MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
April 17, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:06 p.m., on Thursday, April 17, 2003, in Room 2135 of the Legislative Building, Carson City, 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
STAFF MEMBERS PRESENT:
Rick Combs, Fiscal Analyst
Ardyss Johns, Committee Secretary
OTHERS PRESENT:
John O. Swendseid, Attorney, Swendseid and Stern
Linda Ritter, City Manager, City of Elko
Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association
Dorothy L. (Dotty) Merrill, Lobbyist, Washoe County School District
Anne K. Loring, Lobbyist, Nevada Association of School Boards-Reno, and Washoe County School District
Robert Spencer, Transfer Tax Auditor, Recorder, Clark County
Alan Glover, Recorder, Carson City
Charles Chinnock, Executive Director, Department of Taxation
Senator McGinness:
We will open the hearing on Assembly Bill (A.B.) 361.
ASSEMBLY BILL 361: Requires local governments that acquire certain public utilities or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. (BDR 32-627)
John O. Swendseid, Attorney, Swendseid and Stern:
I am here in my capacity as bond counsel to Southern Nevada Water Authority in the Las Vegas Valley Water District. We are in support of this bill, but we do have some technical amendments I would like to go through with you. We support the concept of the bill, which is, if a government takes over a taxpaying utility, the government will make up to other local governments the taxes they lose as a result.
I have passed out a document entitled “AB 361 Explanation of Amendments” (Exhibit C). The first 2 pages are an explanation of my testimony and the next 2 pages are the text of the amendments we are proposing. The balance is a copy of the bill with the amendments incorporated therein.
The bill as drafted would provide bonds issued to acquire a utility system would have a lien that is ahead of what is called the lien-of-payments, which requires the acquiring local government to pay taxes to governments which might lose tax revenues. Usually the local government not only issues bonds to acquire a utility system, but will also issue bonds to improve the system. It would possibly incorporate the system into its other utility systems. If it already has a water system and it acquires a new water system, they might combine them into one. Our suggested amendment would allow the lien of bonds to precede the payments in lieu of taxes for all bonds, not just the bonds issued to acquire the system.
We also have suggested an amendment allowing local governments to acquire small water or sewer systems, those with a value of less than $10 million, without having this bill apply. This frequently happens throughout the State where a small system gets in financial trouble or starts having health systems problems. For example, a water system becomes subject to regulations of the federal government or environmental regulations requiring it to do some improvements they cannot afford. The solution would be to go to the nearest governmental system and ask the governmental system to take it over. Under the proposed amendment, if the water or sewer system has a value of less than $10 million, a local government could take it over without having to make these payments in lieu of taxes. The payments in lieu of taxes in that situation would just make an already bad situation harder.
The proposed amendment would also allow a local government to acquire an asset to serve its own needs without having the bill apply. If a local government wanting a water system wanted to acquire an electric generator for its own pumps, or a generator to serve other needs of local government, the bill would not apply. That exception would only be for assets acquired to serve the local government or other local governments.
Finally, we have proposed an amendment exempting acquisitions pursuant to contracts entered into before January 1, 2003. We have local governments that entered into contracts they signed before this bill was introduced. As with a similar bill in 2001, the Legislature determined it would be fair to exempt governments that entered into contracts based on the law as it was before this bill was introduced.
Senator O’Connell:
You initially said you support this. Do you mean the way the language is written with your amendment or you support it as an industry or individual?
Mr. Swendseid:
We support it with the amendments and I think we also support the concept of the bill. That is, if a government takes over a large utility and, as a result, their local governments do not receive the tax revenues they have been used to receiving, those revenues should be made up.
Senator O’Connell:
So the ratepayers would be paying for the bonds as well as losing the tax dollars normally coming in?
Mr. Swendseid:
The ratepayers would be paying for the bonds as well as paying for the taxes that, in effect, they were paying when they made payment to the private utility previously owning the system.
Senator O’Connell:
I want to know where there are any savings by a municipality owning a utility now paying about $80 million, which is put into the State tax rolls. As ratepayers, we are going to not only pay for the purchase of the utility, but we are going to be paying for it within the rates. Thus, we are going to lose the tax dollars on one side and pay more on the other side.
Mr. Swendseid:
This bill only addresses keeping that type of acquisition neutral as far as governments go in making sure taxes are made up. I think the proposals of Southern Nevada Water Authority to acquire Nevada Power have all been based on the premise that Southern Nevada Water Authority would continue to make the tax payments Nevada Power has made to the State and local governments. All of the savings figures projected by Southern Nevada Water Authority as a result of reduction in taxes paid to State or local governments are not actually treated as savings. They continue those payments to State and local governments.
The savings then come from a couple of factors. Southern Nevada Water Authority’s cost of capital, we believe, is quite a bit less than Nevada Power’s. They are a well-rated entity and well-received in the bond market and can borrow money at a lower rate. However, that is not really what this bill is about. It is about making sure if such a transaction took place in southern Nevada, or elsewhere in the State, it would not hurt other local governments. It would not take away tax revenue from other local governments.
Senator Neal:
Do you think the amendments you are proposing would enhance in some way the needs expressed by the people in southern Nevada?
Mr. Swendseid:
Again, this bill does not address specifically the purchase of any power company. It is just to make sure local government stays whole. We believe this will facilitate and make better such an acquisition, if it does take place.
Senator Neal:
Frankly, I have not heard the bill but I got the gist of your amendment, which is to make sure the taxes that would be lost would be paid by the utility if it is purchased by a local government entity. Is that correct?
Mr. Swendseid:
That is the thrust of the bill.
Senator Neal:
Are the bonds you want the public to take over the bonds engaged in by the utility company itself?
Mr. Swendseid:
No, these are the bonds the new government utility would issue to acquire the system and might later issue to improve it.
Chairman McGinness:
Were these amendments presented on the Assembly side?
Mr. Swendseid:
They were not.
Senator Neal:
Why were they not presented?
Mr. Swendseid:
I became aware of this bill a week and a half ago and by then, it was too late. It had passed in the Assembly.
Chairman McGinness:
I might remind the committee, we heard this as S.B. 442 a couple of weeks ago. Washoe County School District came forward asking us to take a look at this bill.
SENATE BILL 442: Requires local governments that acquire certain public utilities or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. (BDR 32‑576)
Chairman McGinness:
The Washoe County School District was here last week because it was concerned about the loss of revenue when the local governments bought the water system from Sierra Pacific Power Company, now the Truckee Meadows Water Authority.
Referring to page 2 of your handout, under B, does this effectively put the effect to the local government on the bottom of the pay list?
Mr. Swendseid:
It would put them behind bond issues, which typically is not the bottom of the pay list. Usually, in a typical bond revenue flow fund, the next thing after payments for the bonds is additional capital improvements for the system. After you make your payments to your bondholders, but before you start spending money on new capital improvements.
Chairman McGinness:
If there were less money available than had been forecast, would their payment in lieu of taxes be cut by a certain percentage? Have you addressed that in this amendment?
Mr. Swendseid:
As I said, the existing bill puts bonds issued for acquisition of the system ahead of payments in lieu of taxes, and the proposed amendment would put any bonds issued for the system ahead of payments in lieu of taxes. If there were a revenue shortfall, this means before you defaulted on your bonds, you would default on your obligation to make payments in lieu of taxes to other governments.
Chairman McGinness:
Would you just default on the payment or would it be made up the next year or the year after when the revenues were restored?
Mr. Swendseid:
In a typical bond covenant, the entity issuing the bonds is obligated to levy rates and charges high enough to meet all of its obligations. So, if it makes a mistake one year and does not have water rates high enough, typically, it would be required to make it up the next year. That is the way it would work in the systems and the bond ordinances and resolutions with which I am familiar.
Senator Neal:
I hope this is not a roadblock for the peoples’ desire for Southern Nevada Water Authority to go forward and purchase Nevada Power. Right now, the purchase of Nevada Power would not only help the people in southern Nevada in terms of their rates, but from all indications, it would help the people in northern Nevada as well.
Senator Coffin:
What is the offer currently on the table from the Southern Nevada Water Authority?
Senator Neal:
It is $3.2 billion.
Senator Coffin:
Is it possible they have offered too much? I am beginning to wonder, because I look at how badly the market has treated this company. Their closing price today was less than $4 on the total market cap on 117 million shares.
Mr. Swendseid:
I am not prepared to answer that question, Senator.
Linda Ritter, City Manager, City of Elko:
I have just recently received the amendments Mr. Swendseid has proposed. Our intent with this bill was, if a local government purchases a utility, the other local governments be kept whole through some provision so they would not lose large amounts of tax revenues. In the case of water and sewer utilities, we specifically asked those be handled through an interlocal agreement, while realizing public health and safety sometimes dictates that a local government take over a troubled water or sewer system. Under those situations, it may be to the benefit of other local governments involved to see that type of transaction through and they may not wish to be reimbursed or to be kept whole through an in lieu of taxes.
As far as the amendments and the payment in lieu taking a second place behind bonds, I do not think it would be a problem because these are rate-paid utilities. Certainly the rates would have to be increased in order to cover it. Our intent was to make sure there was something in there saying they did have to pick up those taxes. The other thing is the assessed valuation of the utility stay in the formulas for other revenue distributions because if you lose a large amount of assessed value, it can affect your consolidated tax and several other taxes.
I noticed there is an exemption in the amendment for any of the water or sewer utilities under $10 million. I cannot tell from here what that would affect. You may have a small utility in a very small county not having a lot of assessed value. Ten million dollars could be a lot for one of those, but I did not get a chance to look at any numbers to see if it would be a problem. In some of those areas it may be to the benefit of all the local governments to have another local government take over the utility.
Senator Neal:
Are you opposed to the amendment?
Ms. Ritter:
I do not see a problem with it, on the surface. The only thing I was a little concerned with was the $10 million limitation, keeping in mind these affect very small local governments not having a lot of assessed value. It could have an impact, but I cannot say for sure without going back and doing some research.
Chairman McGinness:
Could we ask you to take a look at this amendment and get back to Mr. Combs or myself?
Ms. Ritter:
I would be very happy to.
Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association:
We support the concept of what the bill did. I have been talking to Mr. Swendseid and, for the record, I would like to make sure there is a clarification where the amendments refer to those entities before January 1, 2003. If one of those entities expands by acquiring another public water system, the expansion would be subject to the provisions of collection of the sales tax. It appears it would, but I still have not quite read it that way, so I would like it on the record. I do not want to see anything negated by amendment. The fact that if you expand in the future and you take taxable property, the other governments are going to lose the revenue on that taxable property. Otherwise, we do support the bill. We think it is an important one.
Chairman McGinness:
We are going to take this amendment under advisement for a couple of days.
Dorothy L. (Dotty) Merrill, Lobbyist, Washoe County School District:
We are in support of A.B. 361 and I will read you my prepared testimony (Exhibit D).
Chairman McGinness:
Have you had a chance to look at the amendment?
Ms. Merrill:
No, I have not seen a copy.
Chairman McGinness:
We will make sure you get a copy before you leave, so you can review it and make sure your support is still with the bill following the amendment.
Senator Neal:
Has your district taken the same position or will it take the same position in terms of the exemptions we have given from local school support taxes?
Ms. Merrill:
I do not know the answer, but will go back this afternoon and get an answer for you from our financial experts.
Senator Neal:
When we grant exemptions to people who involve the local school support taxes, the money comes directly from the schools.
Anne K. Loring, Lobbyist, Nevada Association of School Boards–Reno, and Washoe County School District:
It is my understanding, when there is a negative impact on the local school support tax, it is recovered through the Nevada plan to the districts for their operating budgets. I may not be correct on this, but it is my understanding at this point. In that case, it is not a similar impact.
Senator Neal:
Do you realize what you just said? It is all right to grant those exemptions as long as there will not be an effect on the schools, even if it comes from the local school support taxes? That is what you seem to be saying.
Ms. Loring:
I think perhaps we ought to have our financial folks give us some additional insight.
I am here today to testify on behalf of the Nevada Association of School Boards (NASB), of which I am the president this year. The NASB supports A.B. 361 with the understanding, as Ms. Merrill clarified, the definition of local governments does include school districts.
Acquisitions such as this do have a two-fold impact on school districts in lost tax revenues. The first impact is the loss of property tax to the school district’s construction funds. When a private utility is acquired by a local government, it has a direct dollar‑for-dollar hit on our capital funds used to build new, and renovate older schools. The second impact is on school districts’ operating budgets through loss of revenue, both through property tax reduction and other fee reductions such as the franchise fees.
In this case, it is not a dollar-for-dollar reduction because of the complex formula of the Nevada plan, but it does cause a reduction in funds available to district operations. Unlike the cities and counties, the school districts do not have any taxing authority and so they are unable to make up lost tax revenue in any other way.
In this era of greater responsibility, for you as the Legislature and through you to us as your school boards to improve education in Nevada, the districts simply cannot afford further erosion of their revenues. For this reason the school board association is in support of this bill.
Mr. Swendseid:
A representative of the Southern Nevada Water Authority just reported to me they had discussed these amendments with David R. Parks, Assembly District No. 41, and he does not have a problem with the amendments.
Chairman McGinness:
We will close the hearing on A.B. 361.
We had planned to talk about exemptions in the recorder’s office next week. However, through some communication errors, Mr. Spencer came all the way from Las Vegas today to testify and he has some needed information. We are not going to make him fly all this way for nothing, so we will hear from him today. We are going to get into this and have more background information for you next week. We do not have a bill before us but S.B. 385 brought this issue forward.
SENATE BILL 385: Increases tax on transfer of real property. (BDR 32-1180)
Chairman McGinness:
When we talked about these 16 exemptions applying in the recorder’s office, Senator O’Connell suggested we look at those this session to see if there are some we could fix to help with the problem the recorders are having. Some of the exemptions are so vague and some are not even used anymore.
Robert Spencer, Transfer Tax Auditor, Recorder, Clark County:
I was contacted by Alan Glover, the Carson City Recorder, concerning some proposed eliminations of exemptions from the transfer tax. You are being given copies of what the statute will look like with all of those exemptions gone (Exhibit E). One of the problems with exemptions in transfer taxes is the actual administration of them. How people qualify for exemptions is not just clear black and white.
Exemption 1 talks about reorganizations and transfers between identically owned companies. We have a lot of people who claim that exemption and who, upon audit and further examination, do not qualify for it. It is one of the most commonly used exemptions. Even though it has been amended, it is still very difficult to administer when we have both statutory exemption as well the administrative code.
Everybody wants to collect the correct amount of transfer tax at the time of recording, and we do not mind someone having a valid exemption, but trying to collect 1 to 3 years later becomes a real problem. You have to subpoena the records of the company and then go out and examine the records. Sometimes they volunteer the information and do not qualify. Sometimes they pay and sometimes they do not, so the follow-up is a real administrative nightmare.
Chairman McGinness:
You are a transfer tax auditor in Clark County. Not all counties have a transfer tax auditor. Someone from one of our small counties told me an exemption had been missed. It was discovered the next day, but had to be let go.
Alan Glover, Recorder, Carson City:
Only Washoe and Clark Counties have positions in which they have true auditors. The rest of the 15 counties do what we call “auditing at the counter.” When a document is brought in to be recorded, we attempt to look it over to see if there is qualification for the exemption. We do not catch all of those. Some counties are more rigorous in that area than others because they either have more time or fewer recordings. It is our firm belief this tax is not administered equally throughout the State of Nevada. It varies from county to county and if this body chooses to make this a State tax, then one of your basic criteria must require it be administered the same way in every county. We know it is not now. One of the reasons is because the rate is relatively low, so you do not get as many objections. Once the tax goes up substantially, you are going to find more and more attorneys, accountants, and other people claiming exemptions and making very serious arguments on why they should be exempt. It is a major problem for us.
Mr. Spencer:
We would have to leave Exemption 2 as is because it reflects the federal code, which says any transfer to the government has to be without tax.
We can leave the language as is in Exemption 3, but we would probably need some further definition in administrative code. We have people who waive their rights in order for someone to get a good rate on an initial loan, and yet they are added later because they supply part of the purchase funds. They want to be able to go on title under an exemption from the transfer tax, yet they want the best rate for a mortgage loan. Those are the things where people use the true status of ownership. To me, it is a misuse.
If you want to remove Exemption 4 entirely, then you have to look at what joint tenancy means, because each person on title has a right to the whole. I think we could amend Exemption 4 to just say “remove that community interest,” or “common interest ownership,” and still leave the joint tenancy in there.
Exemption 5 has to do with the addition of a spouse to a title. Someone takes title where one of the spouses has bad credit, so one of the spouses goes off title and the one with the good credit gets the loan and then adds the spouse back to title. Should those things continue to be allowed? Estate planning would be messed up. There is a way of retaining that, however, with Exemptions 6 and 7 by just saying “ between spouses,” which can add or take a spouse off title, or pursuant to a divorce decree.
Exemption 8 has to do with trusts and family trust. Not every trust is exempt from the transfer tax. It has been reduced down to three basics (a), (b), and (c); and yet those are still abused and misused. In Clark County, we get between 3000 and 6000 documents a day, and on a slow day we get about 500 deeds. On a busy day we get about 1200 to 1500, and not every one can be examined in detail at the time of recording. Therefore, we have to look at them after the recording. When I look at the exemptions, I see all kinds of crazy stuff going on.
Everybody wants to leave in Exemption 9. It has to do with unpatented mining claims. You cannot come up with a fair market value of a mining claim because there is no way of determining its value and it is not assigned a parcel number.
If you eliminate Exemption 10, would it really affect the way people would go and organize and form corporations, limited partnerships, and limited liability companies? I do not know. It is very difficult to administer.
The language added to Exemption 11 would include a child’s spouse. Currently if a child’s spouse is added to title, it is a taxable transfer, but if you add the language of adding the child’s spouse, then it will make it exempt.
Exemptions 12 through 16 are all specialized exemptions done for very specialized purposes. Exemption 12 has to do with bankruptcy. I do not know of any examples in my 14 years where, during a bankruptcy, property went into the bankruptcy. It is all coming out of the bankruptcy and if we only look to the buyer of the property to pay the transfer tax, then so be it. It is one of the costs.
Exemption 13 has to do with Securities and Exchange Commission orders. Exemptions 14 and 15 have to do with the institutions that receive property donations for kindergarten through twelfth grade and for the University of Nevada, Las Vegas (UNLV), and University of Nevada, Reno (UNR), land foundations. The people who donate to those things receive huge tax benefits on their federal income tax. I do not think eliminating those exemptions would stop the donations to the various foundations.
Referring to Exemption 16, if you give property to a church, it is taxable, and if you get property from a church, it is taxable. However, the church is exempt whether it is a sale or just a transfer. This came about because of the breakup of the diocese in Nevada of the Roman Catholic Church.
Chairman McGinness:
We will examine this more fully on Tuesday, April 22. If you have some other recorders who would like to come in, or for anyone listening on the Internet, we are going to take another serious look at this.
Committee, you have a work session document (Exhibit F) in front of you. The revenue bill for which we have a waiver is S.B. 238.
SENATE BILL 238: Provides revenue in support of state budget. (BDR 32-1208)
Chairman McGinness:
This is a bill on behalf of the Governor and it provides revenue in support of the State budget. We would like to start with pieces of the bill, which we have looked at for hours upon end in these chairs and others. I think we can start putting some of those pieces together, so the legal division can start putting the bill together and get it moving forward.
The first thing we will discuss is the cigarette tax. As you can see, we have the Governor’s proposal, the Governor’s task force on tax policy proposal, and the Care/Amodei proposal. The Governor’s proposal is to increase the tax from $.35 to $1.05, an increase of $.70. The Governor’s task force went from 35 cents to 70 cents, which is 35 cents per pack, and the Care/Amodei proposal went from 35 cents to 60 cents, with a step-increase of 15 cents a year later.
Senator O’Connell:
I like the idea of the staggered amount, where you are going to put so much in the first year and so much the second. I think to use a term we have heard a lot, “sticker shock,” it is better to phase it in. I suggest we look at 35 cents and perhaps we increase it 20 cents the first year and 15 cents the next year. I would like to put it in the form of a motion, at least to have us start talking about it.
Senator Coffin:
We probably ought to hear roughly how that particular progression fits into the cash flow requirements of the budget, or at least one portion of it.
Chairman McGinness:
Mr. Combs could not have anticipated every scenario, but he can probably give us something off the top of his head.
Rick Combs, Fiscal Analyst:
Are you asking how much this would generate?
Senator Coffin:
Yes, we know the Governor asked for basically the same amount of money, but he asked for it in the first year. How does it flow with the cash flow requirement?
Mr. Combs:
The cigarette taxes, liquor tax, and some of the others, are among the few from which you can actually start generating money right away at the beginning of the first fiscal year. The taxes in later parts of the proposal cannot be implemented right away and may take the Department of Taxation some time to administer. Your point of staggering it is a good one, because starting it up slower and increasing it later on could work contrary to that to some extent because you have to balance both years of the budget. That is part of the problem with doing this in pieces. You will not know until you get down to the end how much you are able to generate. One thing to think about is whether or not the first year of the biennium can be covered if you stagger taxes.
Senator Coffin:
I know we have discussed the possibility of a dip in sales because of an increase in tax. This way, we might be able to avoid such a dip.
Senator O’Connell:
I think if we do it all at once we would leave ourselves open to such an impact. I think it would be better to ease into it. It is the amount the Governor’s task force was wanting, so we do have the amount it would generate if it were all put in at once.
Mr. Combs:
I can give you an estimate. I did not run 20 cents, specifically, but if you look at the Care/Amodei proposal, an increase of 35 cents per pack to 60 cents per pack would have generated $41.3 million the first year. Therefore, the proposal to increase it 20 cents to 55 cents per pack is going to be somewhat less than the $41.3 million.
Chairman McGinness:
Whether the final solution is gross receipts tax or sales tax on services, there is a lag time when the Department of Taxation is going to be able to start collecting those taxes. By ramping up the cigarette taxes, you may only exacerbate the problem the first year.
Senator Coffin:
Thirty-five cents was the highest I was going to go anyway, so I appreciate the maker of the motion staying at that number. We know the wholesalers have the ability to go out and buy as many cigarettes as they can financially afford and stamp them as soon as possible. They could obviously stamp them early, before we put in the 20 cents and then before the additional 15 cents takes effect, they will buy as many at 20 cents as they can. Have we had any discussion from the wholesalers on what their typical behavior would be?
Charles Chinnock, Executive Director, Department of Taxation:
Since last October, we have been tracking the number of stamps sold to all the various wholesalers. We also did a study to take a look at the past 2 years of cigarette sales and they did not change. In the last month, we have had a couple of wholesalers ask for additional stamps, and we have allowed them to purchase an additional 10 percent. We told them our stamp supply is running low and asked them to cooperate.
Senator Coffin:
Since you do not have regulations in place, if a wholesaler had sufficient credit and/or cash flow to order ten times the normal amount of cigarettes, would you have to print the stamps?
Mr. Chinnock:
At some point we probably would. At that time, we would probably have to consider coming in here with a floor tax, where we would say on July 1 you must have a new stamp on every cigarette pack out there with a new tax on it. We would then have to have an aggressive program for auditing to make sure there was compliance.
Senator Coffin:
That would be the product of a regulation?
Mr. Chinnock:
A statute.
SENATOR O’CONNELL MOVED TO INCREASE THE CIGARETTE TAX 20 CENTS THE FIRST YEAR OF THE BIENNIUM AND 15 CENTS THE SECOND YEAR.
SENATOR TIFFANY SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
*****
Senator O’Connell:
May I take something out of order? I believe we need to say whether or not we are going to have a gross receipts tax. I would like to make a motion to indefinitely postpone the gross receipts tax.
Senator Coffin:
We have not given the gross receipts tax proposal a close enough look to see if it would work. I know there are problems with it and have said I would support it if it could be made to work. I am not sure we have really tried to make it work. We have heard opposition testimony and proponents’ testimony, but we have not taken it to a work session where we really dug in deep in that particular tax. Therefore, I wonder if this motion is not just a little hasty, based upon a very understandable impatience to get on with the process.
SENATOR O’CONNELL MOVED TO INDEFINITELY POSTPONE SECTIONS 2 THROUGH 33 FROM S.B. 238.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR COFFIN VOTED NO.)
*****
Chairman McGinness:
We will turn to the liquor taxes on page 3 (Exhibit F). The Governor’s proposal and the Governor’s task force on tax policy both recommended an 89 percent increase effective July 1, 2003. The Care/Amodei proposal doubled the tax rate for all types of alcoholic beverages. The amount of revenue each would generate is shown there.
I believe in previous testimony we heard the 89 percent figure was a Consumer Price Index rate increase. It would increase the cost of a six‑pack of beer by approximately 4.5 cents. I cannot remember the wine proposal.
Senator Coffin:
The per-beverage kind of tax in the Governor’s proposal on liquors struck me as being perhaps a little low. When I look at a 4.5 cents increase per six-pack of beer, less than a penny a can, I think even the biggest beer drinker in the State would probably not mind paying 6 cents or 8 cents more. I suspect we will not see the dip in sales we were anticipating and trying to preempt by going with the lower number on cigarette sales. I would offer a motion to double the tax rates on alcohol.
Senator Neal:
What were the four types of alcoholic beverages?
Mr. Combs:
Besides beer, you have liquor containing from .5 percent to 14 percent alcohol by volume, which is basically most wines. Then you have liquor containing more than 14 percent but not more than 22 percent alcohol by volume, which are some wines and liqueurs. Finally, liquor containing more than 22 percent alcohol by volume is usually termed hard liquors.
SENATOR COFFIN MOVED TO DOUBLE THE RATES FOR ALL FOUR TYPES OF ALCOHOLIC BEVERAGES EFFECTIVE JULY 1, 2003.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED. (SENATORS RHOADS, O’CONNELL, AND TIFFANY VOTED NO.)
*****
Chairman McGinness:
The next item is the business license fees. The Governor’s proposal is to increase the application fee for a business license from $25, which is now a one-time fee, to $100 and to make it renewable each year. The Governor’s task force would require the renewal of a business license for the current fee of $25 for a 2-year period to create a database of businesses in Nevada. The Care/Amodei proposal is to increase the application fee from $25 to $50 and make it renewable each year.
Senator Tiffany:
When we are talking about this business license fee as well as the tax, I am very concerned about the sole proprietors. When we talked in finance, I know Mr. Chinnock had a number of how many new people we would need to bring in. What was that number?
Mr. Chinnock:
We currently have 80,000 business tax accounts and we would be adding another 60,000. We estimated 36 additional positions in the business tax just for the 60,000 increases. For the annual business license fee, we estimated 6 additional for a total of 42 additional personnel. In order to implement the business tax with sole proprietors, the cost for the biennium would be approximately $4.1 million.
Senator Tiffany:
I asked because a representative from the Direct Sellers Association (DSA) came to talk to me. The DSA is the national association for people like Avon and small at‑home businesses. I was told DSA had 90,000 direct sales associates here in Nevada, not including the Realtors, the hairdressers, and the other sole proprietors. I do not know how you only came up with 60,000.
Mr. Chinnock:
We came up with it basically by cross-checking with the Internal Revenue Service (IRS) database as far as what they showed for filings for sole proprietors.
Senator Tiffany:
Would the direct sellers all be required right now to report to the IRS?
Mr. Chinnock:
They might end up reporting as personal income as opposed to a business income and might not reflect as direct sellers.
Senator Tiffany:
This would catch them, would it not?
Mr. Chinnock:
It would depend upon how it was written, but perhaps not.
Senator Tiffany:
So, have we defined what a sole proprietor is?
Mr. Chinnock:
It is currently defined in chapter 364A of Nevada Revised Statutes as far as what they would be filing.
Senator Tiffany:
I still think the number, 60,000, is probably pretty low. How many more positions did you say this would require in your department?
Mr. Chinnock:
A total of 36 positions for the business tax itself as far as the increase of sole proprietors, and because of the annual requirement for business license fee, 6 additional positions for a total of 42. Just so I do not mislead anybody, we discussed through both this taxation committee meetings and also through the money committee meetings, with any addition of any major tax, there would be additional support personnel needed.
Senator Tiffany:
Mr. Chairman, while you are accepting a motion on this, I would really like whoever makes a motion to exclude the sole proprietors.
Chairman McGinness:
Are you talking about the sole proprietors or the direct sellers?
Senator Tiffany:
They are called sole proprietors according to the way they file their taxes, and it would be just the single person. I would like to have it considered in both the fees and the taxes.
Senator Rhoads:
Mr. Chinnock, would the same figure for the 42 positions hold true in all three of these proposals?
Mr. Chinnock:
Yes, sir.
Senator Neal:
Is the number of people you say you would need to enforce this based on the idea people might not pay this tax, or what?
Mr. Chinnock:
It is for a variety of reasons including providing information, registering new taxpayers, servicing accounts, and billing and collecting for those taxes. It would include follow-up to those accounts that did not pay and for auditing of those accounts as well.
Senator Coffin:
My philosophy, and I believe the majority philosophy of the committee over the last four or five sessions has been to try to reduce or eliminate exemptions when we could. The fewer exemptions we have, the better off we are, even though it may be politically unpopular. You create more unpopularity when you start playing favorites. We are constantly barraged by people who want to get out from under the tax because they believe they have an honorable reason. You know, maybe, if you add all those people in and then you reduce the rate, you will end up with something more palatable, but also more manageable. It is a philosophical thing I want to make sure we think about, because it follows our past practices, and will maybe resonate something in the committee. Were those direct sales people included originally in the budget calculations? We know now they will be taxed, apparently. Was that number included, because if not, we could lower the rate and balance the budget.
Mr. Chinnock:
Yes, I believe the sole proprietors were included in the Governor’s tax plan, as they were in the task force plan.
Senator Coffin:
The number you gave us as the number of sole proprietors did not add up to the total number we have been given as including direct sellers.
Mr. Chinnock:
I do not have a comment on the direct sellers and I heard Senator Tiffany’s number of 90,000. I do not know about that number.
Senator Coffin:
I do not think we thought about them originally, which is why we got a lot of letters of protest. On the other hand, I am willing to say I do not want to let anybody out of this tax if we are going to have a tax. You tax everybody having a business, but make it low and make it fair. Make everybody pay as little as possible. The people of Nevada may not like it, but they sure would like it a lot better than if certain people were exempt.
Senator Tiffany:
I cannot buy that argument for the fact we still have exemptions. I mean all we would have to do is take all the exemptions out of the sales tax, and we would never have to raise another fee again. Also, to go after and audit these little guys makes absolutely no economic sense at all.
Chairman McGinness:
I am going to ask Mr. Combs to take a look at this and give us some numbers on whether sole proprietors are in or out. We will discuss this again in our next work session.
We will now take a look at the tax on the gross revenue of satellite television companies. We heard this issue and you have seen the numbers.
SENATOR TOWNSEND MOVED TO INCLUDE THE TAX OF 5 PERCENT ON GROSS REVENUES OF SATELLITE COMPANIES IN NEVADA.
THE MOTION FAILED FOR LACK OF A SECOND.
*****
Chairman McGinness:
We are adjourned at 3:34 p.m.
RESPECTFULLY SUBMITTED:
Ardyss Johns,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: