but I also see this as a real incentive to get some business to some of our rural areas. I think by lowering these thresholds, you’ll get some smaller companies that will probably fit right in with some of our smaller rural communities. If everybody has heartburn with this affecting Clark County, maybe we can exempt Clark County, or at least the number of employees in the capital, but it’s up to the Committee. I see it as a good thing for the rural areas and I don’t really see it as hurting Clark County.
Assemblyman Goldwater:
Just on the rural county question and economic diversification for the rural counties. I’ve been up here for five sessions. Every single session, whether there was a flood, whether there was a school house that was burned down or out of order, whether it was sewer systems in Gardnerville, whatever happened to be, it is a county in here that says, “We don’t have the tax base or the resources to take care of this problem, therefore we need the state’s help.” Now, what we’re going to do is say, “Hey, move your kids to this county, move your kids to this city. Put them in the schools, use the services, but we’re not going to pay taxes for you.” All I’m saying, and not that I’m against the economic development statutes, because I’m in favor of them as they currently exist. Extending them out any further… If the logic of my colleagues is correct, then let’s get rid of all taxes for an indefinite period and see who moves here. That would follow. I guess what I’m saying is I’m in favor of the economic development statutes as they exist, not extending them any further than they currently are.
Assemblyman Grady:
I can tell you from one rural county, again, we took a very small community of Fernley, and we have transformed that, now, into a city. It was because of economic development. They’re probably the epitome of what every small city in Nevada would like to be. They are not based on a casino-generated revenue. They are based on good, sound manufacturing companies and distribution companies. It has really helped that community. It has helped Lyon County and it has worked for the rural areas, and I support this legislation because I’m coming from an area where it is working.
ASSEMBLYMAN
MARVEL MOVED TO AMEND AND DO PASS
S.B. 473.
ASSEMBLYMAN HETTRICK SECONDED THE MOTION.
Assemblyman Griffin:
Just a quick question about the amendment that Kathy [McClain] brought up about exempting Clark County. That’s not part of this motion, is it?
Chairman Parks:
No, that’s not part of it. Further discussion on the motion itself?
THE MOTION CARRIED. ASSEMBLYMAN GOLDWATER and ASSEMBLYMAN ANDERSON VOTED ”NO.” (Mr. Arberry and Mrs. Gibbons were absent for the vote.)
As far as other bills that we had in front of us, let’s quickly look at S.B. 489. Mr. Zuend, do you want to briefly comment on that?
Senate Bill 489 (1st Reprint): Makes various changes to provisions governing exemption from local school support tax for systems that use renewable energy to generate electricity. (BDR 32-1135)
Ted Zuend:
S.B. 489, I went through this yesterday, so I won’t go it through it again, but on the attachment part, I have a brief summary that amends two provisions. I’m not sure all Committee members are sure of that. One is that it establishes an exemption from local sales taxes for solar thermal energy systems and solar lighting systems that reduce the consumption of electricity or natural gas. This exemption would be in effect only from July 1, 2003, through June 30, 2005. The second part of the bill extends the expiration date for an exemption from local sales taxes for products or systems designed or adapted to use renewable energy to generate electricity for a two-year period, after June 30, 2005. This exemption was authorized by the 2001 legislation. So that’s the two separate provisions of this bill.
Assemblyman Goldwater:
I will remind the Committee that last time this was a very similar situation to what my colleague from Clark County, Mr. Mortenson, points out. A company says, “We’re moving to Nevada if you give us this exemption.” My request was, “Will you tell us that.” They said, “Yes, we’ll tell you that.” I said, “OK, but what we just need to do this, that, or the other thing.” So I said, “We’ll put it in with the sunset.” Now they’re in. Did they move to Nevada? No. We gave them the exemption, but they didn’t move to Nevada. Now they’re in to repeal it for some period of time, why, I have no idea, but it’s certainly stinks to me.
Chairman Parks:
The thing here is that the limitation does extend for an additional two years. We did have the request of any fossil fuel be included in the amendment. What’s the pleasure of the Committee?
ASSEMBLYMAN GOLDWATER MOVED TO INDEFINITELY POSTPONE S.B. 489.
[No one seconded the motion, so Chairman parks rescinded it.]
ASSEMBLYMAN HETTRICK MOVED TO AMEND AND
DO PASS S.B. 489.
ASSEMBLYMAN MARVEL SECONDED THE MOTION.
THE MOTION CARRIED. ASSEMBLYMAN GOLDWATER and ASSEMBLYMAN ANDERSON VOTED ”NO.” (Mr. Arberry and Mrs. Gibbons were absent for the vote.)
Good afternoon, Senator. Welcome to Assembly Taxation and we’d like to hear Senate Bill 314.
Senate Bill 314 (1st Reprint): Requires Department of Taxation to collect and report data concerning electronic commerce that is conducted in this state. (BDR 32-36)
Senator Raggio, Washoe County, District No. 3:
With me is my aide and intern Natalie Whittemore. Mr. Chairman and members of the Committee, you are looking at the first reprint of Senate Bill 314. Let me indicate that I am not an advocate one way or the other of taxation on electronic commerce. The reason for this bill will become obvious.
We are going through a lot of travail here trying to determine appropriate tax revenues for the state with going problems. We are not alone. This is being considered around the country. We hear state officials talk about a growth in the loss of sales in use tax revenue due to the remote sales over the Internet. We’ve joined the movement that, if successful, would allow our state to require out-of-state vendors to collect Nevada sales and use tax on purchases that are made over the Internet by the residents in our state. As I pointed out on the Senate side, we haven’t paused to consider the reliability of the research data that is being thrown out there as to whether we should decide at some appropriate time to join this movement.
[Mr. Raggio, continued] Presently, states cannot do this because there’s a moratorium in Congress on taxation of e-commerce on which I believe the sunset expires in September or somewhere along that time. In the meantime, they’re struggling with what they call the streamline sales tax proposal that, in the event that taxation is authorized on e-commerce, it will be uniform across the country. An examination of some of the private that is out there on the effective interstate Internet tax, I came to the conclusion that some of these observations and questionable assumptions are there. I just want to know, and we’re certainly not going to deal with it this session, but obviously it’s going to be on the table next time, if some of you are here for the next session.
Given the importance of this debate, I thought it was useful that any data that we would collect in the meantime should be analyzed by our state officials rather than relying on this kind of data. We’ve heard the estimates that states are going to be losing billions over the years unless we get into this situation and tax the ability to tax remote sales.
One private academic study that was published in October 2001 reported that states would lose a total of $13 billion in lost revenues due to untaxed Internet revenues. That was a study by Donald Bruce and William Fox in what was termed, “State and Local Sales Tax Revenue Losses From E-Commerce.” The same study estimated losses of $45.2 billion in 2006, and $54.8 billion in 2011. Nevada, alone, in that study had this tax been in place, would have gained an [estimated] $151 million in 2001, $440 million in 2006, and $687 million in 2011. I guess if you relied on that study, we wouldn’t have to do all of this struggle with raising taxes, we could just tax e-commerce. I just questioned the validity of it and if we get the congressional approval to collect remote sales tax, I think we need to have some good data by the time we get back.
There are two reasons why I think we should examine the data and others like it in favor of having our own revenue department; the Department of Taxation prepares a more reliable estimate of the impact of that. First, as I said, the predictions on the growth of e-commerce may have been vastly overestimated by those who are looking this direction and the totals there seem questionable. According to the Department of Commerce, which keeps track of business to e-consumer sales on a quarterly basis, total sales were $32 billion in 2001 and $45.6 billion in 2002, much less than the rate of growth in the studies that I cited. In the case of 2002, the study overestimated business to consumer e‑commerce sales by nearly over 100 percent, even though those estimates were made near the end of the dot com market burst when we knew that e‑commerce was not as viable in the future as it once was.
[Senator Raggio, continued] Secondly, the data in the reports used by these individuals includes business-to-business transactions in the estimates of e-commerce. Many states, including ours, exempt nearly all business-to-business transactions as you know from sale or use tax. Therefore the estimate of lost taxes from this source, I think we need to have a much more reliable estimate, so when we get here next time if that’s an issue, we would have this much at least. This is a one-time study and that’s the reason the fiscal note on it is rather nominal, and the Taxation Department has indicated they can do this effectively. I thought we could do better and I don’t want to burden you with a lot more testimony, but it’s an attempt to get some reliable information that we may find very useful the next time this Legislature convenes.
Chairman Parks:
Thank you, Senator. Do any of the Committee members have questions for Senator Raggio? I have only one question. Is this totally consistent with the streamline sales tax efforts that were otherwise presumed?
Senator Raggio:
It’s not inconsistent because if that is in effect approved and the states are allowed to engage in taxation of e-commerce, it would be on the uniform basis. I would think we’d want to know for our own estimate what we can reliably estimate what that kind of a tax would do.
Chairman Parks:
Thank you very much. Is there anyone else that would like to testify on Senate Bill 314?
Chuck Chinnock, Executive Director, Department of Taxation:
We are prepared at the Department of Taxation to conduct this study. We have coordinated with the Small Business Development Center at the University of Nevada, Reno. We’ve also worked with the State Demographer. With the small amount of money that’s been provided here, the oversight that we can provide, and the work we can provide with that organization, we think we can do the study in this next biennium to provide the information that Senator Raggio already discussed.
Chairman Parks:
Great, thank you very much. Any questions for Mr. Chinnock? Not seeing any, what’s the pleasure of the Committee?
ASSEMBLYMAN HETTRICK MOVED TO DO PASS S.B. 314.
ASSEMBLYMAN ANDERSON SECONDED THE MOTION.
THE MOTION CARRIED. (Mr. Arberry and Mrs. Gibbons were absent for the vote.)
Senator Raggio, yesterday we heard Senate Bill 313. That’s the one regarding vehicles leased to government. Was there any comment that you’d like to add to that?
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)
Senator Raggio:
The issue was really to deal with the problem some local governments have when they lease vehicles. In this particular case, there was a lease in the City of Reno of a number of cars and many of them were used for undercover operations. If they bought them outright, which was more expensive, they would not pay any sales tax. Whereas, if they leased them, it didn’t effect the lessor because the lessor that’s charged the tax would have to just pass it on to the local government. So, what this does is to exempt… It was hoped that that could have done by regulation and they tried to do that over a period of time. So, they were unable to accommodate that and a bill was introduced so that in those kinds of situations, and I think the bill is amended to limit it to motor vehicle situations. That was the purpose of it. Otherwise, the local government or whatever entity enters into such a lease ends up having to pay. In that situation, a sales tax to the lessor, then he has to pass it back on. So, there is a loss of revenue in a sense, but I think it’s a little fallacious because we don’t want to have to collect that kind of tax if they can get a better deal through a lease arrangement.
Chairman Parks:
Thank you very much. Is there a recommendation?
ASSEMBLYMAN HETTRICK MOVED TO DO PASS S.B. 313.
ASSEMBLYMAN GRADY SECONDED THE MOTION.
THE MOTION CARRIED. (Mr. Arberry and Mrs. Gibbons were absent for the vote.)
We have one other bill and that’s S.B. 370 and I’d like to hold that one. It is an exempt bill, so as I understand it doesn’t require it by tomorrow.
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)
Ted Zuend:
Mr. Chairman, I received a call from Jacque Sneddon yesterday, and she indicated that even though the bill says it’s exempt, it’s not because it did not go through a money committee on the other side and hasn’t yet been referred to a money committee on this side, so it’s not exempt. Even if it were exempt, this Committee would have to take action on it by tomorrow either way. If you wanted to re-refer it to Ways and Means and if it were exempt, then they could deal with it later. Thank you.
[Chairman Parks asked for a motion.]
ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS
S.B. 370.
ASSEMBLYMAN MARVEL SECONDED THE MOTION.
THE MOTION CARRIED. (Mr. Arberry and Mrs. Gibbons were absent for the vote.)
Chairman Parks:
I know that Elections, Procedures, and Ethics wants to meet as soon as we adjourn, so we’ll go ahead and do that. Are there any questions? Thank you all we are adjourned.
[The meeting was adjourned at 3:00 p.m.]
RESPECTFULLY SUBMITTED:
Corey Fox
Transcribing Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: