MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
May 19, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 3:22 p.m., on Monday, May 19, 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:
Assemblyman David R. Parks, Assembly District No. 41
Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 11
STAFF MEMBERS PRESENT:
Rick Combs, Fiscal Analyst
Russell J. Guindon, Deputy Fiscal Analyst
Mavis Scarff, Committee Manager
Gale Maynard, Committee Secretary
OTHERS PRESENT:
Marvin A. Leavitt, Lobbyist, Urban Consortium
Mary Lau, Lobbyist, Retail Association of Nevada
Chairman McGinness:
I will open the hearing on Assembly Bill (A.B.) 516.
ASSEMBLY BILL 516 (1st Reprint): Makes various changes to provisions governing taxes on motor vehicle fuels. (BDR 32-622)
Assemblyman David R. Parks, Assembly District No. 41:
I am reading from prepared testimony (Exhibit C). Assembly Bill 516 is one of the recommendations of the Legislative Committee for Local Government Taxes and Finance.
Marvin A. Leavitt, Lobbyist, Urban Consortium:
I would like to make comments on the formula contained in the bill. The formula currently in law is simple, but there have been problems in its application. The formula in A.B. 516 is more complicated. The formula will distribute gasoline taxes by the two-thirds, one-third formula. Two-thirds relates to population and one-third relates to road miles with a guarantee for every county.
If a county makes it beyond the original threshold in the existing law, it would receive more money by the new formula. If a county were barely over the threshold, the working of the formula would give it almost as much money as a county over the threshold by a large amount. The bill will correct that inequity. There is a relationship between those over the threshold and by how much. The change in distribution on $35 million or $36 million is only in the area of $40,000. It is not a large change, but over time the formula will prove to be fair and accomplish what was originally intended. When this bill came from the committee, it had an indexing feature included, which has been removed.
Senator O’Connell:
Has the removal of the indexing feature affected the fiscal note?
Mr. Leavitt:
The removal of the indexing feature removes the fiscal note. The fiscal note related to costs associated with changing the formula apparatus to accommodate the indexing.
Senator Neal:
Does A.B. 516 accomplish our purpose?
Mr. Leavitt:
The bill represents what was discussed and studied. The committee tried to make the language in the bill as simplified as possible. It is difficult to explain in bill language what is easily understood on a spreadsheet.
Senator Coffin:
Everything seems to have been addressed in the bill by the Assembly. What is the amount of financial burden assessed to funds run through accounts by the local governments? Do you foresee the bill bringing more dollars to the roads?
Mr. Leavitt:
There is no effect on the total amount of money available for roads. The formula passed in the 71st Legislative Session more accurately reflects money going to where relative need is for the repair of the road. We have been working on the next tier, which is the distribution between cities and counties.
SENATOR O’C0NNELL MOVED TO DO PASS A.B. 516.
SENATOR NEAL SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman McGinness:
I will close the hearing on A.B. 516. Senator Townsend has some proposals to present to the committee.
Senator Townsend, Washoe County Senatorial District No. 4:
I will provide the committee with a handout (Exhibit D) for your information and discussion. There was a discussion at our last meeting about the business license tax (BLT) commonly referred to as the “BAT tax.” In the Governor’s proposal it was $300 the first 2 years, and then it was rolled back to $140 as the gross receipts tax was implemented. Medicaid and Temporary Relief to Needy Families budgets raise the expense side of the equation, especially in difficult times. The proposal would be to raise the BLT from $100 up for those individuals. In the current structure, there is a full-time equivalent (FTE) or 468 hours to define one individual. If you would count heads and tax BLT on every head and not just on FTEs, you would have an additional $11 million. This would be onerous on the smaller businesses. It would be a proposal to increase the BLT on those who do not provide health care to their employees. Based on our current estimates, approximately 22 percent of those employed do not have health care in this State. No matter what the BLT was, it would be $400 additional dollars. This would encourage employers to provide health insurance for their employees. If the employer does not do so, then the employer will pay a premium to the State to offset some of the costs.
The Governor had a number of exemptions and proposals that came as a result of what the task force provided. This would be a live entertainment tax, page 4 (Exhibit D), 5 percent across the board, regardless of where it is held or what the venue. If it were live entertainment, it would be taxed. This excludes bowling, movies, video rentals, golf, and includes all venues on gaming properties as well as any other venue for live purposes. As previously defined, the casino entertainment tax would be collected by the State Gaming Control Board, and the live entertainment tax would be collected by the Department of Taxation. Charitable events and trade shows would be excluded as well. This would raise approximately $24 to $25 million in the first year.
The next component for discussion and analysis is the Business Licenses Surcharge, page 2 (Exhibit D). This concept would use the employer’s quarterly contribution and wage report, which is submitted to the Employment Security Division. Using line 5 from the report, the tax would be 1 percent per employee, capped at the annual 21.5 percent. This revenue increases with growth and it is a tax that directly reflects the actual economic activity in the State’s economy.
Senator Neal:
What would be capped at 21.5 percent?
The capped amount would be 22.5 percent for companies with 25 or more FTEs. The assessment is applied to 4900 companies. This will raise $90 million in the first year. There would be a separate charge using the identical situation, called the Finance Industry Surcharge, page 3 (Exhibit D). Using the identical situation this would be assessed in the same way at 5 percent in 2004 on all financial services, and would raise $24 million.
The unified business tax (UBT) is a tax addressing revenues of businesses with the ability to do one of two things: the business would look at the lowest number between gross and removal of deductions; or, what has been proposed in a gross receipts tax. The business could make the choice as to whichever is lower. Based on analysis by the Department of Taxation and the Legislative Counsel Bureau (LCB) staff, this would raise $75 million in the first year and $140 million in the next year. I have offered the committee five components to debate what would be in the best interest of this State.
Senator Tiffany:
How much would the business license surcharge generate?
Senator Townsend:
The business license surcharge would yield $90 million the first year.
Senator Neal:
I do not believe our constitution would permit an unequal tax as you have described in the Business License Surcharge. We are required to base these taxes on equality for everyone. Based on this proposal, it would not be equitable. It is questionable as to whether this tax would pass constitutional muster. This would be challenged in court and overruled.
Senator Townsend:
When this was analyzed, the first reaction was to place everyone at over $400 and allow someone to come forward and declare they have health care and therefore, should be exempted. Theoretically under our proposal, this could be done and would retain constitutionality.
Senator Neal:
Have you received a legal opinion from the LCB on this issue?
Senator Townsend:
No.
Senator Neal:
Is the Live Entertainment Tax a 5 percent increase across the board?
Senator Townsend:
It would be a 5 percent tax across the board, not an increase. The current casino entertainment tax would be reduced to 5 percent and spread to all live entertainment.
Senator Neal:
What would be the exclusions?
Senator Townsend:
Bowling, movies, video rentals, and golf would be excluded.
Senator Neal:
Why would these be excluded?
Senator Townsend:
Nevadans participate more in these activities. Every proposal I have brought forward is aimed at giving the average Nevadan some relief.
Senator Neal:
Does the term “live entertainment” include the big shows? Does it include boxing?
Senator Townsend:
It includes the big shows. It does not include boxing because it is a competitive environment. It does include wrestling, truck pulls, and all entertainment which is called curb-to-curb in an unlicensed gaming property, on or off the property.
Senator Neal:
What is meant by all venues of gaming properties?
Senator Townsend:
All venues of gaming properties would include outdoor concerts, concerts at their beach facilities or venues that are put up or are not attached to the gaming property. If an unrestricted licensee would promote an event off the property, it would be taxed, all would be taxed equally. The State Gaming Control Board already audits those functions and would continue to do so with the least amount of impact.
Senator Neal:
Why are the trade shows exempt?
Senator Townsend:
I will give you an example. A well-known performer could be hired to sing commercials for a trade show, the performance would be considered under the auspices of the trade show.
Senator O’Connell:
Would there be a tax if there were no admission fee with live entertainment?
Senator Townsend:
We are still working on that component. If there were an admission fee, it would be taxed.
Senator O’Connell:
My concern was drinks could be substituted in place of an admission fee.
Senator Townsend:
I agree with you. Admission fees are used as deterrents, so people do not wander into your property. While we are waiting for a legal opinion, I brought the proposal forward in this fashion to get as many issues discussed as possible.
Senator Tiffany:
Are banks and investment firms included in the finance industry surcharge?
Senator Townsend:
In the Employer’s Contribution and Wage Report, there is a definition in codes known as the North American Industry Classification System--United States, 2002 (NAICS) manual, which is used by the Employment Security Division. It would include all financial services.
Senator Tiffany:
Would it be possible for a small start-up financial industry, with 26 employees and no health care, that falls under the finance industry’s surcharge, the gross receipts tax, and if they had a gentleman’s club, to be affected by every tax on the list?
Senator Townsend:
Yes.
Senator Tiffany:
Are you saying, they would be responsible for $400; plus the broad base, which is 1 percent of line 5, 5 percent on all their services, and the gross receipts tax?
Senator Townsend:
The proposal is not being offered as a group to simply raise revenue. These are additional options for the purpose of debate from which you can choose, including options the committee has discussed previously. It must be looked at in the larger context. Senators Schneider, Care, Amodei, Neal, and the Governor, plus others have made various options available. I am offering these proposals to continue the dialog to reach a resolution.
Senator Coffin:
Your handout (Exhibit D) seems to be a continuing work sheet. I noticed you have made changes to what the committee has voted on. Are you proposing to change the committee actions?
Senator Townsend:
Yes. I am making other suggestions, page 1 (Exhibit D): the cigarette stamp fee has been reduced to 0.5 percent; the liquor tax allowance to zero; State/local school support tax, sales tax collection allowance was reduced to zero; restricted slots was increased to $10 million; and the business license surcharge, finance industry surcharge, satellite broadcasters, and the live entertainment tax all are suggestions for consideration.
Senator Coffin:
Is the Department of Taxation prepared to talk about the administration costs? Are these figures net of the administration costs?
Senator Townsend:
Under the business license surcharge, it is estimated by the Employment Security Division that the cost of administration would be $2.8 million in 2004 and $1.4 million in 2005.
Senator Coffin:
Is that just in the finance industry?
Senator Townsend:
It is for the entire business license surcharge, which raises $90 million dollars.
Senator Coffin:
Did you remove the tax on services?
Senator Townsend:
Anything the committee has voted on should be included in my proposal.
Senator Coffin:
Some of the tax concepts voted on last week would need adjusting. I am looking at the number that showed a biennium total of $730 million in tax revenues and your proposal shows a total of $760 million. Do you think the services should be replaced in your proposal?
Senator Townsend:
If all of these proposals were adopted, there would be $605 million in tax revenues in 2004, and $760 million in 2005. You are referring to having $730 million for both years. We copied the committee’s format.
Senator Coffin:
Is the percentage increase for the restricted slots the change yielding $10 million a year? The yield is four times greater than the previous proposal. Is the satellite broadcasters’ fee the same yield as mentioned in the handout (Exhibit D)? Are all slots considered the same?
Senator Townsend:
Yes. There would be a 33 percent increase, taking the revenue figure to $2.3 million, which is an 87 percent increase when you look at the current unrestricted license requirements, the 6.25 percent gross on unrestricted licensees, plus what they pay in a slot fee. I was trying to equate an equivalent type of taxation. A slot is the same whether it is in a casino or gas station.
Chairman McGinness:
How would you define health care on your proposal?
Senator Townsend:
Currently, there is a credit for those who provide child care. We considered that structure and applied it to the statute to provide “70 percent of its employees with health care benefits, then the employer would qualify for not having the additional $400 fee.”
Senator Neal:
Would the restricted slots include all slot machines?
Senator Townsend:
I considered the way unrestricted licensees are taxed and tried to apply that formula. I arrived at an approximation of $10 million.
Senator Neal:
Would this include slot machines in places such as Caesars Palace or the Mirage Hotel and Casino?
Senator Townsend:
The way this proposal is structured, this pertains to restricted licensees.
Senator Neal:
How much would the business license surcharge bring in revenues?
Senator Townsend:
The business license surcharge, would yield $90 million in 2004 and $95 million in 2005.
Senator Neal:
Is your proposal to exclude businesses with less than 25 employees? Would you explain your concept on financial services?
Senator Townsend:
When a person looks at the financial industry and what is currently generated, there seems to be a disproportionate paying ability compared to what they remove from this state. In looking at taxing their assets or deposits in some manner, those are things that can be moved quickly; therefore, we considered their financial health in numerous ways. Their growth is dependant on individuals who work there. We added to the individual tax that was going to be put on the business surcharge. Doing it in this manner would not require additional manpower or computer technology. All of these proposals are based on the ability to collect taxes with the existing collection mechanism.
Senator Neal:
Is it safe to assume all these taxes being proposed would be pass‑through?
Senator Townsend:
Almost any tax can be a pass-through. The business tax, finance industry charge, and business license surcharge would ultimately be passed on to consumers. It would depend on how a person perceives how taxes are applied.
Senator Neal:
My understanding of these proposals is the public will ultimately pay the taxes.
Senator Townsend:
These proposals are not offered as a package, but are different options from which the committee can choose as to how these taxes can be applied. There are many considerations: how broad-based the tax is, its stability, and the collection expense. Some taxes could be perceived as a direct pass-through, such as the live entertainment tax, which is a discretionary tax. The UBT would not be a direct pass-through, but when we consume goods and services, we pick up the costs.
Chairman McGinness:
Your handout (Exhibit D) does not include the UBT.
Senator Townsend:
It was supposed to include a narrative on the UBT, but it was omitted.
Senator Coffin:
In the second year of the biennium, how much would the share of future growth and property tax through S.B. 308, the leaders bill, yield?
SENATE BILL 308: Revises manner in which revenue from property taxes is distributed. (BDR 32-704)
Senator Townsend:
It would yield $52 million in 2005. The number has been reworked. First, we took Washoe County and went all the way down to the general improvement district level to get a hard number. The other thing it did was to clarify the State would not share in any taxes local government decided to add; those revenues would stay at the local level. In the first year, it would be an additional $52 million to the State.
Senator Coffin:
Was a vote ever taken on S.B. 308?
Senator Townsend:
No. These are all options that have been discussed and put together for the committee’s consideration.
Senator Coffin:
There was an objection to the distribution of funds to the State, particularly in Clark County. Are there any other taxes that could be included?
Senator Townsend:
We attempted to take the format given to us by staff and assemble all the proposals into one format to make it easier for the committee.
Senator Coffin:
Why did you decide to exempt golf from the live entertainment tax? The green fees would be easy to calculate a tax on, but what about membership dues?
Senator Townsend:
Under the Governor’s proposal, this was another $20 million in the first year. One concern was how to get to the private clubs. Another was the amount of retirement communities in our state, which is where the retirees play golf. If golf were included, there would be an instant $20 million in revenues. I worked from the Governor’s sheet. The 7.3 percent admissions and action tax yielded another $21 million in the first year. If the tax were included at 5 percent, the yield would be $18 million or $19 million in the first year.
Senator Neal:
There are certain exemptions listed under the business license surcharge. Why are health care providers, public utilities, and gaming exempt?
Senator Townsend:
Health care services are necessary for people to stay alive. I could understand taxing elective or cosmetic surgeries. Everything with the public utilities is a pass-through and is written on your bill. Gaming pays an extensive amount in the arena of the BLT and the gross gaming tax, which under the committee’s proposal increased to $35 million.
Senator Neal:
Is there a good reason for exempting gaming?
Senator Townsend:
You could debate whether they pay enough. They would not have been exempted, but the new tier came in at $35 million.
Senator Neal:
If you are charging a gross gaming tax of 6.25 percent on $135,000 gross per month, and if you add a fourth tier of $1 million and that is raised to 6.25 percent, that 6.25 percent calculates to 0.5 percent more than would have been paid, but since you are adding $1 million that 0.5 percent becomes less than 0.5 percent.
Rick Combs, Fiscal Analyst:
If I understand what you are saying, the gaming industry on the whole is not being raised by 0.05 percent. Is that what you mean?
Senator Neal:
That is exactly what I am saying.
Mr. Combs:
I would point out, your 0.5 percent increase from 6.25 percent to 6.75 percent is an 8 percent increase. The 0.5 divided by 6.25 percent would be an increase of 8 percent.
Senator Neal:
What if you added 0.5 percent to the 6.25 percent at $135,000 per month? Would you say it would be more than $35 million?
Mr. Combs:
Yes, that would be a fair assessment.
Senator Townsend:
I offer the proposals for the committee’s consideration and discussion.
Senator Neal:
I would like the committee staff to add the 0.5 percent to the 6.25 percent at $135,000 and get a total.
Chairman McGinness:
We will not be voting on these issues today. Senator Schneider will be giving a presentation using charts. There is a proposed amendment to 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)
Senator Michael (Mike) Schneider, Clark County Senatorial District No. 11:
The chart “2000 Community Fiscal Effort on Mental Health” depicts mental health spending by various states. Our state spends only 76 cents and is last in the nation in mental health spending. We fund approximately 20 percent of what West Virginia funds for mental health. West Virginia is not a liberal state concerning social services. Mental health spending is one reason for our discussion today.
The numbers I used on this chart came from the National School Board Association that says we are $1250 per student below the national average. This would equate to almost $1.2 billion to fund education at the national average. The teacher’s union has a higher number, as does the Heritage Foundation.
Let us consider what it costs to live in Nevada. The chart titled “2002 Utility Costs” shows what we pay in Las Vegas and Reno compared to other western cities. We are the most urbanized state in the nation. All our population lives in two cities.
Our state does not do well on health care spending as the chart, “2002 Health Care Costs,” shows. There are some western cities spending less than Carson City and Reno. We do not have a public mental health hospital, which increases our costs. This is another reason we are discussing taxes.
The chart titled “2002 Cost of Living” shows our cost of living is low compared to other western states. This makes it profitable to have a business and live in Nevada.
The chart “Estimated Burden of Major Taxes for a Family of Four at an Income level of $50,000,” will show what people really pay in Nevada. The chart shows income, property, sales, and automobile taxes. These are taxes everyone pays. Where do we stand in Nevada? This study was done by the District of Columbia in 2002. The District of Columbia compared the largest city in every state. Las Vegas is 48 out of 51 states in the comparison. This is at the $50,000 level income. The three cities Jacksonville, Anchorage, and Cheyenne are below us. Anchorage and Cheyenne are small towns and do not have the social problems of Las Vegas.
On the chart, “Estimated Burden of Major Taxes for a Family of Four at an Income level of $100,000,” Las Vegas is 49 out of 51. Our tax burden is not great.
I will now refer to the “Proposed Amendment to Senate Bill No. 238” (Exhibit E). In section 4, on page 1 of the proposal, credit unions would be exempted because they are nonprofit. The next change is in section 13, on page 5, which would initiate a 7 percent franchise tax on banks. I will read section 17, on page 36, and on page 37. The figures show the amount of gross receipts derived from the sales of tangible personal property in this state at retail, and the percentage of the rate of tax. It is a serious proposal, which the committee should discuss. On pages 45 and 46, I have increased the figure to $500,000 because I feel you should get more of the higher-end and commercial properties.
Senator Rhoads:
How much does your proposal raise in tax revenue?
Chairman McGinness:
Have you prepared a fiscal note?
Senator Schneider:
Staff is preparing the fiscal note.
Senator Coffin:
Do you have a spreadsheet showing the proposed amendment to S.B. 238?
Senator Schneider:
No.
Senator Coffin:
My experience has been that credit unions are profitable. In theory, they pay out to their members. Do we have a way of measuring how their money is disbursed?
Senator Schneider:
I must disclose I sit on the board of a credit union. They are all under financial institutions. Banks pay dividends and large salaries to the officers, whereas everyone working at a credit union is an employee. The profits in a credit union are returned to the members by reduction in fees and rates based on the amount a person would have on deposit, which is called shares.
Senator Coffin:
Have you calculated how the competitive market would change based on your proposal?
Senator Schneider:
I believe it will not have an effect. Federal credit unions are exempt across the nation. There are many credit unions in California and they are doing well financially.
Senator Coffin:
Are you proposing a 0.5 percent rate?
Senator Schneider:
It would be 0.7 percent.
Senator Coffin:
Is tangible personal property also considered goods for sale?
Senator Schneider:
Goods for sale are goods from a store, for example, a bicycle.
Senator Coffin:
What is tangible personal property?
Senator Schneider:
Items you could touch and feel. This would be similar to a gross tax. Many of the chain stores average their prices by region. It is troubling to know that our citizens are subsidizing California and Arizona. We are paying the same prices. We are subsidizing taxpayers in other states.
Senator Coffin:
Will the tax be passed on the customer?
Senator Schneider:
The tax would not be passed to the customer because they would be pricing regionally. A tube of Crest costs the same in San Diego as it does in Las Vegas because taxes on income, property, and warehousing are not being passed on to the customers in California.
Senator O’Connell:
The language in section 8, on page 2, increases the overhead in the banking business compared to a credit union. Would you include that particular area in the differences in the cost?
Senator Schneider:
The interest rates and fees are the same in Nevada and California. We are subsidizing California borrowers.
Chairman McGinness:
The committee has been presented with a lot of information which might have raised some concerns. I will accept any written testimony and I will pass it on to members of the committee for their perusal before Thursday’s meeting.
Senator Neal:
In our last meeting there was a motion to adopt $35 million and 6.75 percent gaming tax. I wish to state for the record:
The actual amount the gaming tax would generate for the year 2004 would be $27.2 million and for the year 2005, $30.6 million. The $35.1 million would be a difference of $7.9 million. The year 2005, we would have $39.8 million and the difference would be $9.2 million, which would be a balance of $38.6 million.
I wanted to share with the committee the difference in the figures that have been given to us.
Senator O’Connell:
I do not agree with the comments made by my colleague concerning subsidizing other states. I would like to hear from the retailers as to whether California taxpayers are being subsidized by taxpayers in Nevada.
Mary Lau, Lobbyist, Retail Association of Nevada:
There are differentiations of prices within grocery stores in the State of Nevada. Major sales items are priced on a larger regional basis, but those are sales items. Nevadans do not subsidize other states through the use of our tax-free environment.
Chairman McGinness:
Could you address the UBT?
Senator Townsend:
It gives an option to various businesses to choose the lesser of a gross receipts tax or a larger percentage on a gross tax minus expenses. Within 24 hours, I should have a detailed legal explanation. It has been a problem many of us have worked on with the federal tax laws. The problem is trying to find a combination that would be beneficial, where the revenue could be raised in the least onerous manner while the business received a deduction from the federal income tax.
Chairman McGinness:
We will continue this discussion in more detail on Thursday. There being no further business at this time, I adjourn this meeting at 4:51 p.m.
RESPECTFULLY SUBMITTED:
Patricia Vardakis,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: