MINUTES OF THE

SENATE Committee on Taxation

 

Seventy-second Session

March 27, 2003

 

 

The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:09 p.m., on Thursday, March 27, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 555 East Washington Avenue, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Mike McGinness, Chairman

Senator Dean A. Rhoads, Vice Chairman

Senator Randolph J. Townsend

Senator Ann O'Connell

Senator Sandra J. Tiffany

Senator Joseph Neal

Senator Bob Coffin

 

GUEST LEGISLATORS PRESENT:

 

Senator William J. Raggio, Washoe County Senatorial District No. 3

Senator Mark E. Amodei, Capital Senatorial District

 

STAFF MEMBERS PRESENT:

 

Rick Combs, Fiscal Analyst

Ardyss Johns, Committee Secretary

 

OTHERS PRESENT:

 

Jim J. Avance, Lobbyist, Herbst Gaming, Incorporated

Kevin Welsh, Public Finance Economist, K. D. Welsh and Associates

Michael Lee, Lee Brothers Leasing

Dino DiCianno, Deputy Executive Director, Department of Taxation

Christina Dugan, Lobbyist, Las Vegas Chamber of Commerce

Samuel J. Routson, Chief Executive Officer, Winnemucca Farms, Incorporated

John Sande, III, Lobbyist, Airport Authority of Washoe County

Dan Hetrick, Orovada Hetrick Bros., Incorporated

Matthew Young, Alpha Tau Omega

Erin Lankowsky, House Manager, Alpha Tau Omega

Randall H. Walker, Director of Aviation, McCarran International Airport

Krys T. Bart, A.A.E., Executive Director, Airport Authority of Washoe County

Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development

Chuck Alvey, President and Chief Executive Officer, Economic Development Authority of Western Nevada

A. Somer Hollingsworth, President and Chief Executive Officer, Nevada Development Authority

William (Jeff) Johnson, Assessor, Humboldt County

Doug Sonnemann, Assessor, Douglas County

Mark Schofield, Assessor, Clark County

Doug D. Busselman, Lobbyist, Nevada Farm Bureau

Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association

Steve K. Walker, Lobbyist, Truckee Meadows Water Authority

Lucille Lusk, Lobbyist, Nevada Concerned Citizens

Benjamin J. Blinn

Myla C. Florence, Director, Department of Employment, Training and Rehabilitation

Paul “Luke” Puschnig, Lobbyist, Las Vegas Convention and Visitors Authority

Keith L. Lee, Lobbyist, Southwest Airlines

Robert V. Payant, Lobbyist, Nevada Catholic Conference

James L. Wadhams, Lobbyist, Nevada Hospital Association

Charles Chinnock, Executive Director, Department of Taxation

 

Chairman McGinness:

 

We will open this meeting with Senate Bill (S.B.) 343.

 

SENATE BILL 343: Authorizes rebate of certain taxes on motor vehicle fuel paid by certain retailers determined to be operating at competitive disadvantage to retailers of neighboring states. (BDR 32-1160)


Jim J. Avance, Lobbyist, Herbst Gaming, Incorporated:

Jerry Herbst, owner of Herbst Oil, owns a gas station in Laughlin, and he owns another one right across the river in Bullhead City, Arizona. You can virtually see one station from the other. Because of the difference in gasoline tax between Arizona and Nevada, he sells right at 4 million gallons a year in Bullhead City and 1 million gallons in Laughlin. Being a good corporate citizen, he thought if there was some way there could be equalization, then the increased fuel sales on the Nevada side would generate more tax for Nevada and help its citizens. I passed out to you a chart showing the difference in the fuel taxes (Exhibit C). Customers can save 14 cents by purchasing their gas in Arizona as opposed to Nevada. Now Mr. Herbst is going to sell the gas one way or the other but would prefer to sell it in Nevada.

 

I engaged Mr. Welsh, a public finance economist with K. D. Welsh and Associates, to see if there was some way this could be done. In his research he found some precedent which he will briefly explain to you. Since I understand there is little chance of passage of this bill, at least during this session, after Mr. Welsh gives you the results of his research, we would suggest S.B. 343 not be processed. After you have had some time to digest this information, maybe we could come back and process it in 2 years.

 

Kevin Welsh, Public Finance Economist, K. D. Welsh and Associates:

At the request of Mr. Avance, we looked at this problem to see if we could find any precedence in the way this has been addressed before, and we did. We found that a rebate on fuel taxes has been done by this State in the past. It was done by processing the rebate through the Department of Taxation on their forms. We have the precedent, we have the process, and the Department of Taxation just as recently as 4 years ago has been processing these rebates. So if you decide to proceed with this bill, we do have the mechanisms in place to accomplish what this bill is trying to do.

 

SENATOR O’CONNELL MOVED TO INDEFINITELY POSTPONE S.B. 343

 

SENATOR TOWNSEND SECONDED THE MOTION.

 

THE MOTION CARRIED. (SENATORS TIFFANY, NEAL, AND COFFIN WERE ABSENT FOR THE VOTE.)

 

*****

Chairman McGinness:

We will close the hearing on S.B. 343 and open the hearing on S.B. 313.

 

SENATE BILL 313: Clarifies provisions governing collection of tax on use of leased property. (BDR 32-295)

 

Senator William J. Raggio, Washoe County Senatorial District No. 3:

Senate Bill 313 is designed to address a situation that has been looked at for about 3 or 4 years with the Department of Taxation. They have been very cooperative in attempting to deal with it through regulation and it is apparently a matter needing to be resolved by statute. I will introduce the bill and then Michael Lee, of Lee Brothers Leasing will give you the real reason for the bill and the practical situations it addresses. Mr. Lee leases motor vehicles to local governments, particularly Reno and, in some instances, Washoe County. What occurs is, if the City of Reno Police Department needs a number of vehicles, the city leases those vehicles instead of purchasing them. Under the interpretation now existing in the statutes, Lee Brothers Leasing purchases the vehicles and is assessed a sales tax on that purchase. When they lease them to the city or local government, they have to pass on that tax, which is a sizable amount. In essence, this means the public is paying the tax. If the city were to purchase those vehicles, it would be exempt from the sales tax.

 

So what this bill tries to accomplish is to not require a tax under those situations where the property is acquired by the lessor and then immediately leased to the city or local government. It would allow for a more cost-efficient and economical lease situation.

 

There is a fiscal note and I talked with Mr. Chinnock, Executive Director, Department of Taxation, on this matter. He indicated the department would be supportive of this measure. Also, you have been given a copy of a letter from Washoe County Purchasing (Exhibit D) signed by John L. Balentine who is the purchasing and contracts administrator. He indicates Washoe County would be in support of this measure as well.

 

The fiscal note indicates there would be a loss of several million dollars if this were enacted and utilized in full. However, I think it is probably pretty speculative that it would be utilized by everyone. I think that is based on the language that says “tangible personal property,” which is of course, rather broad. The situation bringing this bill forward would be dealing primarily with motor vehicles and so it might be better, if the committee is interested in processing the bill, to limit it to particular items such as motor vehicles maybe for specific purposes. Simply put, it recognizes a situation where the tax is being collected in a lease situation where it would not be collected under a purchase situation.

 

Chairman McGinness:

With a fiscal note, would Senate finance like to look at this as well?

 

Senator Raggio:

This is not a situation where it would affect any of our budget. I think the fiscal note was based on the potential loss of revenue if, in fact, it applied to every lease of tangible personal property that could possibly exist. That is why I suggested as a starting point, it might be wise to deal with certain specific property we know has been involved in this kind of a process.

 

Michael Lee, Lee Brothers Leasing:

When a city or a local government purchases a vehicle they are exempt from the tax. In a lease situation, even if the entity leasing the vehicle is exempt, the lessor is still responsible for the tax when buying the vehicle. Because we have to collect this item, it excludes us from offering a service to a state, county, or city that, at this time with tight budgets, is a great asset. Via this letter (Exhibit D), you will see Washoe County has stepped up and agreed it would be a great benefit to them. I am paid 1.25 percent of what I collect to conduct the transaction of the money and pay taxation.

 

Chairman McGinness:

Just to clarify, if the City of Reno bought a car, they would be exempt from the tax. If they lease the car, under the current interpretation, they are liable for the tax.

 

Mr. M. Lee:

They are not liable but the lessor is liable and passes the tax along to the lessee. Bidding is so competitive these days and the lessee is very aware of what I do. In order to operate on a 1.2 percent profit, we have to pay out an additional 7 percent.

 

Chairman McGinness:

This obviously would be a benefit to all leasing companies, not just yours.


Senator O’Connell:

I am interested in the contents of the letter from Washoe County (Exhibit D) because I think leasing automobiles is a good cost-saving measure. How much do you feel you save the department by leasing to them as opposed to their having to buy the vehicles?

 

Mr. M. Lee:

Many years ago when Richard Kirkland took over the Reno Police Department, he was faced with some huge deficits and his budgets had to be trimmed quite a bit. He came out publicly in the Reno Gazette-Journal and said in the first year he was able to save the department over $300,000. When you lease a vehicle, you are leasing it for a term of usually 12 months or more. In doing this, a vehicle can be leased for a specific job or a specific need and then it can be turned back. Another advantage is because vehicles are becoming so advanced, the standard mechanics are not able to work on them anymore. A city or the State rarely can fund or own the computers required to analyze the vehicles, but they can lease the vehicles for just the warranty period or a period getting the best operating life out of the vehicle. It can then be turned back in, justly saving quite a bit of money.

 

Senator O’Connell:

How many vehicles would have been involved in the $300,000?

 

Mr. M. Lee:

It extended over a 2-year period and there were approximately 100 vehicles involved.

 

Dino DiCianno, Deputy Executive Director, Department of Taxation:

First of all, I need to go on record in saying this would definitely clear up a situation for the department with respect to leasing. We do understand the particular situation Mr. Lee is experiencing. Senator Raggio is correct in the characterization he provided in his testimony earlier. What occurs under this particular situation is when the lease is written, the exempt entity does not take title or possession of the property. Therefore, the lessor is subject to the tax. If the exempt entity were to take title and possession of the vehicle then there would be no tax due, either from the exempt entity or from the lessor.

 

With respect to the fiscal note, your question was dead-on-point Mr. Chairman. Because of the language contained in the current bill, it applies to all tangible personal property, not just automobiles. It could be furniture, televisions, refrigerators, or washers and dryers. The list goes on and on. Clearly, if it was possible to amend the language specifically to the particular issue at hand, it would probably diminish the fiscal note down to a very minimal amount.

 

Chairman McGinness:

Do you have any ideas on language? Can we limit it to motor vehicles? I am not sure that would be specific enough.

 

Mr. DiCianno:

Since I am not legal counsel Mr. Chairman I hate to go that far, but I can speak to Brenda Erdoes, Legislative Counsel.

 

Chairman McGinness:

We will now open the hearing on S.B. 293.

 

SENATE BILL 293: Repeals certain exemptions and abatements from taxes on property and on retail sales or use of property. (BDR 32-154)

 

Senator Neal:

Senate Bill 293 is presented to the committee to review, and if necessary, remove those exemptions we think do not enhance the State in terms of its well‑being. You have several handouts relating to exemptions, repealed provisions, and revenue gains (Exhibit E, Exhibit F, and Exhibit G). We had a difficult time in terms of acquiring this particular information as to what these exemptions would mean in terms of cost if they were repealed by the State. What we have done is included most all the exemptions with the exception of very few coming under the general welfare, which was a statement given to the bill drafter in order to draft this bill. Also, we indicated in the preamble to the bill this would represent a review and repeal of these various exemptions. Some of you probably have received information relative to exemptions involving religious organizations. Of course that was not our intention, but these are things we have to put on the table and take a look at. Rick Combs, Fiscal Analyst, and the tax people have put together a bill explanation (Exhibit H), setting out the sales and use tax, the property tax exemption, and the tax on governmental services. I will go through the exemptions in terms of the repeal section, and then answer any questions you might have.

 

Starting with the property tax exemptions and abatements on page 2 (Exhibit H), those areas we have highlighted are those things we are attempting to repeal. Some of those might have to be put back in the bill. Those not highlighted are those we attempted to leave in this particular bill. Where the amount of an exemption could be determined, the revenue estimate is written directly after the particular statute. As you can see on page 2, item 3, ”The Property of Local Government” (Exhibit H), indicates that section was amended and no money was involved, or it could not be determined what amount the exemption would be. Looking at the property used to control pollution, on the next page, we see the revenue estimated for that exemption is $7 million. We estimated the radioactive fallout shelters would cost us nothing right now. Systems for heating and cooling or providing electricity, in Nevada Revised Statutes (NRS) 361.079, also would cost nothing. The property of surviving spouses and orphans exemption costs us about $300,000. We decided to leave the low-income housing projects in as well as the property used for relief of orphans or of sick, infirm, or indigent persons. The property of blind persons is estimated to cost us $50,000. I do not know whether or not we would take that out but it is there for the committee’s consideration.

 

We thought property for housing elderly or handicapped persons in NRS 361.086, should remain, but you can consider whether or not you want to take it out. Going on down page page 4 (Exhibit H), our staff had included the Nathan Adelson Hospice to be taken out based upon instruction given them, but we might want to consider whether or not that would go back in the bill. And of course we are leaving all of the veterans’ exemptions in place.

 

We could not determine what the cost of the property of a charter school would be. We could look at and consider property of charitable foundations as well as the property leased or rented to the University and Community College System of Nevada (UCCSN). Then we have the fraternities and sororities at the various universities. They came to see me yesterday and said if we did tax them we would not get the money because most of the money would go to the counties. They asked that we not repeal that particular exemption. I did not have a problem with it. I told them since they are very young people, if they go in and complete their university training, they might add more to the State in terms of what these exemptions would cost the State.

 

We do not know what the property of nonprofit private schools would cost the State. Property of Pershing County Kids, Horses, Rodeo, Incorporated, is something Senator Rhoads might be concerned about. I remember when this was put into statute as an exemption. We might want to consider whether or not we want it to remain as a part of our law. With regard to the property of various nonprofit organizations, we have a list of those: the Nevada Museum of Art, Incorporated, the Young Men’s Christian Association, the Young Women’s Christian Association, the American National Red Cross, the Boy Scouts of America, the Girl Scouts of America, and the Sierra Arts Foundation. After “Revenue Estimate,” it says “See Other Total on Page Six.” I do not seem to find a figure on that.

 

Rick Combs, Fiscal Analyst:

I put all the totals for all three different types of taxes on the first page (Exhibit H). The estimated property tax exemptions we could come up with, and make an estimate on, by our calculations, were about $30.4 million.

 

Senator Neal:

The property of Nevada Children’s Foundation, Incorporated is one we would probably have to reconsider. In considering the property of Nevada Heritage Association, Incorporated and the property of churches and chapels, we did not intend to get into a fight with the churches, nor did we intend to get into a fight with the people who own the cemeteries. I have already been contacted by the Catholic Church relative to removing those exemptions for public cemeteries and graveyards and the property of churches and chapels and non-private cemeteries and places of burial. We will probably have to reconsider the property of lodges and charitable organizations because as you know, we have all of the secret organizations listed there and we might not want to be having to battle the Benevolent and Protective Order of the Elks, the Fraternal Order of Eagles, the Free and Accepted Masons, the Independent Order of Odd Fellows, and all of those.

 

The property of certain charitable corporations takes in all of the buildings belonging to charitable corporations, together with the land actually occupied by the corporation for the purpose described, and the personal property actually used in connection therewith, so I think this is something we should consider.

 

Senator O’Connell:

If I can take you back to number 45 on page 6 (Exhibit H) where you are talking about the property of lodges and other charitable organizations, did you consider whether or not some of these are still active?


Senator Neal:

We do not know, which is why we need to look at these on an individual basis so we can sort them out as to which should be exempt. You might want to consider whether or not it is worth keeping or removing property of noncommercial theaters, which are the buildings, furniture, and equipment of noncommercial theaters owned and operated by nonprofit educational corporations organized for the exclusive purpose of conducting classes in theater practice and the productions of plays.

 

As I indicated, those we did not highlight are those we recommended staying in the bill. The note highlighted under real estate leased or loaned to a for-profit business is an exemption we could look at in terms of removing. Vending stands located and operated by the blind under the auspices of the Department of Employment, Training and Rehabilitation is something I think we are probably going to have to take a look at and examine some more in terms of what they actually cost to determine whether or not we should keep those within the exemptions. Regarding the parsonages, you pay for the houses in which your preachers live. You have to figure out whether or not we want to tax that particular house. It is not a part of a church. It could be, but in some cases is not. Because it is a stand-alone facility I think the committee should consider it. But my personal opinion is we should not remove from the exemptions places associated with religious worship.

 

I think we would probably want to maintain the exemptions for use of exempt property to provide day care for children if the day care is provided by a nonprofit organization. The exemption for personal property leased or loaned to a for‑profit business, I think, is something we could look at in terms of taking out. As we noted in prior pages, the use of vending machines located by the blind persons under the auspices of the Department of Employment, Training, and Rehabilitation is something you might want to consider. This State has shown it has an obligation to the blind where they could be self-sustaining and has allowed them to have these particular vending machines.

 

The issue has come up time and again regarding businesses that conserve energy or reduce reliance on fossil fuels. The exemptions for those businesses have not shown a particular benefit to the State. Therefore, we might want to look very closely and consider taking out that exemption. Of course this would apply as well to the new and expanded businesses, and as you indicated here, this exemption is between $2.5 million and $5.5 million. The revenue estimate of all of the other exemptions is about $20 million as is indicated at the bottom of page 7 (Exhibit H).

 

The next page starts the governmental services tax exemptions. We did not want to bother government vehicles, emergency vehicles, or vehicles operated for elderly or handicapped persons, except to the extent of vehicles owned by any political subdivision of the State of Nevada and vehicles owned by any county, municipal corporation, city, unincorporated town, or school district in Nevada. We probably want to look at that in terms of what the private connection would be. If it is used for a private purpose, then I think the exemption should go. However, if it is not government and is not strictly used for public transportation, then I think this should be removed.

 

Senator Neal:

Another exemption under NRS 371.101 is for vehicles registered by surviving spouses or orphans. As you see, that exemption costs between $500,000 and $700,000 a year. We might want to garner some testimony on that and see whether or not we might want to revise it in some way in terms of its costs. Vehicles registered to blind persons are vehicles registered by bona fide residents of this State who are blind. I guess we are talking about this blind person who cannot drive a car who has to have somebody drive for him or her. As you can see, that exemption is $80,000 a year, which is only minor as compared to some others.

 

Of course vehicles registered by veterans and anything related to veterans, in light of the war, we left as is.

 

Fees required for registration of fire trucks not used for general transportation, are limited to $15. We do not have a figure on what the cost of that would be to the State. We might want to take a look at antique trucks or tractors used for general transportation in terms of what the value of the antique is to the general public. If there is no value there, we will probably have to repeal the exemption for those.

 

The next page lists the “Local School Support Tax” (LSST) and “City-County Relief Tax Exemptions and Abatements.” These exemptions are something the committee can consider. We tried to leave in the trade-in value of used vehicles when applied to the purchase price of another vehicle. We did not bother with gross receipts nor did we bother with the proceeds of mines because, as you know, that is a constitutional amendment.

 

But, when we get down to fuel used to propel motor vehicles, as you can see, the estimated exemption of that is about $80 million. I think this one is going to require us to really take a look and probably remove the exemption. The estimated revenue for animals and plants intended for human consumption and feed and fertilizer is about $12 million in terms of exemptions. We are talking gross receipts from the sale or storage and use of other consumables such as any form of animal life of the kind which ordinarily constitutes food for human consumption. We might not want to deal with that because right now, as you know, we did not touch food in terms of what you purchase in a grocery store. We might be able to stretch this in terms of that relationship and you might want to maintain the exemption. We might also want to maintain the exemption for farm machinery and equipment since we are looking at agriculture as part of a food-production activity. We also want to leave in number 7, which is on page 10, certain medical supplies and medicines.

 

On page 11 (Exhibit H), food for human consumption was something put on the ballot and passed in the 1970s when Mary Gojack was here. We did not bother with that exemption, or the exemption on the food sold to students or teachers by schools or organizations of students, parents or teachers. I think we should get rid of the exemption for works of fine art for public display. We should not remove the exemption for textbooks sold within UCSSN because if a person is trying to get an education for betterment, I think it would be in the context of the general welfare of the State. The exemption for newspapers is approximately $5.4 million.

 

Senator O’Connell:

I would love to see us be able to go after those filthy rags they hand out on the street. Mr. Combs, are you aware of anyone on our research staff who has done anything in this area? It might not be under the heading of newspapers but under the heading of publications or pamphlets.

 

Senator Coffin:

In 1991 the large newspapers brought a bill hoping to remove the exemption from the weekly independents. They were going to go after the little guys and then they decided to pull the bill because they realized it would give them some bad press. In fact, we had a hearing and the representative of the press association refused to answer questions about how much taxable revenue there would be if the newspapers were taxed. There was quite an interesting debate. It would yield more than $5 million if you removed the exemption from all newspapers.

 

Senator O’Connell:

I wonder if we could ask research to find those minutes so we could take a look at them.

 

Senator Coffin:

We will not find much because they refused to testify. They withdrew the bill and the controversy went away but the point is, constitutionally, further research found if you had some editorial content, you had to exempt. If there is any kind of editorial or any kind of opinion, and it does not have to be a specific percentage of content, then you can do whatever you want with the rest of it.

 

Senator O’Connell:

So advertising would apply but it would depend on how much editorial space was used?

 

Senator Coffin:

I just do not think a percentage applies. In other words, you cannot determine so much percentage is advertisement and so much is editorial. The bill proposed by the press association in 1991 did call for a minimum amount of editorial or story content, but they backed away when they realized it was creating more problems for them than they intended to cause for the others.

 

Senator Neal:

Continuing with the proposed exemptions of the LSST document on page 12 (Exhibit H), number 15 is manufactured homes and mobile homes, and the language reads:

 

Forty percent of the gross receipts from the sales and storage, use or other consumption of new manufactured homes and new mobile homes and all the gross receipts from the sales and storage, use or other consumption of used manufactured homes and used mobile homes for which sales and use taxes have been paid as a result of a previous sales, storage, use or consumption.

 

You might want to consider this because the language seems to suggest once the home has been sold and you have collected sales tax, you are not supposed to collect it again. The estimated revenue for this is $3 million to $3.5 million.

 

We did not know what aircraft and major components of aircraft represented and we had a difficult time getting that particular information. We also did not know what engines, chassis, parts, and components of professional racing vehicles and certain vehicles used by racing teams and sanctioning bodies represented. That was a bill we passed during the last session and we have not had time to collect any data in terms of what the actual cost is to the State.

 

If we repeal the exemptions on the gross receipts from occasional sales of tangible personal property and the storage, use, or other consumption in this State of tangible personal property, the transfer of which to the purchaser is an occasional sale, we could bring in $3 million to $4 million. The exemption for a nonprofit organization created for religious, charitable, or educational purposes, is estimated at several million dollars. However, I would ask if, upon further examination, the organization is associated in any way with the churches, and not just the profit arm of the church, we leave that exemption in the law.

 

As far as loans or donations to the United States, State, political subdivisions, or religious or eleemosynary organizations, we thought maybe we could look at some of those activities and the exemption might be taken out. It would require further examination in terms of testimony from some individuals associated with those organizations.

 

The local school support tax, abatement, and provisions of NRS 374.357, which authorizes certain new or expanded businesses to apply for an abatement, is estimated to be between $5 million and $6 million.

 

Repeal of the property tax exemption would bring approximately $30,400,000 back to the State, the government services tax exemptions would bring approximately $680,000, and local school support tax exemptions represent $121,000,000 in tax exemption. This is all we could justify because we had difficulty in trying to get a lot of this information from our tax department. I do not know whether they had it or just did not give it to us. They could not supply us with some of the information because it was an exemption and as an exemption, they did not follow it in terms of what it was costing the State. If it is the desire of the committee, we probably want an amendment to the bill requiring the tax department to keep up with what the exemptions are costing the State and then report back to us at the next session of the Legislature.

 

When we look at the total exemptions across the board, we are looking at something over $700 million. After excluding food, which is the largest portion of the exemptions, we come down to about $150 million or so.

 

Christina Dugan, Lobbyist, Las Vegas Chamber of Commerce:

I am here to testify in favor of S.B. 293. We believe some of these exemptions need to be examined. Not all of them need to be removed, but we do believe the current number of exemptions is eroding our tax base and in our current situation we need to find as many tax dollars as possible. As you know, some of those do apply to business taxes and we are willing to step up and put ourselves forward to pay more.

 

Chairman McGinness:

We have a lot of people in opposition to S.B. 293 and we still have another bill up today so I am going to ask you to combine testimony. If someone says something you were going to say, you can put your testimony on the record. Obviously, if you have 8 to 10 minutes of prepared testimony, we are not going to be able to hear it today, but we want to try to hear as many people as we can.

 

Senator O’Connell:

I would ask people who are testifying in opposition to the bill to declare for the record if they are talking against a specific exemption or the exemptions as a whole.

 

Samuel J. Routson, Chief Executive Officer, Winnemucca Farms, Incorporated:

My written testimony and a brief description and background of Winnemucca Farms have been submitted for the record (Exhibit I). I will read my testimony and then answer any questions you may have.

 

Senator Neal:

What section of the bill are you referring to?


Mr. Routson:

It would be those provisions in NRS 374.285. You had mentioned those during your presentation before the committee. I believe Senator Rhoads had worked with the committee in those provisions and you wondered whether it would be wise to repeal those areas as they dealt with the essentials of life; food, fiber, and so on.

 

Chairman McGinness:

Is the Weight Watchers handout yours (Exhibit J)?

 

Mr. Routson:

It is. We included it just for information for the committee. That is the type of value product we produce and market overseas, in this case, the United Kingdom. It is a proprietary product requiring a great deal of development and if sales tax exemptions dealing with agriculture were repealed, it would prevent our company from entering into that new product development so essential for us to compete in that market.

 

John Sande III, Lobbyist, Airport Authority of Washoe County:

Under the statute that created the airport authority in 1977, it specifically says in section 4 the airport authority is exempt from all types of taxes including property taxes. We just want to clarify for the record and in the bill, if it is processed, that we would be exempt just like we are under existing statute.

 

Senator Neal:

Is there a particular section of the proposed bill you are referring to?

 

Mr. Sande:

There are a couple of places. For example if you look at section 3, it reads now “local governmental entity that receives any portion of the proceeds of the tax are exempt from taxation.” There are several places in the bill making that reference. We just want to make sure we would be exempt from taxation as a government entity that does not impose those types of taxes.

 

Senator Neal:

But as far as you are concerned now, in reading the bill, you are not listed as a repeal of the exemption right now.


Mr. Sande:

That is correct.

 

Dan Hetrick, Orovada Hetrick Bros., Incorporated:

Much of my testimony is very similar to Mr. Routson’s so I will not read my prepared comments (Exhibit K) but I will leave them for the record. I want to reiterate one thing Mr. Routson was saying. One of the exemptions other states have that we do not enjoy is our agrochemical. If the fertilizer exemption were removed as well, it would be even more difficult for us. I am of the opinion the sales tax on inputs is unrecoverable. However, taxing the final product or the retail food sales would be the most practical way to go. I realize it is a real political issue, one that has been around awhile, but it is broad-based and catches everyone uniformly.

 

Matthew Young, Alpha Tau Omega:

We are members of Alpha Tau Omega fraternity, an organization in existence on the campus since 1921. We have some concerns specifically regarding section 81, which permits our exemption from property taxes. We have provided for you a spreadsheet (Exhibit L) demonstrating what the various organizations on campus would be paying based on the assessed taxable value of the property. It actually only affects 10 organizations within the State of Nevada. The total is $37,210 and only .0015 percent, or $1559, is actually allocated towards the State General Fund. Just our organization alone would have a tax liability of $6878 based on the taxable value of our property. It is not hard to understand how an additional almost $7000 cost annually could definitely place an extreme hardship on an organization, if not force us to close our doors.

 

Due to recent events, the number of participants in Greek organizations on campus has declined and we are currently having a very difficult time making ends meet. Therefore, we offer this information for your consideration. We have great faith you will make a good decision regarding these exemptions and some of the others included in Senator Neal’s bill.

 

Erin Lankowsky, House Manager, Alpha Tau Omega:

This $6878 represents about 10 percent of our current budget and as the current treasurer, I know we cannot afford this. We have already cut back on food we supply to our members. We have no social functions due to our current budget crisis and this almost $7000 would certainly hamper us even more, maybe even closing down the house. For the record, “the fraternities and sororities on this campus house over 250 members and if you are aware that there is currently a housing shortage on campus with the dorms, this is almost the size of a dorm they are putting up now.” I just want you to know these organizations produce great leaders for the State and greatly enhance the State. We have submitted a proposed amendment (Exhibit M) and would appreciate your consideration.

 

Randall H. Walker, Director of Aviation, McCarran International Airport:

I am representing the Clark County Department of Aviation, McCarran International Airport, and its associated general aviation airports. Specifically, section 7 of the bill, subsection 2, paragraph (a), repeals an existing exemption for leases at an airport. This exemption has been on the books for a while and, basically, it does not require those entities operating at an airport to pay property taxes on the lease holds they currently have at the airport. I think currently, if it were a good idea to repeal this exemption, which I am not suggesting it is, the current environment would be very poor timing. If this exemption were repealed we would have to pass on around $8 million to the airlines. You may have noticed, if you have been reading the newspapers, aviation is not exactly a healthy business right now with several airlines filing bankruptcy and a couple more close to bankruptcy.

 

The cost of an airport does have a direct impact on how much service you get at the airport. In fact, Southwest Airlines pulled out of San Francisco as a result of the cost of the airport and moved their flights somewhere else. We are a very, what we call, low-yield market. That is, we are a discretionary destination market, which means the fares you get to Las Vegas are much less than you can get in a business market. In fact, traditionally, Las Vegas is the second lowest-yield market in the United States only to Hawaii. It is very important to not become a high-cost airport because we will drive away service.

 

You have to remember, somewhere between 46 and 50 percent of tourists, who drive our economy, come through the airport. If you do not have tourists staying in the hotels and paying their room tax, and gambling, which goes to the gaming tax, eating in the restaurants, which goes to the sales tax, and shopping in the shopping malls, which also goes to the sales tax, I would guess you would probably lose more revenue than you would gain. The first 2 months of this year our traffic was down 2 percent compared to pre‑September 11, 2001, levels. The average nationwide was about 10 percent, but I will tell you, a high-cost airport like San Francisco was down 30 percent and Los Angeles was down 28 percent. Therefore, I would recommend this exemption not be eliminated.

 

Senator O’Connell:

These tax-exempt leases do not apply to the kiosk, food courts, gift stores, and magazine shops.

 

Mr. Walker:

Yes, they do. They apply to all leases at the airport. Not the leases off the airport, such as where we bought land and converted it to commercial use. Those are not exempt, but all leases on the airport proper are exempt.

 

Senator Neal:

How do you pay for the additions to the airport?

 

Mr. Walker:

We sell bonds and then pass those costs along to the airlines. There is an annual payment to repay those bonds, which goes into the rate calculation of what the airlines pay to operate at our airport.

 

Senator Neal:

I fail to gather how the cost of the operation of McDonalds or Burger King could be passed on to the airline. I am not getting the picture.

 

Mr. Walker:

It is a little complicated, but I will explain. First off, two leases would impact the airlines. The airlines’ leases themselves would be a direct impact on the airline because they would pay it themselves. The concessions, if we are doing our job, we are maximizing the revenues we receive from the concessions by charging them as much as we can. In the event their costs go up, then obviously, in order to have successful concessions, what we can charge them for rent will then go down. If we generate less revenue from our concessions, we have to generate more revenue from the airlines, which means we have to drive up their cost because we are what we call a residual-based airport. What happens is, the airlines pay a basic-plug figure. They pay whatever it costs to run the airport that we do not collect from everybody else. So, if you drive down the profitability of the people who are operating at the airport, and our revenue from those sources goes down, then we have to collect the additional revenue from the airlines, which will drive up their costs.

 

Senator Neal:

The last time I passed through your airport, you were not selling hamburgers for $1.50.

 

Mr. Walker:

We also do not pay $6 an hour for employees. Employees of McDonalds and Burger King are culinary union members and are paid $11 an hour.

 

Senator Neal:

Yes, but you are leasing to an individual who actually hires the people, so those individuals are responsible.

 

Mr. Walker:

Yes, but when you pay $11 an hour versus $6 an hour for an employee, you generally have to charge a little bit more for your product.

 

Senator Coffin:

Are all of the concessions there required to hire organized employees?

 

Mr. Walker:

All of the food establishments are doing so.

 

Senator Townsend:

Approximately how many people are you averaging through the airport per day?

 

Mr. Walker:

On an annual basis we have around 36 million passengers. That is in and out, so probably 18 million passengers in. Eighty percent of those are tourists or conventioneers, eight percent are connecting traffic and do not leave the airport, and about twelve percent are local.

 

Krys T. Bart, A.A.E., Executive Director, Airport Authority of Washoe County:

John Sande adequately asked for clarification, which I support. I also support what Mr. Walker has indicated to this committee. Both of the major airports in this State, Las Vegas and Reno, must operate in conjunction with one another given the north-south traffic. Also, both of us have Southwest Airlines as our primary carrier. Mr. Walker gave you a great explanation and the Reno-Tahoe Airport operates in a similar fashion so it is necessary for both of us to be considered in this because the traffic does connect one to another.

 

Senator Neal:

We are talking about sales tax?

 

Mr. Walker:

We are talking about property tax.

 

Senator Neal:

You also have sales tax.

 

Mr. Walker:

Sales tax is collected on all sales at the airport.

 

Senator Neal:

You do not have a problem with it?

 

Mr. Walker:

No, there is no exemption for sales tax currently at the airport.

 

Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development:

We would like to maintain the abatements on sales and use tax and the abatements on personal property tax. As you know, we are required by statute to report to this body each biennium. I provide a report to the director of the Legislative Counsel Bureau and over the years have reported to a joint committee hearing of Senate Taxation and Assembly Taxation to report on the activity level of our incentives. As you know, our incentives are not administratively provided. You have to qualify and be approved by the Commission on Economic Development. You have to meet what I would consider qualifying standards of wage rates. That is at least a minimum average wage of the Statewide nongovernmental average wage, which is $15.48 and involves property and capital investment and employees into the State. Over time, we have created an impact. The idea is to induce investment in Nevada. Those grants and abatements are not granted unless the company can prove they will be a net benefit to the well-being and general benefit of the State of Nevada. We in turn invest, as it were, in those companies and over time, since January 1, 2000, through December of last year, we have generated tax revenues of about $255 million. This was accomplished by inducing investment through these companies by providing sales- and use-tax abatement and business-tax abatements. I do not have all the figures on our personal property tax abatement, but it would certainly increase that number considerably. We feel for every dollar we excuse inducing an investment, we get approximately $8.50 back in tax revenue to the State of Nevada.

 

The abatements were first provided by this Legislature beginning in 1985 with the deferral, and continuing with the sales and use tax abatement, and then the personal property tax abatement. We think the track record speaks for itself. We have been very productive in providing an inducement for investment, which has provided significant tax revenue. Add to that $1.7 billion in payroll of these companies just from January 2000 through December 31 of last year. That is $1.7 billion in the State of Nevada that may not have been here without these abatements.

 

Chuck Alvey, President and Chief Executive Officer, Economic Development Authority of Western Nevada:

I support Ms. Bart’s position on the airport issues. I also want to say to Senator Neal, this is a good idea. There are too many exemptions in too many places and they do need to be looked at and weaned down. I think you are using due diligence and are being very careful about which ones you repeal. However, these abatements are necessary as incentives for companies who are coming and looking at our State. They do not always use them. Some of them actually get approved and then do not use them, but they are incredible tools to have and for us not to have this would put us at a distinct disadvantage with our competing states who offer a variety of incentives. Of course in many states, the taxes are higher and therefore they have more to abate. Ours are pretty modest, but it does help us in many, many cases. In essence, it creates new taxes and I would sum up by saying we need these abatements to do our job to help build the economy of northern Nevada.

 

A. Somer Hollingsworth, President and Chief Executive Officer, Nevada Development Authority:

The only thing I would like to add is this is one of the few exemptions we have in this State probably generating more money than it takes out of the system. We look at them as the State’s investment in these companies. The exemption dollars are not in the system, so we are not taking something out of the present system. You have to look at the return on your investment. In anywhere from 9 to 24 months, a company has already put the money back in the system. Because we have a 5-year plan set up with the companies, the years after the 5-year period are all gravy. It is a tax program that stays in the system and keeps generating. As the companies add employees, it gets bigger and better. It has been a great program for us. Everything is based on quality jobs and on benefits the companies offer their employees. If they do not have good, quality benefits, they do not get the exemptions. It has been an extremely successful program and I think you really need to take a look at this because it is something we need in order to entice these companies to come into southern Nevada.

 

William (Jeff) Johnson, Assessor, Humboldt County:

I will submit written testimony (Exhibit N) and then would like you to hear from two of my colleagues.

 

Doug Sonnemann, Assessor, Douglas County:

I would like to start with NRS 361.017 and NRS 361.042, camper shells and slide-in campers. This came on as an exemption about 20 years ago because of the difficulty in pursuing these items. Currently, we have a minimum threshold of $15 on a personal property bill. A lot of the camper shells would fall below $15 so it would be a lot of paperwork for us to collect that revenue. There are not a lot of slide-in campers out there and that would be a difficult one for us to discover and bill. We appreciate the fact you are eliminating cemeteries.

 

Finally, NRS 361.150 is the exemption for volunteer fire departments. I would request that exemption be continued. There are 11 volunteer fire departments in Douglas County, which I think is fairly typical for a lot of the counties. The property we own ourselves, as organizations, is fire suppression equipment, training equipment, and all your visual aids as well as fund-raising equipment to buy more fire suppression equipment. Those items are used for the benefit of the public. They are used for putting out fires, saving the taxpayers money, and as a worst-case scenario, we would just transfer those over to the counties.

 

Chairman McGinness:

How are most volunteer fire departments organized? Are they nonprofit organizations, or do they operate under the auspices of the county?

 

Mr. Sonnemann:

You are correct on both instances. We operate under the auspices of the East Fork Fire and Paramedic District. We are a nonprofit organization. We get equipment and support training from the district, and then we use our fund‑raising activities to supplement it for the greater good. I think it is fairly typical of the non-career departments throughout the State.

 

Senator Neal:

I do not think it was our intention to get rid of the exemption for the volunteer fire departments because they fall within the category of the health and safety and life-sustaining activities.

 

Mark Schofield, Assessor, Clark County:

To avoid any redundancy, I echo the sentiments of my colleagues. Additionally, I am in opposition to every repeal of the property tax exemptions. It took a great deal of time and effort and a great deal of deliberation on your part to create these exemptions to begin with. Mr. Walker spoke to the one relative to the airport, which is a perfect example. It is an exemption created by the State Legislature in 1997. I think Mr. Walker articulated very eloquently the reasons why it should not be repealed.

 

Most recently, the exemption for surviving spouses came into effect in the 2001 Session of the State Legislature and was one the assessors had been supporting for the last decade. One exemption, however, we are in favor of repealing is the renewal of the orphan exemption. In fact, it now rests in Assembly Bill (A.B.) 533.

 

ASSEMBLY BILL 533: Makes various changes to provisions governing the recordation and taxation of property. (BDR 32‑122)

 

I think to remove any exemption the State Legislature has afforded, whether it be the business community or the taxpayers themselves, will require a great deal of thought and deliberation. I am not sure you can do this in one session but I commend Senator Neal for bringing forward this issue. In fact, I believe this is an issue to be studied by one of the interim committees reviewing taxation.


Doug D. Busselman, Lobbyist, Nevada Farm Bureau:

The two specific exemptions for which we have concerns deal with NRS 374.285 and NRS 374.286. These are the agricultural exemptions.

 

For the record, the farm machinery and equipment exemption is currently a partial exemption. In the last Legislative Session, the legislation was passed to alleviate the local portion of that sales tax. The State still maintains its share of that particular tax. In the case of NRS 374.285, the animals and plants intended for human consumption, feed, and fertilizer; the farmers who have come before me have spoken to that but we want to very much emphasize the disastrous effects this kind of exemption change would have on Nevada agriculture. You are basically requiring farmers and ranchers to pay a premium on the input they would be using in their production and you would also be requiring them to take a discount of that same sales tax percent off of the sale of their products. That combination would be disastrous for farm and ranch families in this State. So, that particular exemption, we believe, is critical.

 

I have furnished the committee with written testimony (Exhibit O).

 

Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association:

The Nevada Taxpayers Association did have some concerns with some of the exemptions in the bill but we have always been in favor of diminishing the exemptions in order to broaden the tax base. We would like to thank Senator Neal for presenting the bill and bringing about the debate. I would just like to bring your attention to section 10 on page 13 where this bill creates a new exemption not existing before. I believe it is just opposite of what we are trying to do. In subsection 2, on the agricultural deferred liens, always before, if the Nature Conservancy or one of those groups purchased agricultural property with a deferred lien, they had to pay the lien. This removes that language so they do not have to pay the lien anymore. We thought maybe that had slipped by in the process.

 

Senator Neal:

Yes, it did.


Ms. Spriggs:

On another note, section 4, page 6, on the bees, the camper shells, and the boats, those items the assessors are concerned about, we have worked a lot with the assessors association to provide the exemptions for those items. It did not make sense to try to collect on those because it costs more to collect it than what it brought in.

 

Steve K. Walker, Lobbyist, Truckee Meadows Water Authority:

Truckee Meadows Water Authority was created almost 2 years ago with Reno, Sparks, and Washoe County agreeing on something, which is unusual. The purchase of the water company and the water resources in northern Nevada was very important to those citizens. It was a competitive environment at that time in water companies being sold, particularly by a foreign company. When the negotiations were going on, Reno, Sparks, and Washoe County counted on the Truckee Meadows Water Authority being exempt. We were afraid this legislation would make us vulnerable to motor vehicles privilege tax and property tax. Basically, the impact, including sales tax would be approximately $2.4 million. To cover the $2.4 million we would then increase water rates by 5 percent. Therefore we ask to be exempted.

 

Senator Neal:

What section are you referring to?

 

Mr. Walker:

The section I am referring to on the motor vehicle privilege tax in section 12.

 

Lucille Lusk, Lobbyist, Nevada Concerned Citizens:

Nevada Concerned Citizens do support a careful review of categories of tax exemptions and of individual exemptions within those categories based on specific, valid criteria recognizing constitutional and practical implications. We initially thought we would be opposed to this bill because it seemed to be a broad-brushed elimination of virtually all exemptions without a careful review. It now appears that is not Senator Neal’s intention. Instead, his intention seems to be a careful review, which we certainly support and urge you to carry it forward.

 

Benjamin J. Blinn, Lobbyist:

I am interested in the aircraft aspect of the bill in NRS 374.322. I am concerned about aircraft parts and components and used aircraft. I think you need to audit the aircraft parts and the industry and how they are being used because it is a high-dollar deal.

 

Myla C. Florence, Director, Department of Employment, Training and Rehabilitation:

I am testifying in opposition to section 7, subsection 2, paragraph (f) and section 8, subsection 3, paragraph (a), which repeals real and personal property exemptions for blind vendors operating under the auspices of the Bureau of Services to the Blind and Visually Impaired of the Rehabilitation Division of the Department of Employment, Training and Rehabilitation. The blind enterprise program established under the Randolph-Sheppard Act in NRS 426 provides blind vendors priority rights to operate vending facilities on State, local, and federal properties where locations are determined to be appropriate. The program is self-sustaining and funded by fees paid by operators. The amount of fees is based on the operator’s net proceeds. The net proceeds are the amount of money remaining after the operator has deducted ordinary and normal business expenses from their gross income. Consequently, the repeal of these exemptions would have an impact on their gross profits and net proceeds, which in turn, would impact the program as a whole, reducing opportunities for program growth and new operators.

 

Paul “Luke” Puschnig, Lobbyist, Las Vegas Convention and Visitors Authority:

I am legal counsel for the Las Vegas Convention and Visitors Authority (LVCVA). I would like to point out a couple of things to the committee, specifically sections 7 and 12. In regard to section 7, it would seem from a quick reading a possible argument could be made in the removal of paragraph (l) of NRS 361.157. The LVCVA could possibly be subject to the tax to which it refers. In addition, under the current language in section 12, LVCVA would also be subject to this particular tax. We use our money to market Las Vegas to the rest of the world and in today’s trying times, we need to be able to have every dime in order to do that.

 

Keith L. Lee, Lobbyist, Southwest Airlines:

Southwest Airlines is the largest commercial carrier in this State. I will simply echo the objections registered with you previously by Mr. Walker, Ms. Bart, and Mr. Schofield regarding section 7 with respect to the cost it would pass on to the airlines.

 

I would also echo the comments and objections of Mr. Shriver, Mr. Alvey, and Mr. Hollingsworth with respect to the exemptions regarding economic development. Nevada Revised Statutes 374.322 exempts from sales tax, aircraft and aircraft engine component parts. When the airline industry recovers, we would hope we could continue to convince airlines they need to open maintenance facilities to a greater extent than they already have, particularly at McCarran International Airport. That exemption is a great economic development incentive.

 

Senator Coffin:

We had a huge increase in our contract rate for flying with Southwest Airlines. What was the reason?

 

Mr. K. Lee:

It is simply the cost of doing business. Southwest Airlines’ standard rate is not the State rate. As you know the State rate is much less than the standard rate. It is barely a break-even rate for Southwest in the Reno-Las Vegas market, given the additional costs the Transportation Security Administration (TSA) and the federal government have placed on the airlines. In addition, a year ago we were paying $0.60 to $0.62 cents per gallon for aviation fuel, we now are paying about $1.35. To put that in some perspective, for every penny increase in the cost of aviation fuel, it costs the industry $11 million annually so you can see what a doubling of the cost of aviation fuel does to the airlines.

 

Robert V. Payant, Lobbyist, Nevada Catholic Conference:

While the Catholic Church of Nevada would oppose an elimination of the exemptions for property tax and other exemptions existing now, we think the idea of a review of the charitable and other exemptions should be examined. We would participate and do our best to help in any way we can.

 

Chairman McGinness:

If there is no further testimony, we will close the hearing on S.B. 293 and begin testimony on S.B. 353.

 

SENATE BILL 353: Clarifies requirements for determining whether charitable organization qualifies for exemption from taxes on retail sales. (BDR 32 593)

 


James L. Wadhams, Lobbyist, Nevada Hospital Association:

As this committee is aware, we have many nonprofit hospitals in our State. Some are religious-based and some are just nonprofit 501 Internal Revenue Code (c)(3) hospitals and they have been exempt from taxation since the beginning of the sales tax as far as we can determine. They have never been taxed. In the course of the last biennium, the Department of Taxation, in doing a review of the tax exempt statuses, decided to review these facilities and the question arose as to whether they were tax exempt. The reason we have asked for this bill was actually in cooperation with the tax commission and the tax department to clarify the status. As some of the longer-serving members may recall, this issue actually came in front of this committee and the Assembly committee in 1995 clarifying and ensuring the hospitals remained tax-exempt.

 

Chairman McGinness:

The fiscal note on this just arrived. It is under the heading of Bill Draft Request (BDR) 32-593, as S.B. 353 and it is a zero-dollar fiscal note. Mr. Chinnock, could you give us your comments?

 

Charles Chinnock, Executive Director, Department of Taxation:

I will echo everything Mr. Wadhams has said. The reason the fiscal note shows no impact is as he stated. This would just be a clarification and because they were already tax-exempt, continuing this would cause no impact.

 

Chairman McGinness:

This would just continue what has been historical.

 

Mr. Chinnock:

This would provide further definition as to legislative intent that nonprofit hospitals were indeed intended to be exempt.

 

Chairman McGinness:

Since there is no further testimony, we will close the hearing on S.B. 353.

 

SENATOR RHOADS MOVED TO DO PASS S.B. 353.

 

SENATOR O’CONNELL SECONDED THE MOTION.


 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

Chairman McGinness:

The meeting is adjourned at 4:29 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Ardyss Johns,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Mike McGinness, Chairman

 

 

DATE: