MINUTES OF THE

SENATE Committee on Taxation

 

Seventy-second Session

May 15, 2003

 

 

The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 1:40 p.m., on Thursday, May 15, 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

 

GUEST LEGISLATORS PRESENT:

 

Alice Costandina (Dina) Titus, Clark County Senatorial District No. 7

Warren B. Hardy II, Clark County Senatorial District No. 12

Bernice Mathews, Washoe County Senatorial District No. 1

 

STAFF MEMBERS PRESENT:

 

Rick Combs, Fiscal Analyst

Russell J. Guindon, Deputy Fiscal Analyst

Ardyss Johns, Committee Secretary

 

OTHERS PRESENT:

 

John O. Swendseid, Attorney, State Bond Counsel, Swendseid and Stern

Dino DiCianno, Deputy Executive Director, Department of Taxation

Harvey Whittemore, Lobbyist, Nevada Resort Association

Tom R. Skancke, Lobbyist, Las Vegas Convention and Visitors Authority

Marvin A. Leavitt, Lobbyist, Urban Consortium

Ray Bacon, Lobbyist, Nevada Manufacturers Association

Chairman McGinness:

We will call this meeting to order. We have a work session today and you should all have a work session document in front of you (Exhibit C. Original is on file in the Research Library.). We will start with Assembly Bill (A.B.) 355.

 

ASSEMBLY BILL 355 (1st Reprint): Provides in certain larger counties for temporary exemption from personal property taxation for certain commercial helicopters and establishes temporary moratorium on construction or operation of new heliports. (BDR 44-877)

 

Chairman McGinness:

We have an amendment, which you will find on page 4 of your work session document (Exhibit C). It indicates the board of county commissioners is required to consult with local governing boards of the preferred airport within the jurisdiction. It also inserts “residential” instead of “urban,” et cetera. I understand Henderson is okay with this amendment and, by phone, lobbyist Dan Musgrove indicates Clark County is okay with this amendment as well.

 

SENATOR NEAL MOVED TO AMEND AND DO PASS AS AMENDED A.B. 355.

 

SENATOR COFFIN SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman McGinness:

We will next take a look at 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)

 

Chairman McGinness:

There is a pretty substantial amendment dated May 13 (Exhibit D) from John Swendseid who will give us an explanation.

 

John O. Swendseid, Attorney, State Bond Counsel, Swendseid and Stern:

The new language is in blue and if you look at section 7, subsection 3, paragraph (d) has changed. When the bill was presented then, it had an exception for new facilities acquired by a cooperative entity like Southern Nevada Water Authority (SNWA) to serve itself and its members. That is now limited to just itself and its member who is the largest retail water purveyor in the county in which it is located. In the case of southern Nevada, that is just the water district. So, new facilities acquired by local government to serve itself, or in the case of SNWA, to serve itself where Las Vegas Valley Water District, would be exempt. Any other new facilities or any facilities already on the tax roll would not be exempt.

 

SENATOR O’CONNELL MOVED TO DO PASS A.B. 361.

 

SENATOR RHOADS SECONDED THE MOTION.

 

Senator Neal:

Why do you want to pass the bill without the proposed amendment?

 

Senator O’Connell:

Because I do not like the amendment.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman McGinness:

Next we will look at A.B. 514, which you will find on page 16 of your work session document (Exhibit C).

 

ASSEMBLY BILL 514 (1st Reprint): Provides for enactment of certain provisions that are necessary to carry out Streamlined Sales and Use Tax Agreement. (BDR 32-1292)

 

Chairman McGinness:

As you recall, Assemblyman Goldwater was here talking about the streamlined sales and use tax. As you see in item 2, we received a conflict notice, A.B. 514 is in conflict with A.B. 224. The Legal Division indicated there is a conflict on the ballot question, “the conflict amendment will change the name of the State Arts Council to the Nevada Arts Council” and will add the word “to” after the word “Provides.” It is not really a substantial conflict amendment.

 

ASSEMBLY BILL 224: Revises provisions relating to Nevada Arts Council. (BDR 18‑531)

 

Senator Townsend:

One of the things causing some concern to a number of committee members was the listing of the six items to be presented as questions to the voters in the 2004 General Election. The concern would be if you list all six, the potential for passage became unbalanced, or tipped the scales one way or the other as opposed to combining them. I do not know if the committee wants to look at that opportunity, but I think it might at least merit discussion.

 

Chairman McGinness:

As Assemblyman Goldwater indicated, those tax questions with six items include everything from farm equipment to art tax, to aircraft components. The voters would have to decide whether to get the full exemption or take away the partial exemption.

 

Senator Tiffany:

We have heard this issue for two sessions now, which is 4 years. I believe right now it is too early. It is never too late, but it is just too early right now to pass a bill on the Internet taxes. There are the questions of which tax, how do you register them, how do you collect them, and how do you distribute them. One of Assemblyman Goldwater’s solutions was to have a central agency do the collecting. I do not think that is the only solution on how to collect, so in my opinion, we should not process this bill. I think it is too early. We have also commissioned a study with the Department of Taxation, as you know, to the universities that will take a better look at what we can do, how we can do it, and what it means to the State of Nevada.

 

SENATOR TIFFANY MOVED TO INDEFINITELY POSTPONE A.B. 514.

 

SENATOR O’CONNELL SECONDED MOTION.

 

Senator Coffin:

Speaking against the motion, I have been looking at this for years and I sell and buy things on the Internet. Take us back about 15 years when this committee led the way and bit the bullet when we took a risk and probably alienated a few people who buy from catalogs. Buying from catalogs is basically the same thing, a transaction originating out of state. Once it comes in, it is taxable, but yet we were not able to do that. We have been waiting for the court and then Congress to act.

 

There is no difference really between the fundamentals of what has happened with catalog versus Internet as far as transactions occurring in other places is concerned. Therefore, I support this concept and I think it is important. It is particularly important for local retailers to be able to stand on an even footing with people who sell from out of state and for which tax is not collected. There has been discussion about reducing the sales tax, the only way we are going to be able to do that is to help collect on the transactions that occur. So, I will oppose the motion.

 

Chairman McGinness:

I will oppose the motion as well. I think, as Mr. DiCianno from the Department of Taxation has indicated, Nevada has a seat at the table right now and I think since we do not meet again for 18 months, we may lose that seat for a time and actually get behind.

 

THE MOTION FAILED. (SENATORS MCGINNESS, RHOADS, TOWNSEND, NEAL, AND COFFIN VOTED NO.)

 

*****

 

Senator Townsend:

I think the many and various individuals headed by Assemblyman Goldwater made a remarkable attempt to deal with this issue. Therefore, based on my original comments, I would make a motion to amend and do pass A.B. 514 with an additional amendment. We would take the questions that were to be individual and combine them into one ballot question, so members of the public have a right to state their positions on these exemptions.

 

SENATOR TOWNSEND MOVED TO AMEND AND DO PASS A.B. 514 AS AMENDED WITH THE SIX QUESTIONS COMBINED INTO ONE BALLOT QUESTION.

 

 

SENATOR RHOADS SECONDED THE MOTION.

 

Chairman McGinness:

There has been a motion to amend and do pass A.B. 514 by combining the questions and taking care of the conflict notice amendment as well.

 

SENATOR O’CONNELL MOVED TO AMEND PREVIOUS MOTION AND AMEND AND DO PASS AS AMENDED A.B. 514 WITH THE SIX QUESTIONS LISTED SEPARATELY ON THE BALLOT.

 

SENATOR TIFFANY SECONDED THE MOTION.

 

Senator Neal:

We are talking about exemptions. “Exemption” has a broad title that covers all of these, so I think we should have these as one item on the ballot rather than having them separated out. If you are going to kill it, let us kill it all at once rather than do it piecemeal and if the people want it, then they will vote for it. I would vote against the motion of separating these out and just have them go as one item of exemptions.

 

Chairman McGinness:

People have been talking to me today about combining or separating and I could fall either way. Who would be asked to draft this language? Would the Legislative Counsel Bureau be responsible for putting the language together for the ballot question? If so, each item would have to be listed separately even if they were to be combined into one question, am I correct?

 

Rick Combs, Fiscal Analyst:

Yes, we checked to make sure combining them all into one question would be allowable and the Legal Division has indicated it would be appropriate from a legal standpoint. From a policy standpoint, two issues come up. One issue, as you just mentioned, is someone is going to be responsible for putting a single question on the ballot in a format the people who are voting on it can understand. They need to understand what it is they are voting for with six separate issues being part of one question. It is a policy decision for you as the members to decide whether or not it is going to be a task too difficult to handle, or if the advantages of doing it in one question outweigh that difficulty.

 

The other issue would also be a policy decision for the committee, which is whether or not the voters would prefer to have the ability to vote on each item, or if they would prefer to not have six questions on their ballot and only have one decision to make.

 

Senator Coffin:

Each question would probably add four pages to the ballot and I think we burden the voters enough. I was pretty disappointed at the number of advisory questions on the last ballot. Here we have substantive questions that really bind. To present these to local governments to print up and put out there for the voters will end up looking like California’s ballot, so I will oppose the amendment to the amendment.

 

Chairman McGinness:

The amendment to the amendment is, “shall the questions be presented separately or together?” An aye vote would separate them and a no vote would keep Senator Townsend’s original motion intact.

 

THE MOTION FAILED. (SENATORS MCGINNESS, RHOADS, TOWNSEND, NEAL, AND COFFIN VOTED NO.)

 

*****

 

Chairman McGinness:

We are back to the original motion by Senator Townsend to amend and do pass A.B. 514 with the questions combined and the conflict notice amendment.

 

THE MOTION CARRIED. (SENATOR TIFFANY VOTED NO.)

 

*****

 

Chairman McGinness:

Committee, we have a separate work session document pertaining to Senate Bill (S.B.) 238 (Exhibit E. Original is on file in the Research Library.).

SENATE BILL 238: Provides revenue in support of state budget. (BDR 32-1208)

 

Chairman McGinness:

This is the Governor’s bill. You also have a separate sheet that says “Senate Taxation Proposed Revenue Plan” (Exhibit F). I put this together with our legislative staff to try to get some movement on a couple of these issues. In the left column you will see fiscal year (FY) 2004. Fiscal year 2005 is shown in the right column. The shaded areas are those areas on which we have already taken action. The totals at the bottom indicate the amount of revenue in the first year of the biennium at $386.2 million, and $497.1 million in the second year. We will go through these briefly to give you an idea of what this means.

 

The cigarette stamp fee, which is the amount retailers are allowed to collect, is currently 3 percent as is the liquor tax allowance. If we reduce each of those to 1.5 percent, the retailer allowance on the collection of sales tax would go from 1.25 percent 0.75 percent. We have already taken action on the next one, which is the business license fee, which is in S.B. 298.

 

SENATE BILL 298 (1st Reprint):  Makes various changes to provisions pertaining to business.  (BDR 7-987)

 

We show a temporary increase in the business license tax (BLT) to $200 per year and then it is reduced to $140 per year on January 1, 2005. The next line shows a 15-cent property tax rate and we have already taken action on the cigarette tax with a 20-cent increase in the first year and another 15 cents added in FY 2005. We increased the liquor tax 100 percent. Gaming has a new tier with over $1 million at 6.75 percent, which represents a 0.50 percent increase in the new tier. The real estate transfer tax is shown at $1 per $500 of value and the room tax at 1 percent. We have already taken action on the restricted slots and the secretary of state fees, which includes the notary fees and the incorporation fees.

 

You will see in the second year of the biennium the services tax is added at a rate of 0.75 percent, which would be effective January 1, 2005. The services that would be exempt are listed on the bottom, left side.

Senator O’Connell:

I heard S.B. 298 was either defeated or was not going to be voted upon.

 

Chairman McGinness:

Senate Bill 298 was not scheduled for a hearing in the Assembly. It has been amended into two Assembly bills in Judiciary. It would be my intention to amend it into this bill, as well.

 

Senator O’Connell:

Does this also include reducing the sales tax?

 

Mr. Combs:

It would not include a reduction in the sales tax, but you will notice the rate on the services tax is 0.75 percent versus the higher rates you had discussed earlier. This is purely for discussion purposes.

 

Senator O’Connell:

This, then, would bring our sales tax up to 8 percent?

 

Chairman McGinness:

No, this is a services tax. The sales tax would remain the same. If you remember, the original Senators Care/Amodei plan and the plan from the Business Representatives Group proposed a 5 percent services tax, which would reduce the sales tax. This proposal does not contemplate reducing sales tax, but the services tax, instead of 5 percent or 3 percent, is at 0.75 percent.

 

Senator Rhoads:

Would the services tax include sole proprietorship?

 

Mr. Combs:

Anyone who would be providing a service that is not exempted through your action would collect the services tax.

 

Senator Rhoads:

So, an Avon salesperson would be subject to the tax?

 

Mr. Combs:

Something like that would be tangible goods, so it would not be under the services tax.

 

Chairman McGinness:

We will go down the list and talk about each item and see if we can get some consensus. We will start with the cigarette stamp fee going from 3 percent to 1.5 percent.

 

SENATOR NEAL MOVED TO REDUCE THE CIGARETTE STAMP FEE TO 1.5 PERCENT.

 

SENATOR RHOADS SECONDED THE MOTION.

 

Senator Coffin:

The first item is a good place to talk about the process to make sure we do not rush in here. I do not see anything fundamentally wrong with it, although you are cutting it in half. What does it mean? The cigarette stamp fee is what you pay the State, correct?

 

Chairman McGinness:

Actually, it is what the State pays you to collect the tax. You used to get 3 percent to collect the tax, but now you are going to get 1.5 percent of a larger number. So, if you want to look at it that way, you are not cutting the amount in half.

 

Senator Coffin:

How long does it take for the State of Nevada to be able to change the stamp? At what point in FY 2004 would you have it take effect? There obviously has to be a starting date, which may require some delay. Can we at least find out if there are technical problems?

 

Dino DiCianno, Deputy Director, Department of Taxation:

It would be a matter of notification. It does not have an internal impact within the department with respect to notifying those individuals the collection fee has been reduced, if that is your question.

 

Senator Coffin:

The thing is, people have an inventory of tax stamps. Will we lose the revenue on those stamps already purchased? Has this been taken into account?

Mr. DiCianno:

If I understand your question correctly, the cost is still the same. They pay whatever those stamps are worth.

 

Senator Coffin:

Am I reading this wrong? I just want to make sure I have a fundamental handle on it. Will they have collected their 3 percent on the initial purchases for inventory?

 

Mr. DiCianno:

If I understand your question correctly, the issue is not the stamps themselves, but the fee they retain.

 

Senator Coffin:

So, increasing the tax increased the fee too, and now we are backing out of some of the fee. By coincidence, when you raised the price of the stamp, you also raised the revenue they get back for processing the stamps. Is that right?

 

Mr. DiCianno:

That is correct.

 

Senator Coffin:

Has that been figured into the number shown here?

 

Mr. Combs:

Yes, what we are looking at, basically, is if you double the price of a pack of cigarettes, it is not going to be a complete wash because there is going to be some lost volume. We have already calculated that into our cigarette projection based on the amounts you approved previously. Therefore, to say it is going to be a wash probably is not accurate, based on what we have done before. It would not be a 50 percent decrease in the amount of revenue they are going to keep from cigarette taxes unless you assume the volume is going to decrease by 50 percent.

 

Senator Townsend:

I appreciate the work put into this, but a number of us are working on variations of almost everything in this revenue plan in order to find the solution. This all adds up to $883.3 million and I am not sure the money committees have established the revenue level with which they are comfortable. I am going to have a hard time supporting any of this as we work through the weekend. Our staff is overburdened and we have asked them to come up with some additional numbers relative to some very sophisticated nuances dealing with every single one of these. Therefore, I am going to have a hard time supporting any of this until we have had some additional research, which should be done by the end of the weekend. I know you put a lot of work into this, but I am a little reluctant to do anything when I am not sure how close they are on the revenue picture.

 

Chairman McGinness:

We started this session with the number at $704 million and now I have heard several numbers all the way up to $1.3 billion. I have also been told for the last 4 weeks that we would have a plan in about 2 days. I think we need to get this process started. I know it says in our rules you have to notify the chairman if you are going to oppose a bill on the floor. Let me tell you everybody has free rein here to bring amendments, to vote no, to put it on the desk, or “whatever.” However, I think this committee will have done its part today to try to get this process going.

 

Senator Townsend:

I respect that and I am not asking you to hold up the process. I also am not saying a plan is forthcoming, but what I can tell you is there are additional elements to this which could be helpful.

 

Chairman McGinness:

You are more than welcome to bring amendments forward to effectuate those nuances.

 

Senator Rhoads:

As you know, I am on the money committee and I agree with you Mr. Chairman. We are going to have to bite the bullet and start someplace to pass out a bill that is going to increase taxes in several different categories. It is a very hard thing for me to vote for because I probably represent the most conservative district in the State of Nevada. Going through this list, I think we have to make some choices. I am sure there will be some amendments on the floor and changes when we get to conference committee, but I think we have to start. We only have a few days left and this is the time to do it.

Senator O’Connell:

I have talked to our Legal Division at the Legislative Counsel Bureau (LCB) about this because I am concerned about getting the mechanical process started. I have been told we are going to need close to a week for them to even get the bill together. I also think it is important for us to get started. Is this tax committee going to decide what we are going to fund or are we going to have the budget committee decide for us? I think that is a very important question for this committee.

 

I think each one of us sitting here at this table has decided there is a level to which he or she is willing to go and I think the people on the budget committees need to know that. I think if we do not have some kind of a number we can all agree upon, we are definitely going to be in a special session. I know other committees have been trying to come to some kind of a decision on numbers as well and that has not yet happened. So, I think this is a good way to get a fix on what people are willing to do. If budget committees are closing budgets at a higher rate than we are willing to spend, it will not be too late for them to decide what action they will take.

 

Senator Townsend:

I do not disagree with anything either of you have said. The majority leader spoke with the LCB staff as of about 2 hours ago. He was assured that whatever the committee decides, if it is in the staffs’ hands by the close of this committee on Tuesday, you would have a product for the floor 72 hours later.

 

Senator Coffin:

First of all, let me say congratulations to you and I have to tell you I admire the action you have taken here. I have been hoping we would have a session like this, which is kind of a gut check and a weather check. It did not matter to me if it was done in the back room or the open room, but it now has to be done in the open. There is a so-called core group meeting around the building, which I once attended and nothing happened and nothing apparently has been happening since. I have served on both the Senate Committee on Finance and the Assembly Committee on Ways and Means and it is typical to have a group meet to finalize and make a few trades to get a bill moving and out of committee.

 

This is such a revolutionary year and as Senator Rhoads indicated, he is representing a district that might react badly to his actions. I applaud his statement. I am prepared to support some of these tax increases and, in fact, I have already voted for a couple of them. Senator Townsend, I know you are working on some things even though I do not know exactly what or how many are working with you. Maybe this is a good time for us to just be open about it since we only have 16 or 17 days left in the session. I am going to reserve the right to change my mind on any of these issues, but at the same time, I am willing to vote for a couple of them just to get the ball rolling. There might be places where we can at least reach disagreement, if you will. We need to bring the process out into the open and in front of the public. There will be some friends who may or may not like the way we vote. This is the first time I have looked at some of these concepts. I think the idea of voting now is a good one, but I do not want to step on the work you are doing either, Senator Townsend.

 

Senator Tiffany:

I get the pleasure of sitting on both committees, as do a couple of other Senators on this committee. I was in full support of Assemblyman Hettrick’s bill, which was about $515 million, maybe $600 million at most. I have to say I think you have done a heck of a job going over the $704 million we heard originally, so the $883 million kind of surprises me. I think it is high, even though there are others here who think it is low. You can see the variety of opinions we have so I like the way you have done this à la carte.

 

I also have to say it is not about what the budget committee approves or what the tax committee approves. I think we still have time in the mechanism to be synergistic. If members of the budget committee realize they can only get votes for $700 million or $800 million, they will still have time to open up the budgets. Some of these budgets have closed at more than a 35 percent increase, while others have closed at a minus 5 percent. Therefore, we have plenty of room in the budget if it looks like we need to come down to even this $883 million, which I think is high. As you know, we have a constitutional requirement to balance the budget, so I think we have got to work both ways on this, not just one way.

 

Chairman McGinness:

There has been a motion by Senator Neal and seconded by Senator Rhoads on the first item, reducing the cigarette stamp fee to 1.5 percent.

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman McGinness:

The second item would reduce the liquor tax allowance to 1.5 percent.

 

SENATOR NEAL MOVED TO REDUCE THE LIQUOR TAX ALLOWANCE TO 1.5 PERCENT.

 

SENATOR TOWNSEND SECONDED THE MOTION.

 

Senator Coffin:

Would you spell out exactly what each line item is on which we are voting and what each raises or decreases in taxes?

 

Chairman McGinness:

We are voting now on reducing the liquor tax allowance from 3 percent to 1.5 percent, which would produce $0.6 million. The cigarette stamp fee, on which we just voted, would bring in $1.1 million. There has been a motion and a second on the liquor tax allowance.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman McGinness:

The next item would reduce the state local school support tax (LSST) retailer allowance from 1.25 percent to 0.75 percent. It would bring in $7.6 million in revenue to the State.

 

SENATOR NEAL MOVED TO REDUCE THE STATE LOCAL SCHOOL SUPPORT TAX RETAILER ALLOWANCE TO 0.75 PERCENT.

 

SENATOR RHOADS SECONDED THE MOTION.

 

Senator Coffin:

I am a very small retailer and in fact most of my sales are out of state and overseas. I have found that 1.25 percent withhold is, in my case, for a small item obviously, $0.50-$0.60 cents per month, sometimes $1. I know it is a lot to some people, but on the other hand, I do not have to turn my money in to the State until 30 days after the month is over. This proposal does not contain any of the refinements we saw about incentives for electronic filing. It just forces it right down to 0.75 percent. The services tax is proposed at 0.75 percent as well.

 

These are hard numbers to work with so at the point of sale and at the point of service, if we were to entertain these, it becomes a little difficult to calculate. The point I am trying to make is there is a holding of money, a float, a retailer has that is huge. I would be prepared to alienate a few by proposing an amendment to your motion by suggesting we reduce the state LSST retailer allowance to zero. It is the duty of people who are citizens to help maintain things, as it is the duty of people to help maintain the schools by paying a tax. So, it can be a duty to those who collect because they get the float of the money all month long anyway. Basically, they get an average of 15 days withhold up to 30 days.

 

SENATOR COFFIN MOVED TO AMEND THE PREVIOUS MOTION BY REDUCING THE STATE LOCAL SCHOOL SUPPORT TAX RETAILER ALLOWANCE TO ZERO PERCENT.

 

SENATOR TOWNSEND SECONDED THE MOTION.

 

Senator Townsend:

Do we have any idea how much reducing it to zero would raise?

 

Senator Coffin:

It looks like the withhold has been reduced by about 40 percent, so by reducing it even further to zero, you would more than double the amount of revenue you would generate if you reduced it to 0.75 percent. Instead of raising $7.6 million in the first year, you would probably raise $16 million or $17 million.

 

Mr. Combs:

If you are going to reduce the LSST retailer allowance to zero, I think we would need to go back and take a look at this and get back to the committee. It is something we did not anticipate having a number ready for today. I apologize if we are holding things up, but I would rather make sure it is a correct number we are giving you as opposed to something we are trying to do this quickly.

Senator Coffin:

Tell me if I am wrong on my math, Mr. Combs, but you have already reduced the retailer allowance here from 1.25 percent to 0.75 percent, which you indicate would raise $8 million. That is about a 40 percent drop; so then you would just double that amount and add a couple of dips. Am I correct? We could then take action and vote on this rather than waiting for you to get back to us.

 

Chairman McGinness:

You are probably looking at $13 million to $14 million in new revenue versus $7.6 million.

 

Mr. Combs:

As Senator Coffin said, I think you could double the amount shown on your sheet (Exhibit F) and be assured you have not overestimated.

 

Chairman McGinness:

Senator Coffin’s motion is to further amend Senator Neal and Senator Rhoads’s motions to reduce the state LSST retailer allowance to 0.75 percent, by reducing it instead to zero percent.

 

THE MOTION CARRIED. (SENATOR TIFFANY VOTED NO.)

 

*****

 

Chairman McGinness:

The next item is the business license tax (BLT). This is the $25 per full-time equivalent employee per quarter tax. It would go from $100 to $200 per year and would raise $81.2 million.

 

Senator Tiffany:

Is the sole proprietor included in this?

 

Chairman McGinness:

The sole proprietor is not included in this BLT proposal.

 

Senator Townsend:

Does it include the reduction in the second year?

 

Chairman McGinness:

Yes, the motion would increase it to $200 temporarily and then reduce it back to $140 on January 1, 2005. Our legislative staff has indicated if there is not enough support when we get to the services tax portion of this, our revenues are going to be sorely lacking. If that is the case, we may want to keep the BLT at $200 past January 1, 2005.

 

SENATOR RHOADS MOVED TO TEMPORARILY INCREASE THE BUSINESS LICENSE TAX TO $200 PER YEAR AND THEN REDUCE IT TO $140 EFFECTIVE JANUARY 1, 2005.

 

SENATOR COFFIN SECONDED THE MOTION.

 

Chairman McGinness:

As Senator Rhoads has indicated, there are some very difficult motions we may have to support and for me, this is one of them. Though it is a significant increase, this is the one the Governor proposed raising to $300.

 

THE MOTION FAILED. (SENATORS O’CONNELL, TOWNSEND, NEAL, AND TIFFANY VOTED NO.)

 

*****

 

Chairman McGinness:

Is there some other number we could talk about rather than $200? We will come back to this one and see where we are. The property tax proposal would raise $93.2 million.

 

Senator Rhoads:

I would make a motion to reduce the property tax increase to 10 cents and raise the cigarettes tax from 20 cents to 35 cents in the first year and have it remain at 35 cents in 2005. I think it would be a wash, but we would be reducing property tax.

 

Chairman McGinness:

The proposal here is to lower the increase in the property tax from the 15-cent rate to 10 cents. However, in order to regain some revenue, we would increase the cigarette tax to 35 cents in 2004 to remain at 35 cents 2005.

 

Senator Coffin:

There was a prior motion made on the cigarette tax on which we have acted and the measure has passed out of here, has it not? Therefore, you would have to move to rescind. People have been purchasing cigarette stamps now at the 20-cent rate. They have already purchased an inventory. I think I mentioned this when we beckoned Mr. DiCianno up here. What do we do here?

 

Chairman McGinness:

The recommendation was only a piece of the bill. There has been no change in the cigarette tax yet until we finally make a decision. The increase has not been made into state law.

 

Senator Coffin:

Right, except I imagine people who have significant bankrolls have been stockpiling cigarettes, so is there an enforcement problem when you have another tax that might take effect at the same time. How would you do it?

 

Chairman McGinness:

I think they would just have to buy the additional rate of tax or stamps. Mr. DiCianno, if I am not correct, can you help me on this?

 

Mr. DiCianno:

With respect to the requests the department has received for cigarette stamps, we have seen some requests for additional stamps over and above what they normally purchase. We have limited any increases to 10 percent and we have asked for the cooperation of those individuals, but I am not aware of any manufacturer or anyone stockpiling cigarettes at this time.

 

Senator Coffin:

I am sorry if I used the word stockpiling. That almost means hoarding, but it makes common sense you would buy more cigarettes. Would those people have applied stamps already?

 

Mr. DiCianno:

I am not sure what they are doing, so it is very difficult for me to be able to respond. All I can tell you is what information we have received.

Senator Coffin:

I want to make sure we would not have a problem in the field where you have two tax rates on some stamps. In July you might have some stamps with 20‑cent cigarette stamps, and some with a 35-cent stamp.

 

Mr. DiCianno:

From an administrative standpoint, that is not a problem.

 

Senator Coffin:

You would know that they were purchased in time?

 

Mr. DiCianno:

We have records of what stamps are sold to whom.

 

Senator Coffin:

So, in contemplation of this, even though stamps are out there, you could handle them both. Nobody would be in violation if he had 20-cent stamps on packs, when in fact, the current rate of taxation was 35 cents?

 

Mr. DiCianno:

It depends upon the effective date you put this into place.

 

Senator Coffin:

What if they had already stamped it with a 20-cent stamp, would they have to run it through the machine again with another 15 cents?

 

Mr. DiCianno:

As of the effective date, it would have to be properly stamped.

 

Senator Neal:

I do not have a problem as such, with the motion made by Senator Rhoads. I could support the motion if we could equate the same percentage of the property tax increase to the gaming tax.

 

Chairman McGinness:

We will go back to the property tax and take it alone without Senator Rhoads’s tying it to the cigarettes. Is there any appetite on the property tax at any rate?

SENATOR RHOADS MOVED TO INCREASE PROPERTY TAX 10 CENTS.

 

SENATOR COFFIN SECONDED THE MOTION.

 

THE MOTION FAILED. (SENATORS O’CONNELL, TOWNSEND, NEAL, AND TIFFANY VOTED NO.)

 

*****

 

Chairman McGinness:

If there is an appetite to increase the cigarette tax, we would need a motion to rescind our previous action.

 

SENATOR RHOADS MOVED TO RESCIND THE PREVIOUS MOTION TO INCREASE THE CIGARETTE TAX 25 CENTS IN FISCAL YEAR 2004 AND AN ADDITIONAL 10 CENTS IN FISCAL YEAR 2005.

 

SENATOR O’CONNELL SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

SENATOR RHOADS MOVED TO INCREASE THE CIGARETTE TAX 35 CENTS IN FISCAL YEAR 2004.

 

SENATOR O’CONNELL SECONDED THE MOTION.

 

Senator Coffin:

This issue of conflicting tax rates out there in the field raises a problem in my mind. I think we would have to give immunity in some way or another to those who have already stamped their cigarettes.

 

Senator Neal:

The law has not passed yet, Senator.

Chairman McGinness:

Mr. Whittemore, give us the short on the mechanics. If we raise the tax x amount on July 1, the retailers are obligated to have the correct stamps on their cigarettes, are they not?

 

Harvey Whittemore, Lobbyist, Nevada Resort Association:

If you in fact raise the rate to 35 cents, there are those who are already going to have stamps, which will allow the product to have an effective stamp prior to the effective date. The question Senator Coffin is asking is are those who have existing stamps going to be required to add additional stamps to sort of “gross up” the amount. If you have a 20-cent tax stamp, do you have to add a 15-cent stamp? When prior tax increases have gone into effect, you have never had to add stamps. There are those individuals in the marketplace who are buying the tax stamp rolls, keeping them in place, and being prepared to add those to the cigarette packs. You need an effective mechanism if you are going to prevent that from happening. The retailer is going to be able to take advantage by pre‑buying tax stamps in anticipation of an increase.

 

Chairman McGinness:

To some extent, that has happened with every tax increase.

 

Mr. Whittemore:

Part of the argument about phasing this in over a period of time, was to get away from the possibility of that happening. According to Mr. DiCianno’s testimony, there has not been huge stockpiling. I imagine as we get closer and closer, there are going to be those who see this as more of a reality who may, in fact, attempt to acquire additional tax stamp rolls.

 

Chairman McGinness:

Mr. DiCianno has also testified they have limited any increase to 10 percent, so they do have a certain amount of control.

 

Senator O’Connell:

When the post office raises the price of stamps, they also produce a stamp the equivalent of the amount of the increase. Could we not also do the very same thing?

Mr. Whittemore:

It could be done, but the question is whether you go through the bureaucracy and the time and effort to produce such a stamp and to create a mechanism.

 

Senator O’Connell:

What if we made this effective October instead of July?

 

Mr. Whittemore:

You could probably get it done in October and you could probably come up with a mechanism to avoid the effect of giving the retailer the ability to buy tax stamps in anticipation of the increase. However, it creates a layer of an audit and a bureaucracy I am not sure we are prepared to do, but it could be done.

 

Senator Townsend:

What would this increase generate in the first year?

 

Mr. Combs:

It would be just short of $55.2 million.

 

THE MOTION CARRIED. (SENATOR TOWNSEND VOTED NO.)

 

*****

 

Chairman McGinness:

We already took action on the 100 percent liquor tax increase, which brings in $20.2 million. The proposal on gaming creates a new tier for those with a monthly gross of over $1 million at 6.75 percent and would bring in $35.1 million the first year and $39.8 million the second.

 

Senator Neal:

That amount is insufficient to take care of the problems gaming creates for the State. During testimony, we received information indicating gambling addiction alone would cost the State anywhere from $300 million to $450 million per year. An increase of about $35 million would not even come near solving that particular problem caused by gaming. If we were going to increase the property tax by any percentage, we would certainly have to equate it with any increase we might have in gaming. Falling short of that, I propose we go to a fourth tier of taxes at 8 percent on gross revenues of more than $5 million, with a fifth tier at 10 percent on gross revenues of more than $10 million. It would generate $98.6 million in 2004 and could go up to $202.5 million in 2005.

 

SENATOR NEAL MOVED TO CREATE A FOURTH TIER OF TAXES ON GAMING AT 8 PERCENT ON REVENUES OF MORE THAN $5 MILLION, AND A FIFTH TIER AT 10 PERCENT ON REVENUES OF MORE THAN $10 MILLION.

 

THE MOTION FAILED FOR LACK OF A SECOND.

 

*****

 

Chairman McGinness:

Mr. Guindon, could you run through the tiers as they stand currently?

 

Russell J. Guindon, Deputy Fiscal Analyst:

Nevada Revised Statutes (NRS) 463.370 currently states it is 3 percent of the first $50,000, 4 percent of the next $84,000, and 6.25 percent on anything exceeding $134,000 per month.

 

Chairman McGinness:

So, we start at 3 percent and the top tier currently is 6.25 percent on anything exceeding $134,000. The proposal is to create a new tier at 6.75 percent on anything above $1 million.

 

Senator Neal:

Let me just make a case for the increase in this particular tax. As you probably know from the testimony we have received, we have the lowest tax rate on gaming in the world right now. The governor of Illinois, who is a Republican, proposed a tax of over $250 million. The rate would be 50  percent and the new governor has now proposed it go 20 percent above that. Nobody is running away from that particular tax, not even those industries working in Illinois that have gambling houses in their own states.

 

I think we have to do something here because this tax has not been raised since 1987 and to allow this to continue is a disservice to the people of this state. I can foresee if we do not raise this tax substantially to take care of the problems gaming causes, we are going to be back here next year trying to fill in these gaps. The number of tourists visiting our state last year went up to 47 million. When those tourists are here, they are temporary residents and we have to pay for them being here. We have to furnish the water they use, the medical care, the police protection, the roads, et cetera. Since the gaming industry is not stepping forward to pay for the problems it causes, we have to take money from the LSST to try to manage our budget. I think it is unfair to the public of this State to put that cost on the 2 million permanent residents, when we could take that money from the 47 million tourists who drop their money in the coffers of gaming. This is why I think it is necessary to do something with this particular tax.

 

My original proposal was to create a fourth tier at 10.25 percent for $1 million or more per month. I reduced that and proposed we go after those who are actually making the money, the big guys, and eliminate the little fellow. I proposed these fourth and fifth tiers starting at 8 percent and 10 percent. This is way less than what my proposal would have been at the 10.25 percent level, which would have generated something like $388 million a year.

 

Senator Coffin:

I think just because Senator Neal’s motion died for lack of a second does not mean there is no appetite to tax gaming here today. This is just the first day this has come to light and a lot of these taxes are hooked into others. For example, some people here on this committee supported a smaller increase in the property tax than what the Governor proposed, but failed to reach agreement. Likewise, you might have agreement at certain levels on gaming tax. We can discuss the policy about gaming here in this digested time by saying it is too much for some people, and quite affordable for others.

 

In those other territories where they have a monopoly on gaming, they pay a high rate and they are glad to pay it. In Las Vegas central, which I represent, there are casinos going broke. There might be one casino in downtown Las Vegas that is making any money and even it has laid off people. Hopefully, the economy will turn around and maybe downtown Las Vegas and downtown Reno will come back. However, right now I cannot see that high of a number for them, because they are now competing not only against themselves but the tribes as well, so let us revisit this.

 

I really do think it would be a good idea if we were careful on how we spoke on this. I think you may still have your day in the sunshine on this issue. In fact, I am prepared to be voting for a gaming tax this year. So, just because your motion died for the lack of a second does not mean there is no appetite for something here, because there is a lot of linkage in our minds on these things. I could add another couple of things to this list on which I would like a chance to vote.

 

Chairman McGinness:

Senator Neal’s motion was to take a look at this proposal plus two other tiers. We will further explore whether or not there is any appetite for a proposal of a new tier over $1 million at 6.75 percent.

 

Senator Rhoads:

I think the 8 percent and 10 percent proposed is too high because the casinos in those other states have a monopoly, which we do not have in Nevada. We have competition. But just to get the ball rolling, I would like to approve the new tier of over $1 million at 6.75 percent.

 

SENATOR RHOADS MOVED TO CREATE A FOURTH TIER OF TAXES ON GAMING AT 6.75 PERCENT ON REVENUES OF MORE THAN $1 MILLION.

 

SENATOR O’CONNELL SECONDED THE MOTION.

 

Senator Neal:

I have to vote against the motion because I do not think it is enough to take care of the problems caused by this particular industry. Gaming is different from any other industry in this state. In my testimony before this committee, I pointed out the fact for each 8000 employees in the gaming/casino operation, the State has to come up with $4.3 million in services. No other industry in this state exacts that type of cost. This is a money-intensive industry. It is a dollar for a dollar. That is the way they make their money. According to a Microsoft National Broadcasting Company (MSNBC) report, $12 billion per month was turned over in the gaming industry in Las Vegas last year and yet, you say they are not making money. They are making money. It is a money-intensive operation and it is different from any other industry.

 

We have let the gaming industry go wild in this state. In the 1950s and early 1960s, casinos were confined to the corridors of Fremont Street and The Strip in Las Vegas. Now we have them all over the community, which means our community and our people are suffering from gambling and it is why the addiction rate is so high in Las Vegas. As the University of Nevada indicated, it is costing this state $300 million to $459 million in services. We do a disservice to the people of this state when we permit this gaming industry to continue to operate on a low tax base.

 

The 15-cent property tax increase proposed by the Governor equates to 5 percent. I know we will look at the property tax again and whatever percentage we decide to increase it, the increase in the gaming tax should not be any lower. I am willing to stump this state throughout. If it comes to driving an old car or riding on a jackass, I will let the folks know what is necessary for the gaming industry to do. When I ran for Governor, Senator Rhoads, I pulled 900 votes from your district, based on my position. Many other counties throughout this state supported me and I obtained that support with very little money. I received 110,000 votes and spent less than $30,000 based on these particular issues.

 

Senator Neal:

I would think we would try to do something to at least address the problems this industry has created. If you do not, then what are we left with? Will the citizens have to go again to get an initiative petition to put this on the ballot? If that happens, it will be totally out of our hands. Out of the 110,000 votes I received, only 60,000 are needed to put an initiative petition on the ballot. I think that is what we are forcing the people to do and since we have a sufficient number of businessmen now who are concerned about this issue, it will be less difficult to do than when I attempted to do it here a few years ago.

 

Listen, ladies and gentlemen, something has to happen on this and I do not think the people are going to allow us to get away with just slapping gaming on the wrist and saying “Well, they have a monopoly in other states and here they have a lot of competition.” A lot of the gamers in this state are in competition with themselves and they are in competition with themselves in other states as well. The same gamers operating here operate in Illinois and many other places across this country. That is something we have to understand. It is not just a person in Illinois owning a gaming establishment. The MGM Mirage owns a gaming establishment there as well.

 

Those are the types of issues we should look at in terms of voting for this particular measure. Saying they have a monopoly is simply not true. I will not vote for the $35 million because I think the need is much greater and does not even come near to taking care of the problems gaming creates in this state.

 

Chairman McGinness:

There has been a motion by Senator Rhoads, seconded by Senator O’Connell, to create a new tier to tax gaming revenue of over $1 million at 6.75 percent.

 

THE MOTION CARRIED. (SENATORS TOWNSEND, NEAL, AND COFFIN VOTED NO.)

 

*****

 

Chairman McGinness:

The next item is the real estate transfer tax at the rate of $1 per $500 of value.

 

Senator Tiffany:

Could you refresh my memory on the amount proposed in the Assemblyman Hettrick bill?

 

Mr. Combs:

I believe the proposal was 0.5 percent, which would amount to $2.50 per $500 of value.

 

Senator Rhoads:

Would it take a big chunk out of the revenue if we exempted real estate valued at $200,000 or less, or perhaps $150,000 or less?

 

Mr. Combs:

If you exempted the first $150,000 of value, you would eliminate roughly 55 to 56 percent of the base. Therefore, you would have to increase the rate to around $2.50 per $500 of value to generate the same amount of revenue you would generate from $1. I would need a few minutes to get you the exact amount.

 

Chairman McGinness:

In order to generate the same amount of revenue with a $150,000 exemption, your rate would have to go up $2.50 for those valued at over $150,000. I think the average home in the northern part of the state is quite a bit less and the average home in southern Nevada is $189,000.

While Mr. Combs works on getting the exact figure, we will discuss the proposed room tax issue at 1 percent. It would bring in $32.8 million.

 

Senator Tiffany:

What was Assemblyman Hettrick’s proposal on the room tax?

 

Senator O’Connell:

I think he picked up the proposal by Assemblyman Mortenson, which was $3 per room, per night.

 

Chairman McGinness:

Percentage wise, $3 per room hit the lower-priced rooms a lot harder than it did higher-priced rooms.

 

Senator Tiffany:

In Assemblyman Hettrick’s plan, did he take that into consideration and have a tiered rate, or did he exempt?

 

Chairman McGinness:

I think it was just a flat $3.

 

Senator Tiffany:

Could we find out what the average room rate would be then?

 

Tom R. Skancke, Lobbyist, Las Vegas Convention and Visitors Authority:

I do not recall what he had for the average room rate.

 

Chairman McGinness:

Was his proposal just a flat $3?

 

Mr. Skancke:

Actually, he removed the room tax portion from his proposal. In response to Senator Tiffany’s question, at this juncture, room rates vary in different jurisdictions. In Laughlin, the average room rate currently is anywhere between $9 and $19 per night. In Primm, I believe the room rate on the weekend is $22 per night and during the week it is somewhere around $12 per night. In Las Vegas, the average room on Monday is somewhere around $100 per night and by Thursday, it is around $60 per night. I am not sure what the rates are in Reno, but I know they are substantially lower. I have recently heard the room rates in Elko were around $6 and $7 per night and I am not sure what they are in Wendover and Mesquite. As you have heard in previous testimony, the market has changed significantly since September 11, 2001, and since the Iraq war. There is a lot more competition, so the rates average differently throughout the state.

 

Senator Tiffany:

Can you tell me on what the 1 percent was based, to come up with the $32.8 million?

 

Mr. Combs:

We just looked at what the collections were for a specific rate and then multiplied this new rate by it.

 

Chairman McGinness:

If there is no comment on the room tax, are we ready to go back to the real estate transfer tax?

 

Mr. Combs:

We were trying to figure out if it is linear and we believe it is. With a $150,000 exemption, you would need to increase the rate by $2.26 to generate the same amount of revenue the $1 tax would generate with no exemption.

 

SENATOR RHOADS MOVED TO EXEMPT THE FIRST $150,000 FROM THE REAL ESTATE TRANSFER TAX AND INCREASE THE TAX BY $2.25 FOR REAL ESTATE VALUED ABOVE $150,000.

 

THE MOTION FAILED FOR LACK OF A SECOND.

 

*****

 

Senator Townsend:

I appreciate the previous maker of the motion and I will now try something else. I would now move to include in the package, an exemption of $200,000, including all transfers of real property. Under our current law, any transfer of stock ownership does not include a transfer tax on real estate held as an asset in a corporation. Those are large transactions mostly occurring in southern Nevada. They only occur once in a while, but when those are recorded as transfers and the appropriate mechanism is in place, they need to be captured. Even though it is not a steady revenue stream, it is additional revenue.

 

SENATOR TOWNSEND MOVED TO APPLY A $2.25 INCREASE IN THE REAL ESTATE TRANSFER TAX AT THE SAME LEVEL ACROSS THE BOARD WITH AN EXEMPTION OF $200,000 APPLIED TO ALL TRANSFERS OF REAL PROPERTY INCLUDING REAL PROPERTY HELD AS AN ASSET IN STOCK TRANSFERS.

 

SENATOR NEAL SECONDED THE MOTION.

 

Senator O’Connell:

Would the maker of the motion be amenable to removing the exemptions on the real estate transfer tax we have talked about in this committee? I believe there were eight.

 

Senator Townsend:

Yes, if we could leave the exemption between spouses.

 

Chairman McGinness:

The exemptions provided by the recorders are shown on page 11 in your work document (Exhibit E). I believe we had an opinion from the Legal Division indicating we had to leave the bankruptcy in there.

 

Senator Townsend:

Senator O’Connell wants to get rid of all of the exemptions, but we do not have an option. The first exemption is “A transfer of title to the United States, any territory or state or any agency, …” We do not have an option there because it is a supremacy clause issue.

 

Senator O’Connell:

I really just wanted to accept only those exemptions suggested by the recorder.

 

Senator Townsend:

That is fine. I do not have a problem with it if Senator Neal is in agreement.

 

Senator Neal:

I am fine with it as well.

 

Chairman McGinness:

The only one the recorders lined out that we cannot do is the one regarding bankruptcy, because those are covered by federal laws.

 

Senator Tiffany:

We know if we exempted $150,000, we would need to raise the transfer tax about $2.26 per $500 value in order to generate approximately the $55 million shown on our spreadsheet. How much would we have to raise it if we exempted $200,000?

 

Mr. Combs:

To generate the same amount as the $1 levy on all property, you would have to increase the rate to $2.76.

 

Chairman McGinness:

The maker of the motion wants to leave it at $2.25.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman McGinness:

Unless anyone wants to go back and revisit property tax or room tax, we can talk about the services tax of 0.75 percent, effective January 1, 2005.

 

Senator Coffin:

I am prepared to break ground with a tax on services, however, it has to have very few exemptions. You have proposed a very small number of exemptions, which I think is a good concept, but I think you are trying to broaden the tax base with a tax on services. I believe we have to give something back by way of reducing the sales tax in some fashion. That is not a motion. It is a comment. I do not know whether I want to get a revenue-neutral figure, but we have got to spread things out. One of the equations in both the Senators Amodei/Care proposal and in the Assemblyman Hettrick proposal was to reduce something, which I think we need to do.

Senator Rhoads:

I agree with Senator Coffin. I think if we could come up with a service tax, maybe something similar to Assemblyman Hettrick’s plan, and we could reduce sales tax, it would be less of a hit when we get home.

 

Chairman McGinness:

I believe Assemblyman Hettrick’s plan proposed 3 percent tax on services. In order to get a number close to the budget, if we go slightly higher with the services tax, perhaps we could lower the sales tax. I asked our fiscal staff to look at what 1 percent might produce.

 

Mr. Combs:

For the 6-month period with the exemptions noted on the proposed revenue plan (Exhibit F), 1 percent would generate around $113 million in the second half of FY 2005. You have two issues. If you lower the local school support tax (LSST), you have to increase the rate on the services tax to make imposing the tax worthwhile. You will recall, the Department of Taxation has indicated it is going to require a large number of returns they currently do not have, which will require additional staff. If you are going to lower the LSST, the tax you are already collecting and receiving, then you are going to have to bump up the rate significantly to make it worthwhile.

 

Mr. Chairman, I do not know what your plan is, but we can certainly determine how much each quarter percent reduction in the LSST would cost and then present some ideas for you. The other concern is once you start raising the services tax rate, you need to think about the issue of pyramiding and how many times in the process that tax is going to be charged. That is the argument for keeping a low rate. Obviously, if you are going to lower the sales tax, then you are going to have to increase the service rate.

 

Senator O’Connell:

While we are in the discussion mode, I would like to get a feel from the committee on the general, overall feeling about taxes. I honestly believe we go through cycles, and as Carole Vilardo has mentioned many times, if you look back at the history of taxes you will see that is true. Indeed, if it is true, I am not concerned at all about passing taxes that are going to build over the next 6 or 10 years. My concern is to pass enough to get us by, and then have an oversight committee to watch the growth. We all know government is going to spend every cent we give it. If we give it enough, it is going to keep growing and I believe these taxes are going to grow. The amount of these taxes is going to grow because I do think our economy is going to slowly, but surely, pick up.

 

I would like to know if the people on this committee feel we need to be raising taxes so that we do not have to come back and look at them. Personally, I think coming back to see how our economy is doing and to see if we still need all of these taxes is fiscally responsible. I certainly do not want to go overboard. Senator Tiffany said she feels pretty strongly about Assemblyman Hettrick’s plan and having been involved with Assemblyman Hettrick’s plan since before this session, I feel very strongly about it as well.

 

I would just like to know the philosophy of the committee members as to where they think we need to be and if they feel as I do in not wanting to go through what we are currently going through. I want it put on the record that personally, I feel very strongly about not funding a budget we know is going to take us into the year 2020 or “whatever.” I think we are going to give government more and more money, which I do not feel justified in doing, nor would I feel justified in trying to explain that to my constituency.

 

Senator Neal:

I have a different emphasis on this than Senator O’Connell. I have to think about the school children who do not have books. I have to think about the classes, programs, and many other services being cut, and the teachers who are not getting adequate pay. Those are things I think we have to fund and it should be utmost in our minds in terms of what taxes we increase and how we increase them. I think the least concern would be the about the amount of money government is going to spend right now.

 

Senator O’Connell:

In Assemblyman Hettrick’s plan, there is nothing cut. The Governor’s budget is fully funded where education is concerned and when I look back, I cannot see that we have ever cut. The school boards might have cut, but I do not think it is the intention of anybody on this committee to give less money to education, which I think is an important thing to get on the record. I certainly appreciate Senator Neal’s comments and I think his sentiments mirror those of most of the people on this committee. We are not talking about cutting education.

Chairman McGinness:

I would like to comment too, this proposal of $386 million in the first year and nearly $500 million in the second would fund the Governor’s proposal. I have had numerous e-mails asking me not to cut this music program, or that art program. That is not contemplated with the revenues we would raise with this proposal.

 

Back to the services tax, as Mr. Combs and Senator Coffin have said, keeping it at 1 percent would make it a lot easier to administer. I do not think lowering the sales tax is a bad thing, but if then we have to raise the services tax to get there, our constituents are not beyond seeing the ruse. We were first talking about creating a services tax at 5 percent and lowering the sales tax by 2 percent. I think it is important to keep the services tax just as low as possible.

 

Senator Rhoads:

Since it is going to cost quite a bit of money to administer the services tax, would the 0.75 percent even pay for those costs?

 

Mr. Combs:

The figure you see in the table (Exhibit F) represents only 6 months of collection starting January 1, 2005. If you double that, you are up to $170.8 million, which is the amount it would generate per year of tax collections. So, yes, it would clearly fund the collection of the tax.

 

Senator Tiffany:

You have got to keep in mind we are going to replace the Automated Collection Enforcement System (ACES) system anyway. It is a done deal. It is going to happen and it has a certain amount of cost to it, so I do not think it is fair to say the creation of this tax is going to cost the state $30 million to set up a computer system. We have to set up a new computer system anyway. I had a meeting with a legislator from New Mexico where they have a gross receipts tax. They spent $48 million on a computer and then scrapped it. They now have $8 million off-the-shelf software they love. So it can be done and it does not have to have a $30 million or $40 million price tag.

 

Chairman McGinness:

Thank you for you comment. You cannot tack the entire cost of a new computer system to the services tax. Is there any appetite on the committee? The numbers indicated at 1 percent was $113 million for the last 6 months.

Senator Tiffany:

I would be willing to make a motion on the services tax at 1 percent, but I also think Senator O’Connell had a very good idea about an oversight committee. So I would make a motion to create a services tax at 1 percent and to form an oversight committee to review the growth. We could then decide whether we wanted to reduce the sales tax or take a look at what is happening with the economy and what we are doing within the budget spending.

 

Chairman McGinness:

Would it be strictly a legislative oversight committee?

 

Senator Tiffany:

Yes.

 

 

SENATOR TIFFANY MOVED TO CREATE A SERVICES TAX AT 1 PERCENT EFFECTIVE JANUARY 1, 2005, AND FORM A LEGISLATIVE OVERSIGHT COMMITTEE TO REVIEW ITS GROWTH.

 

SENATOR RHOADS SECONDED THE MOTION.

 

THE MOTION CARRIED. (SENATORS TOWNSEND, NEAL, AND COFFIN VOTED NO.)

 

*****

 

Senator Townsend:

The chart being distributed to you (Exhibit G) has to do with property taxes. Senator Rhoads had proposed a $200,000 exemption to the real estate transfer tax using the concept that individuals with homes valued at $200,000 or less are those least able to pay. The Governor proposed a 15-cent property tax. On the second page, the first line shows a value of $200,000 with a $70,000 exemption, thereby allowing the rate to float up.

 

Please understand, this is independent from the current tax structure for property, meaning all local governments and all schools are currently held harmless. It does not affect anything currently in place. Under a $200,000 value, with the rate floating up after a $70,000 exemption, there would be no property tax increase for anyone owning a home of $200,000 or less. Under the Governor’s proposal, the property tax would be $105. Skipping down to the gray line where it shows a value of $366,665 with a $70,000 exemption, the homeowner would pay the same rate as in the Governor’s proposal. So, everyone who owns a home valued at $366,665 or less, would be held harmless, or would gain under the Governor’s proposal. Those individuals who have residential, commercial, and industrial values above that rate would then start to pay more. So, at $400,000, you would pay $21 more than the Governor’s proposal, and it goes right up to the $500 million where you pay almost $315,000 additional in property tax.

 

This creates the theoretical split tax roll in meeting constitutionality. Going back to Senator O’Connell’s and Senator Neal’s discussion of their philosophy on taxes, I went back to 1978, when we started down a very serious road that helped put us where we are today. Trying to meet what the Governor has put on the table, and say that although we had a constitutional challenge protecting those individuals under $200,000 from having any increase is constitutionally defensible. Those at $366,665 are being held at the same level as the Governor proposed, and those with higher net worth, the higher-income individuals and businesses would pay more. Therefore, I put that on the table. Mr. Combs, did we end up at $85 million in the first year?

 

Mr. Combs:

If you raise the rate to 33 cents per $100 of assessed value, the yield would be the same as with the 15-cent rate. According to our estimates, it would generate $93.2 million the first year and $100.1 million the second.

 

SENATOR TOWNSEND MOVED TO INCLUDE HIS PROPOSAL AS THE PROPERTY TAX PORTION OF THE TAX PACKAGE.

 

SENATOR RHOADS SECONDED THE MOTION.

 

Senator Neal:

I think the Senator came up with a very good idea, but I do not think I will be able to vote for it because this still would mean about a 4 percent increase in property tax to the citizens of this state. We are proposing increasing the gaming tax only about 0.50 percent.

Senator Townsend:

I would hope someone who ranks second in seniority and is as articulate on any of these issues as anyone, would consider these independent from one another for the following reasons. “No. 1, I do not believe that debate is finished with regard to that issue.” No. 2, those substantially larger properties the Senator made reference to, pay substantially more, and I have specific examples of those under this proposal, which we think is much more stable. I based half of the premise on which these analyses were made on Assembly Concurrent Resolution No. 1 of the 17th Special Session. I also referred to the Governor’s task force, which was to be broad-based, stable, grow with growth, be the least costly to implement, and be the easiest to understand. I believe this proposal meets that guideline as does the real estate transfer tax proposal. I followed on Senator Rhoads’s motion that the larger and more expensive properties are, in fact, taxed at an increasingly larger rate.

 

Senator Coffin:

I recognize what Senator Neal was trying to divine out of the numbers. It is not clear yet who gets the increase and who does not.

 

Senator Townsend:

If you will go to the second page, “with the rate floating up at the 33-cent level in order to meet the exact numbers that the Governor had proposed,” means those individuals with a home valued at $200,000 or less, who would be paying $105 additional, but would pay absolutely nothing more under this proposal than they are currently paying. If you go to $250,000, those people would be paying an additional $73.50 under the Governor’s proposal, but would only be paying $57.75 under this proposal.

 

I found it amusing because Senator Tiffany made reference to a $360,000 home so we drew this gray line there. Something valued at $366,665 would be paying $192.50 under this plan, which is the same number that would be paid under the Governor’s proposal. Therefore, anything $366,665 or less would be paying less than the Governor’s proposal and when you get to $200,000, you would be paying nothing as an increase. I think that is important particularly for our challenged rural communities, as well as for our average citizen who has probably bought his first home and is probably under that rate.

 

To summarize, the payment would be in the “Payment” column. The column “Difference from Governor’s Proposal” shows the difference in payment in the two proposals. It shows the first five tiers would pay less than the Governor’s proposal and then starting at the sixth tier, they would pay more.

 

Senator Coffin:

This shows a lot of finesse. It is better than the brute force of the other proposal. In fact, the straight 15-cent proposal did not even get a second and when I tried a 10 percent across-the-board proposal, it failed. Please explain mechanically, how and when this would start and when it would begin to yield money. In your opinion, how would this distribute through the state?

 

Senator Townsend:

I cannot give you an exact or perfect response to the first question, but the assessors are looking at how quickly this can be done. If this is ultimately adopted and signed by the Governor, it could be implemented starting in the next fiscal year.

 

Senator Coffin:

Did you look at any distortion possibilities among the counties?

 

Senator Townsend:

This is entirely additional state revenue only.

 

Senator Coffin:

So, we do not have to worry about mechanical problems, it just goes right straight into the General Fund?

 

Senator Townsend:

Absolutely.

 

Chairman McGinness:

Some of the counties I represent are at the cap. Would this have to be outside their local cap?

 

Mr. Combs:

Actually, that is another decision the committee needs to make in terms of what they want to put in their bill in relation to this. At the bottom of page 7 of your work session document (Exhibit E), there is a description under “Legislative Committee on Local Government Taxes and Finance Proposal.” It describes how to handle the imposition of a new state property tax rate outside of the local government $3.64 cap. On page 8, I have tried to put this in some type of a visual form. The rate distribution in 1979 was a $3.14 rate for local governments and school debt and a $0.50 rate for school operation. There was $1.36 remaining under the cap. Since 1993, the distribution has been different because two additional pieces were added under the $3.64 cap, a $0.15 rate for state debt and a $0.25 additional rate for school operation. The two of those obviously total 40 cents.

 

What the Legislative Committee on Local Government Taxes and Finance had recommended was to put the local governments back into the position they were in prior to those additional school rates being imposed within the cap. The dark line in the three columns indicates what would be outside of the local government cap under that proposal. The cap would be lowered from $3.64 to $3.14. The total school operating rate of $0.75 and the $0.15 state debt rate would be outside the cap. This would leave 96 cents under the $5 cap. If you choose to go with this proposal, it would take up 33 cents of that. That is kind of distorted because the 33 cents is being taken up out of the cap, but the 33 cents is not applying to every single homeowner.

 

I do not think, realistically, you have the choice of trying to slide $0.33 in the $3.64 cap and making the local governments adjust accordingly. You have two other choices. One is to leave the cap where it is and just establish this rate outside of the cap. The other option, which puts the local governments back in the position they were in before the imposition of those two additional rates, would be to do what the Legislative Committee on Local Government Taxes and Finance recommended. That is to lower the rate to $3.14 and exclude the $0.90 currently included in that rate for schools and state debt service.

 

Senator Neal:

Can I ask Mr. Leavitt to come to the table and share his concerns and ideas with respect to Mr. Combs’ testimony?

 

Marvin A. Leavitt, Lobbyist, Urban Consortium:

The change in the maximum allowed rate, which would essentially apply to local governments, would make available to local governments an additional 40 cents in rates not now available to them. Because the 15 cents and the 25 cents would be outside of the rate, 40 cents would be freed up for local governments. We would not see any change in the rate in Clark County because our secondary caps are controlling the rate and we are not at the $3.64 anyway. It is conceivable you could see some slight change in Washoe County because you are much closer to the maximum rate.

 

If there were going to be a change of any magnitude in the State, it would come in the rural counties currently right at the $3.64 cap. Conceivably, you could see some of them go above the rates they currently have if you were to enact the $3.14 maximum rate. As long as this proposal applied only to the state portion and the computations did not apply at all to any local government levies, then indeed local governments would not be affected by it.

 

If you tried to apply it to local government, the mix of properties within counties is so different, you could have some counties where the $70,000 exemption would include a share of the property and there would hardly be anything left. So, even though it would work statewide, it would not necessarily work within the individual counties. I think mechanically, it will work and will indeed hold harmless those people Senator Townsend has indicated will be held harmless.

 

Chairman McGinness:

Mr. Leavitt has given a pretty good endorsement, saying it will do pretty much what you claimed it would do.

 

Senator Neal:

He did not endorse it. He just explained it.

 

Chairman McGinness:

A motion has been made by Senator Townsend and seconded by Senator Rhoads. Now the question we need to decide is do we lower the rate to $3.14, et cetera. I think Mr. Leavitt pretty much told us what we have to do, which was the recommendation from the committee. Does everyone understand the motion?

 

THE MOTION CARRIED. (SENATORS O’CONNELL, NEAL, AND TIFFANY VOTED NO.)

 

*****

 

Chairman McGinness:

There is some other information in the work session document. Senator Neal, I think page 4 shows your information on exemptions.

 

Senator Neal:

These are the proposed exemptions offered in terms of property taxes. “Boats,” in NRS 361.068 refers to all boats with motors, including the larger sailboats, currently registered with the Division of Wildlife. Boats are considered luxury items and should not be exempt from taxation. Therefore, we are asking to repeal the exemption on boats.

 

Chairman McGinness:

With exemptions, it is hard to tell how much money you are going to generate. Do you have any numbers at all?

 

Senator Neal:

We had given this one to Mr. Combs to take a look at and he and his staff could not come up with any particular figures. I would like to take each of these exemptions individually.

 

SENATOR NEAL MOVED TO REPEAL EXEMPTIONS ON BOATS.

 

SENATOR O’CONNELL SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Senator Neal:

The next one deals with fine art for public display for which the State does not get any money, however, the county does.

 

SENATOR NEAL MOVED TO REPEAL EXEMPTIONS ON FINE ART FOR PUBLIC DISPLAY.

 

SENATOR TIFFANY SECONDED THE MOTION.

 

Chairman McGinness:

I might comment, this is one of the issues that is going to be on the ballot if we pass the streamlined sales tax. If we removed this, would it still be necessary for this piece to go on the ballot?

 

Mr. Combs:

This is the property tax exemption, not the sales and use tax. The ballot question is not addressing the property tax exemption.

 

Chairman McGinness:

So the ballot question would not impact this. It has been moved by Senator Neal and seconded by Senator Tiffany to remove this exemption.

 

THE MOTION CARRIED. (SENATORS RHOADS AND TOWNSEND VOTED NO.)

 

*****

 

Senator Neal:

The exemption for radioactive fallout shelters is a relic of the cold war. It has been in statute for years and we do not know if anybody even uses this exemption.

 

SENATOR NEAL MOVED TO REPEAL EXEMPTIONS FOR RADIOACTIVE FALLOUT SHELTERS.

 

SENATOR TOWNSEND SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

Senator Neal:

The next one deals with surviving spouses and orphans. This exemption originated in the nineteenth century. It reduces the tax bill of the recipients by $30 per year, which is hardly enough to cover the administrative costs. Few eligible persons know about it or take advantage of it.

 

SENATOR NEAL MOVED TO REPEAL THE EXEMPTION FOR PROPERTY OF SURVIVING SPOUSES AND ORPHANS.

SENATOR TOWNSEND SECONDED THE MOTION.

 

 

 

Senator Coffin:

Just because they do not know about it or do not take advantage of it, does not mean we should take it away. Maybe we ought to consider putting this one aside.

 

THE MOTION CARRIED. (SENATOR COFFIN VOTED NO.)

 

*****

 

Senator Neal:

Next we have the exemption for the property of the Nathan Adelson Hospice. This hospice is one of many such organizations providing hospice services and it is the only one having this exemption.

 

SENATOR NEAL MOVED TO REPEAL THE EXEMPTION FOR PROPERTY OF THE NATHAN ADELSON HOSPICE.

 

SENATOR RHOADS SECONDED THE MOTION.

 

Senator Coffin:

Is it because it is on public property, or is it on private property? I know it was the university’s property. Are they renting or leasing from the university?

 

Senator Neal:

No.

 

THE MOTION CARRIED. (SENATOR COFFIN VOTED NO.)

 

*****

Senator Neal:

The next one deals with parsonages, living quarters of ministers, and rented meeting rooms. It all depends on whether or not you want your priest to pay taxes on his housing. I forgot why we included this exactly.

Mr. Combs:

Nevada Revised Statutes 361.157 appears to provide instances when property otherwise exempt is taxed because it is being used for a purpose other than for which the exemption was originally applied. Paragraph (l) is the occasional rental of meeting rooms or similar facilities of less than 30 consecutive days. I do not know if that is the one you are proposing to repeal.

 

Senator Neal:

We will skip that one.

 

Senator Tiffany:

Does Senator Neal even have a guesstimate of what he thinks this might bring in?

 

Senator Neal:

Yes, we know the one dealing with the property of surviving spouses and orphans amounts to approximately $300,000 per year.

 

Mr. Combs:

Remember, that amount is on the whole property tax rate and does not go to the State. If you consider the 15-cent portion is going to debt service now, it comes to about $15,000. I would just count the repeal of these exemptions as gravy. If we are short on everything else, maybe these will generate something.

 

Senator Neal:

The next one is the casino entertainment tax. As the statement indicates:

 

Although the casino entertainment tax is a significant source of revenue for the State General Fund, it is riddled with exemptions. Many of these exemption are completely arbitrary and none serve any compelling public purpose. For example, a concert held in an auditorium with a capacity of more than 2750 persons is exempt, but a show held in a smaller arena is taxable. I propose to repeal all the exemptions to this tax found in NRS 463.4015. The gain in state revenue, though difficult to estimate, would be large.

 

It would be large because they put on a lot of these particular shows throughout the state in the larger casinos.

 

Senator Townsend:

Before Senator Neal makes a motion, do we have a chart identifying the exemptions to the casino entertainment tax? According to our research, many of them are arbitrary and if I can figure out what they are, it will help.

 

Mr. Combs:

We were asked about the exemptions to the casino entertainment tax early on in the session and sought to get information on what amount of revenue could be generated through the elimination of those exemptions. The information is just not readily available, but through some research on the Internet and discussion with people who have the knowledge, we determined there is one on which we would at least hazard a minimum estimate. We are not saying by any means we have this nailed down, but we do not think it would generate any less than the number I will pose to you. It is the one having to do with the number of seats in an auditorium. We are estimating if that exemption were eliminated, it could result in about $12.8 million per year.

 

Chairman McGinness:

The rate on the casino entertainment tax is 10 percent.

 

Senator Townsend:

Senator O’Connell has given me a copy of the NRS chapter dealing with the types of entertainment not subject to casino entertainment tax (Exhibit H). According to NRS 463.4015, one of those on the list is a sporting event. Is that like truck pulls and boxing matches? Is it anything being held in an arena of less than 2750 persons?

 

Mr. Combs:

If it meets the definition of a sporting event, the size of the arena would not matter.

 

Senator Townsend:

Let me try to understand this. Looking at paragraph (g) on the second page, it says:

 

A concert or other activity or entertainment presented in an amusement park, arcade, theme park, outdoor area, area with a man-made body of water, area customarily used for trade shows or conventions, or any similar area, unless the concert or other activity or entertainment is presented in a cabaret, nightclub, cocktail lounge or casino showroom which is located within such a facility or area;

 

So, if entertainer X appears in a cabaret, clients pay a tax; but if the identical entertainer appears in one of these facilities, they do not pay an entertainment tax. Do I understand this correctly?

 

Senator Neal:

Yes.

 

Senator Townsend:

I do not understand paragraph (c), “Presented in or about a swimming pool, water park or on a natural or artificial beach;”I believe it is the work of the staff who wrote, “Many of these exemptions are completely arbitrary and none serve a compelling public purpose.” This is very difficult to understand and it seems like it would be easier to just say what is taxed. It seems the only shows you can tax are in a cabaret, nightclub, cocktail lounge, or casino showroom. Do I understand this correctly?

 

Chairman McGinness:

That seems to be it. Yes.

 

Senator Townsend:

This is a casino entertainment tax and it is all we are taxing here. We have this a little backwards.

 

SENATOR NEAL MOVED TO REPEAL THE EXEMPTIONS TO THE CASINO ENTERTAINMENT TAX.

 

Senator Townsend:

We do not have a matrix showing what repealing all of the exemptions and dropping the tax from 10 percent to 5 percent would do dollar wise.

 

Chairman McGinness:

Senator Neal, I am looking at paragraphs (a) and (b), “A charitable or nonprofit benefit; and an exhibition in a museum;”

Senator Neal:

We did not want to deal with the charitable activities, so they would be excluded from this proposal.

 

Chairman McGinness:

Did you want to deal strictly with the concert in the auditorium?

 

Senator Neal:

Yes.

 

Chairman McGinness:

The motion is to remove the exemption for concerts held in an auditorium with the capacity of more than 2750 persons.

 

Senator Coffin:

It is an event tax. What about events held in publicly owned auditoriums? Are they not taxed then?

 

Senator Neal:

We are talking about a casino entertainment tax.

 

Senator Coffin:

An event held in a public arena would not be taxed. Am I wrong?

 

Senator Neal:

No, we are talking about casino entertainment tax. We are not talking about events at the convention center or Thomas & Mack Center unless you want to include those as well, Senator Coffin.

 

Senator Coffin:

I just want to make sure we do not create an inequity.

 

Senator Neal:

If you think it would, I am amenable to including those, if it is your inclination.

 

Chairman McGinness:

Mr. Whittemore, can you provide some clarification here?

Mr. Whittemore:

I think you are struggling with two components and need to make a policy decision. The casino entertainment tax was designed to create a special rate for certain types of events located within casinos. The policy decision was designed to create exemptions to make sure you did not pay tax on other types of events. It was meant to tax only those activities associated with casino gaming such as cabarets and floor shows. The language was written broadly to ensure those activities not directly related to casino gaming would not be taxed. There have been literally hundreds of millions of dollars invested on the reliance that certain activities within certain event centers would not be taxed under the casino entertainment tax. Removing the exemptions would really impact the casino entities. You would be taxing the events conducted on their facilities while exempting activities conducted in privately owned facilities not associated with gaming entities. Removing the exemption does not increase the tax.

 

Senator Townsend:

I am really wrestling with how this works mechanically. If an entertainer appears in one of the cabarets or showrooms in a casino, the customer pays a 10 percent entertainment tax.

 

Mr. Whittemore:

That is correct.

 

Senator Townsend:

If the gaming property builds a 2752-seat theater outside of the gaming area and the same entertainer appears there, then they are exempt?

 

Mr. Whittemore:

If it was a separate facility, that is correct.

 

Senator Townsend:

If they appeared at Thomas & Mack Center, Lawlor Events Center, or in a convention center, there would be no tax at all.

 

Mr. Whittemore:

That is correct. So, the question is, are you suggesting, as was originally proposed by the Governor’s task force under the original amusement tax, remember when you had the discussions there, that what you were trying to do was to say, “Look, with respect to certain types of services, i.e., providing amusements, concerts, everything else, those types of services would be subject to an amusement tax.” That is what you are talking about right now, because if you remove that exemption, you are expanding it. If you remove that exemption altogether and say everybody has to pay it, then what you are really saying is that you are going to impose a tax at x, and then it gets to your question, well, wasn’t the proposal that it should be at 5 percent or 7 percent or something different on a moderated rate.

 

Senator Townsend:

What percent did the task force recommend?

 

Chairman McGinness:

I think it was very close to the sales tax.

 

Senator Townsend:

Do we know the amount we are currently raising in the casino entertainment tax arena?

 

Chairman McGinness:

According to the Economic Forum’s forecast, the casino entertainment tax will bring in $76.1 million in 2004 and $81.4 million in 2005.

 

Senator Townsend:

What was the projection for the amusement tax by the task force?

 

Chairman McGinness:

Seventy million to eighty million dollars.

 

Senator Townsend:

The reason I bring up the issue is I am trying to see if an entertainer can appear in three different venues within a mile circle and have different tax rates. I am not saying the entertainer should be taxed one way or the other. I think the big policy question facing this committee gets to the question of what the task force proposed, which was to broaden that to include all those events. In essence, if you repeal all the exemptions, you have gone to an amusement tax, per se, at the 10 percent level, give or take a few things. I am just trying to get my arms around it because we have heard that proposal and now we are hearing this proposal and I guess, in essence, that is what you are doing at the 10 percent level. Am I correct?

 

Senator Neal:

Yes, and we were talking only about those entities on casino property, whether they are a separate facility or not.

 

Senator Townsend:

I understand, but now we exclude Lawlor Events Center and Thomas & Mack Center because they are not associated with the gaming property.

 

Senator Neal:

We could include them as well.

 

Senator Townsend:

We have the Livestock Events Center in Reno, which is not associated with a gaming property, as well as convention centers and all the stadiums. Those would be exempt under the current definition of the casino entertainment tax. You want to remove these exemptions except for a charitable and nonprofit benefit and an exhibition in a museum. Further, you want to capture anything that is not on a gaming property. That would include a sporting event, a trade show, a motion picture film, an outdoor concert, et cetera, none of which has to be on a gaming property. Or, are you saying only remove the exemptions if in fact they remain on a gaming property? I want to make sure I understand what your motion is.

 

Senator Neal:

That was the original intent, just the casino entertainment tax listed here in terms of the big houses. Of course, I understand the difficulty you are having with this in terms of allowing other properties, outside of gaming, to escape. I do not have a problem with including those. I would have a problem if this were excluded to include movie houses.

 

Senator Townsend:

Interactive entertainment is listed as an exemption. Do we have a definition of what interactive entertainment is?

Chairman McGinness:

I have a copy of a ruling by the Nevada Gaming Commission dated April 17, 2003 (Exhibit I). The Rio Suite Hotel and Casino hosted a show entitled “Tony ‘n’ Tina’s Wedding,” where professional actors and actresses play the roles of participants in a wedding party. There is a wedding cake, band, shared buffet, champagne toasts, and dancing. It says,

 

In 1995, the Nevada Legislature adopted Senate Bill (S.B.) 497, which included “interactive entertainment” as one of the kinds of entertainment not subject to the CET under NRS 463.4015. The phrase “interactive entertainment” is not defined within the Nevada Gaming Control Act or Regulations of the Commission.

 

In ordinary meaning, “interactive” is defined as (1), reciprocally active. (2), (of a computer or other electronic device) allowing a two-way flow of information between it and user. Given the fact that there are two definitions for “interactive,” the term can be logically interpreted in different ways. “Where a statute is capable of being understood in two or more senses by reasonably informed persons, the statute is ambiguous.” The phrase “interactive entertainment” is ambiguous. Therefore, review of the legislative history is appropriate.

 

The legislative history of S.B. [No.] 497 [of the 68th Session] reveals that “Star Trek: The Experience” was considered to be an example of the legislative meaning of “interactive entertainment.” No other meaning or examples were provided to or by the Legislature.

 

Star Trek: The Experience was described in part to the Legislature as:

 

         …uniquely designed with a totally interactive entertainment approach in which each visitor assumes the identity of a Starfleet alien crew member and participates as this character in the extraordinary and imaginative world of Star Trek.

 

And then it continues:

The description of Star Trek: The Experience provided to the Legislature emphasizes a “simulated ride” and more closely resembles the second, narrower dictionary definition set forth above, with a technological or computerized medium with which attendees interact.

 

Tony ’n’ Tina’s Wedding does not meet this narrower definition of “interactive” entertainment, which definition is more consistent with the legislative intent as reflected in the legislative history.

 

The commission concludes that the Legislature did not intend for the “interactive entertainment” exception to be decided by a quantitative evaluation of the extent to which an audience “interacts” with the actors and actresses. Instead, the Commission concludes that the “interactive entertainment” exception requires some form of the technological or computerized medium as a major focus of the experience and with which each attendee observes and interacts at some point during the event.

 

Senator Neal:

So, did we find out what it does?

 

Chairman McGinness:

It has to be like a computer game or some technological thing you have to do. It is not just participating with the actors and actresses in a show.

 

Senator Townsend:

The reason I asked that question is in another committee we debated the issue of the ability of the State to generate revenue regarding what is commonly known as gentlemen’s clubs. I asked it relative to paragraph (h), Interactive entertainment and right beneath it is paragraph (i) “Participation in physical or sporting activities other than dancing (Exhibit E);” which means you do tax dancing.

 

Senator Neal:

“Other” than dancing, which means you do not tax dancing.

Senator Townsend:

No, the exemption, which means you do not tax it, is “Participation in physical or sporting activities other than dancing”; so, it means we tax the dancing. The maker of the motion is talking about turning this from a casino entertainment tax into an amusement tax. Once you pull these out, would it then pull in gentlemen’s clubs?

 

Mr. Combs:

If the entertainment is not at a casino, it is not subject to this tax. Therefore, no matter what you do with the exemptions, you are not going to pull anyone in from outside.

 

Senator Townsend:

If you remove the exemptions, then the tax would be spread to all of these activities if in fact they were inside the auspices of a gaming environment. Is that correct?

 

Chairman McGinness:

That is correct.

 

Senator Townsend:

So, that means if entertainer X appears at a large facility on a gaming property one night, you get a 10 percent tax under this proposal. If the same entertainer goes across the street to Lawlor Events Center or Thomas & Mack Center the next night, the entertainer does not get taxed if you remove these exemptions.

 

Chairman McGinness:

Correct.

 

Senator Townsend:

That is just bizarre.

 

Senator Neal:

I have made a motion to repeal the casino tax exemption as it relates to the hotels and casino operations.

THE MOTION FAILED FOR LACK OF A SECOND.

 

*****

 

Senator Neal:

Next we will look at the sales and use tax exemptions. The first one deals with the trade-in values of vehicles in NRS 374.030. This exemption only applies to the local sales and use tax. An election was held in 1984 and the people rejected a proposal to exempt trade-ins from the state sales tax. The Legislature exempted it from the local taxes, which I propose we repeal.

 

Chairman McGinness:

For the committee’s information, on pages 5 and 6, items 1 through 6 are going to be included on the ballot in 2004. Senator Neal, do you want to take these one by one?

 

Senator Neal:

Well, if they are going to be included on the ballot, there is no need to take them.

 

Chairman McGinness:

That is my feeling. We will let the people decide on those. Number 7 is not to be included on the ballot, so we will look at it next.

 

Senator Neal:

Before we move away from items 1 through 6, this would broaden the exemption, which means we would lose more money in terms of local school support tax (LSST) and in terms of state sales taxes. The proposal here would narrow this. Would you comment Mr. Combs?

 

Mr. Combs:

I think the issue here is that A.B. 514, which you voted to amend and do pass earlier, has these first six in it. If those questions pass, then the same exemption appearing in 1 through 6 for the LSST is then going to appear on the 2 percent portion as well. It would make the two identical. If the questions do not pass, then all of the exemptions, including these, will be gone from the LSST and will not be in the 2 percent state portion either. If you voted today to remove these exemptions, they would not need to be on the ballot anymore because then the 2 percent portion and the LSST portion would be identical.

 

Senator Neal:

Would it mean we would get more money for the schools?

 

Mr. Combs:

Yes, you would. The LSST would collect more revenue if these exemptions were not there.

 

Senator Neal:

It would be my position then to remove the exemptions, since it might be a difficult question in terms of the public voting on it and what the vote would actually mean in terms of whether or not the exemptions stay or go. Mr. Chairman, would this require us to write separate statements for each of these exemptions or would it all just be one?

 

Chairman McGinness:

We voted earlier to include them all as one question.

 

Senator Neal:

Okay, I would let those go and let the people decide on it. Moving on to No. 7, I would move to repeal that exemption.

 

Chairman McGinness:

We are looking at page 6, item 7 (Exhibit E). Senator Neal has moved to remove the exemption for newspapers and newspapers components.

 

Mr. Combs:

The way this is phrased, it would need to go to the ballot for the 2 percent portion. The recommendation would be to remove the exemption and make its removal from the local sales tax statutes contingent upon the approval by the people to repeal the state tax exemption. That would be consistent with A.B. 514 because, depending on the answer to the question, the base would be the same for the two portions of the tax.

 

SENATOR NEAL MOVED TO REPEAL THE EXEMPTION FOR NEWSPAPERS AND NEWSPAPER COMPONENTS.

SENATOR O’CONNELL SECONDED THE MOTION.

 

Senator Coffin:

This is analogous to manufacturing, where you do not tax at the manufacturing level until you actually sell a product. Newspapers themselves are not taxed, so a lot of states do not tax the newspapers at the lower levels because they tax at the retail level. It makes for an odd price sometimes. The point is it is like manufacturing. Do we tax manufacturing at the various stages of completion at all, or do we wait until the product is finished and then collect on the ultimate sale made in the State?

 

Ray Bacon, Lobbyist, Nevada Manufacturers association:

If it is a component identifiable to a discreet end item like a resistor or a diode that becomes part of a circuit board, which becomes part of a television set or whatever, it is not taxed until it is sold at the end product level. If it is a nondiscreet entity, which cannot be identified to a specific product such as glues, paste, and inks, it is taxable for the normal manufacturing operation.

 

Senator Townsend:

I bought a newspaper at the airport and it was 57 cents or something. It was the most bizarre thing I had ever seen. Are we aware of how they collect the tax in a vending machine if it is a 57-cent item?

 

Mr. DiCianno:

If you purchase something in a vending machine, the tax is already included in the price of the product when you pay for it.

 

Chairman McGinness:

Right now, newspapers and their components, even the paper and ink used to print, are exempt. If the newspaper buys a new printing press, it pays sales tax on it.

 

Senator Townsend:

If they buy a barrel of ink or a roll of paper, they are going to pay a tax on those things.

 

Chairman McGinness:

No, it says now they are exempt. There has been a motion and a second.

 

THE MOTION CARRIED. (SENATORS RHOADS AND COFFIN VOTED NO.)

 

*****

 

Senator Neal:

I just need some clarification as to what we actually have done with the sales and use tax on those other items. I have been told our vote would have expanded the exemption rather than curtailed the exemption by putting it on the ballot. Is that correct?

 

Chairman McGinness:

I think it depends on how the vote goes. Currently, there are people still paying the 2 percent. If the voters vote yes, they will not even pay the 2 percent. If they vote no, then they will go back to paying the full 7.25 percent.

 

Senator Townsend:

I had asked a question regarding the casino entertainment tax. I believe it was stated it raises $64 million or $65 million. I would really like to find out how much revenue could be generated if none of the venues were exempted. We could then broaden it and lower the entertainment tax. I think lowering it to a 5 percent rate and broadening it would be a more stable way to go. I would like to see those numbers because I have no clue what they would be. I mean, I do not know if we would lose revenue or raise revenue or if we would be revenue neutral. So, if that is possible, I certainly think the committee would have something else at which to look.

 

Chairman McGinness:

To the extent possible, I am sure they will do their best.

 

Chairman McGinness:

The legislative staff has provided us with an updated version of the Senate Taxation Revenue Plan (Exhibit J) we went through this afternoon. There are just a couple of things on which we need to find out where the committee wants to be. The business license tax is now blank. The temporary increase to $200 per year would have brought in $81.2 million. If we brought that to $140 as recommended by the task force, which was pretty much bringing it up with inflation, it would bring in $32 million the first year and $33.5 million the second year. Therefore, we have a policy decision to make there.

 

Senator Townsend:

Mr. Chairman, the purpose of my lack of support for the motion was based on the fact it was to be reduced in the second year. I think the Governor’s good‑faith effort to put that tax in because we need the money immediately is an important one. It was dependent upon another tax kicking in which gives me great concern. There are other options I will be bringing to you that are more stable and broad-based. I did not support it because I did not like the rollback on the basis something might happen. I am prepared to support the level in the first year and have that level continue.

 

We could then leave it for the next session to decide if in fact it continues to be needed at that level. But an automatic rollback might put one year of the biennium in jeopardy. I would not want to place something in the law that could jeopardize the finance committee’s efforts and make things more tenuous than they are currently. I do not know what the committee’s pleasure is, but I would be prepared to have something more consistent and long-term.

 

Chairman McGinness:

Do you want to leave this until Monday?

 

Senator Townsend:

Yes.

 

Chairman McGinness:

The only other item we did not address was room tax, which we will also look at on Monday.

 

Senator O’Connell:

Would you see if you could look for the various tax proposals submitted by the Nevada Taxpayers Association on the passive revenue generation, so we will all have it on Monday?

Chairman McGinness:

Also, do not throw away your work session document (Exhibit E), as there are additional tax proposals in the back at which you should take a look. We are adjourned at 6:07 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Ardyss Johns,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Mike McGinness, Chairman

 

 

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