MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
January 26, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:48 p.m., 1993, in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Mr. Robert E. Price, Chairman
Mrs. Myrna T. Williams, Vice Chairman
Mr. Rick C. Bennett
Mr. Peter G. Ernaut
Mrs. Joan A. Lambert
Mr. John W. Marvel
Mr. Roy Neighbors
Mr. John B. Regan
Mr. Michael A. Schneider
Mr. Larry L. Spitler
COMMITTEE MEMBERS ABSENT:
Mr. Ken L. Haller
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Mr. Perry Comeaux, Executive Director, Department of Taxation, State of Nevada
Ms. Janice A. Wright, Deputy Executive Director, Department of Taxation, State of Nevada
Mr. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
OTHERS PRESENT:
See Exhibit B attached.
Chairman Price opened the meeting by expressing his thanks to everyone for their patience for the delayed start the meeting. The Chairman asked the representatives of the Department of Taxation to come forward. Mr. Perry Comeaux stated he was the Executive Director of the Department of Taxation for the State of Nevada and Ms. Janice Wright was Deputy Executive Director. Mr. Comeaux explained his purpose at the meeting was to give a general overview of the department and its responsibilities and discuss some of the BDRs requested by the department which were intended to address difficulties which had arisen over the interim and to answer any questions which the committee might have.
Mr. Comeaux began by reading from his prepared remarks attached as Exhibit C. During his presentation, the following dialogue occurred relative to his presentation.
Mr. Marvel asked Mr. Comeaux if Mr. Comeaux felt the allocated $500,000 appropriation for on-going operating costs for the automated collection system computer equipment and software appropriated during the 1991 session would still be sufficient. Mr. Comeaux said he felt it would be, and the department had actually received three bids for the equipment and all were within the funding allocated.
Mr. Comeaux continued by stating the Governor's Reorganization
Plan had four major areas of impact on his department. The first change would considerably reduce the department's oversight responsibility with regard to local governments finance area; specifically it would eliminate two local government budget analyst positions currently required under NRS Chapter 354.
Mr. Marvel inquired as to where the responsibilities of those positions would be transferred and how elimination of those positions would affect the department's production of information compiled in publications such as the Red Book. Mr. Comeaux explained the positions would simply "go away" and the department would still publish the Red Book, but the information it contained would be based upon information provided by local governments without review of the particular entities' budgets. Mr. Marvel asked who would be certifying the tax rates for those entities. Mr. Comeaux continued it would be up to the various local governments to enact the rates which the statutes entitled or authorized them to enact.
Chairman Price asked what would happen when the entity had reached the maximum allowable rate, and if a dispute in rate ensued, who would resolve that point. Janice Wright, Deputy Executive Director of the Department of Taxation, responded to Chairman Price's question by stating historically what had happened was the local governments, when some entity within the county had driven the rate over the $5 limitation, would all get together and decide who had the potential to generate the most revenue and then buy down the rate from the other entities. For instance, if a county said to a city, "Your rate is too high so we are going to give you a grant. Then you allow us to collect the higher rate because we can generate more dollars from it due to our larger assessed valuation." The county and city had, at that time, to reach a consensus. Oversight of such a process would have to be put back into place, because now the department of taxation does control that adjustment process to keep everyone under the current $3.64 limit.
Mr. Marvel interjected, during his experience on the tax commission, there were times when no one was willing to give on his position and the tax commission had to set particular rates for various entities. Ms. Wright said the department does, under the current provisions, handle those rate negotiations. Mr. Marvel asked if the department would continue to act in such a capacity under the plan for reorganization. Ms. Wright explained she would be the only one left at the department to perform that function and she would try to oversee its application. Mr. Marvel noted such a situation, due to Ms. Wright's time constraints, might reflect a flaw in the reorganization plan. Mr. Comeaux interjected he could not remember the last time the tax commission was required to intercede in such a situation because those situations had been resolved at the department level. He noted the current feeling was the local governments were as aware of the needs and restrictions in terms of the statutory tax rates as the department was.
Mr. Marvel queried who would set the rates in the event of the formation of a new governmental entity. Ms. Wright replied under the current provisions the staff of the Department of Taxation prepares the impact to the other entities and advises the Local Government Advisory Committee of the net impact. However, she added the reorganization would eliminate the staff within the department which had provided such information to the Local Government Advisory Committee (LGAC); therefore, the department would look directly to the LGAC and the committee would have to generate the information for themselves, no staff or information would be available to them from the department. She indicated the Chairman of the LGAC was Marvin Leavitt at a meeting of the LGAC last week there had been some discussion as to whether, in light of the reorganization plan, the LGAC's role should be enhanced or whether the group should be abolished. There still had not been an opportunity to sit down and discuss the ramifications of the plan.
Mr. Marvel inquired as to whether or not the reorganization plan abolished the LGAC. Mr. Comeaux replied he had yet to see a draft of the legislation which would actually put the reorganization into place and he, therefore, was unsure exactly which responsibilities would remain with the department and which would be pushed down to the local government level. Answering a question from Mrs. Williams, Mr. Comeaux said he was awaiting the bills being drafted which would bring more specificity to the broad outline of the proposed reorganization plan to be certain which boards, commissions or committees would be changed or eliminated.
The second impact the reorganization plan would have on the department would affect the existing ratio study which is conducted every two years (nine counties in one year and eight counties the next year). This study would be extended to cover four years (four counties in each of the first three years and five counties in the other year). Also there would be the elimination of four appraiser positions from the department budget leaving only about half of the current staff. But, it would also give the department more control over the sampling procedures relative to those ratio studies, allowing a sample of the properties the department felt critical to the ratio study.
The third major impact would be the department would be given the responsibility for the administration and collection of the insurance premium tax. The executive budget would include for such purpose three additional positions for the new function with data processing, equipment and operations funds to accomplish the task. This change would become effective July 1, 1993, if approved.
Mr. Marvel asked if this would include audit functions, too, or just the collection of the tax. Mr. Comeaux stated it would take care of a portion of the audit process due to the fact the Insurance Division is rather unique in that their investigators are similar in function to the auditors in the Department of Taxation. The insurance investigators not only do audits on the premium tax but also do investigations relative to solvency, thereby protecting the insureds interests. He stated the reason for transferring review of the insurance premium tax oversight to the Department of Taxation was to lessen the burden of government on business, by dealing with as few bureaucrats as possible. If the change goes through, Mr. Comeaux felt it would allow those two departments to do audit sharing. Ultimately such a policy change would result in the insurance division taking care of the insurance premium tax audit on those businesses which also required a solvency investigation. Then, the Department of Taxation would be responsible for auditing other companies which did not necessitate a solvency investigation. The department would also do some auditing in the area of excess lines for those who have not been audited regularly due to a lack of funding in the Insurance Division.
Mr. Marvel pointed out his primary concern was relative to the inconsistencies and delays which had been pointed out in Ways and Means hearings, especially in the 1991 session as to delinquent insurance premium tax collections and the penalties and interest assessed on those delinquencies. Mr. Marvel wondered if this would improve the collection of the insurance premium tax and its related assessments.
Mr. Comeaux stated the consultants who had put together the reorganization plan had not indicated knowledge of major problems in the insurance division. The decision had been made for the most part on the long term advantages to giving a revenue collection agency the responsibility for administering this tax because such an agency already had the controls built in to do it right, whereas the insurance division's main focus was regulation. He further noted the insurance department had improved over the past two years and currently was doing a much better job in this respect.
Mr. Marvel told Mr. Comeaux the main concern was the weakness in the standardization of fines and penalties and how those items were assessed.
Mr. Comeaux explained in the event of the change they would look into statute to see what was necessary and then establish those standards and enforce them as consistently as was now done relative to sales and use taxes. Further, Mr. Comeaux explained the other advantage in transferring the responsibility to the taxation department might be the automated collection system, once it was up and running. It would result in an advantage because the accounting records of the department on all taxes which it collects would indicate as tax returns were processed the status of each account. The system would have the ability to cross reference every tax type for each individual business or related businesses, once they defined "related businesses." In such an instance one tax collector would be dealing with businesses which owe taxes to the state, would be able to check on omissions or delinquencies in one combined-purpose telephone contact and then would be able to do the follow-up more efficiently.
Mrs. Williams stated she shared the concerns of the other committee members, especially those who were also members of Ways and Means, as to the fines and penalties mentioned by Mr. Marvel relative to the insurance premium tax delinquencies. Because a minimum fine was being set on very late payments, some on very large sums of money, she felt the situation had provided an incentive for businesses not to pay such taxes in a timely manner. Mr. Comeaux stated he would see to it that all statutory fines and interest were applied on delinquent accounts, just as it was on sales and use tax delinquencies presently.
Mr. Marvel supported Mrs. Williams comments and added some of the delinquencies were up to three years in arrears. His main concern was that everyone be treated equally and fairly and not in a manner with was punitive to one company and preferential to another. Mr. Comeaux stated the criteria for reduction or elimination of penalty reductions would have to be uniform and if those criteria were not met, then there would be no reduction.
Chairman Price brought up the subject of previous participation in the Multi-State Tax Compact. Although Mr. Comeaux was not familiar with exactly how membership in the compact had impacted state agency activities or would affect auditing requirements for the department, he stated he would research the subject and report back to the committee as to costs versus benefits of membership. A discussion of how the Compact had been applied ensued relative to how automobile and other personal property taxation matters had been handled.
Mr. Comeaux concluded his written remarks regarding the consolidation of the sales, business tax and other audits performed now with those audits for Employment Security and State Industrial Insurance which would result in more efficient, less intrusive tax audits for Nevada businesses.
In response to an inquiry by Mr. Marvel, Mr. Comeaux addressed the difficulties which have arisen over the past two years with the due date of the Business Tax report; the period ending date and the report due date being identical. Mr. Comeaux explained due to accounting and reporting procedural restrictions he felt the due date would have to remain although if it could be worked out through a change in accounting procedures it might be remedied. Further, he elaborated the department had been treating the returns almost as if the returns had contained an automatic extension provision. He also reiterated his reference to one pending BDR which addressed the situation.
Answering a question from Chairman Price, Mr. Comeaux stated some forty audit positions would be combined into the department from ESD and SIIS in July, 1993, and subsequently most of those positions would virtually be eliminated on September 30, 1993. As an aside noted, the incumbents would bring their layoff rights with them. The result would be an overall savings in the biennial budget from the General Fund allocation for the department of approximately $2 million per year. Mr. Comeaux noted, due to the surplus of qualified persons looking for employment during these recessionary times, three of the last five auditors which had been hired by the department were CPAs and the other two had been degreed and brought with them impressive references.
In conclusion, Mr. Comeaux outlined the BDRs which were originated in the department which would be coming before the committee. First was the correction of the technical problems within the business tax report addressed in the Governor's Plan for Reorganization; secondly, a change in the sales/use tax provisions definitions of the term "amount of rental charged"; thirdly, a correction of statute to include nonregistered as well as registered companies relative to reimbursed costs of audit on companies who did business within the state but kept their books and records outside the state; and, lastly, a change based on a recent Attorney General's opinion clarifying sales tax exemption only as it applies to sales "to" nonprofit organizations, not made "by" those organizations. The Tax Commission had asked that the legislature be allowed to review the application of the instant opinion before the department implemented the changes which would have resulted.
Ms. Wright thanked the committee for having agreed to meet with the Tax Commission on February 4th, jointly with the Senate Taxation Committee, as it would allow for dialogue between the committees and the commission to clarify and expand upon the meaning of wording within legislation which had been passed and which might be passed during this session.
Ms. Wright pointed out she had distributed certain information to the committee and rather than reading and reviewing it in detail she would hope the members would look through it and address questions regarding it to her directly. See Exhibit D entitled Department of Taxation Annual Report for Fiscal 1990-1991 which can be referred to in the Research Library; and Exhibit E, entitled The State Policy Reference Book (Tables), Exhibit F, entitled Department of Taxation Local Government Finance Section, and Exhibit G, Department of Taxation - Division of Assessment Standards, attached. Ms. Wright also assured the committee she would provide a copy of the Red Book to each committee member. Mr. Comeaux also added he would provide the current 1992-1993 Annual Report for the committee as soon as it was back from the printer.
A discussion of possessory interest, relative to NRS Chapter 361 took place between Chairman Price, Mr. Comeaux and Mr. Neighbors. Mr. Comeaux informed the committee he would provide whatever information the committee or its members might require.
Carole Vilardo of the Nevada Taxpayers Association asked the committee if it would be the preference of the committee to reschedule her comments, due to the lateness of the hour and the necessity of some members to attend other meetings. It was decided her presentation would be rescheduled. Mr. Zuend's comments on various matters will also be rescheduled
MRS. WILLIAMS MOVED TO APPROVE THE MINUTES OF THE MEETING OF JANUARY 19, 1993.
MR. MARVEL SECONDED THE MOTION.
THE MOTION CARRIED BY THE UNANIMOUS VOTE OF THOSE PRESENT.
There being no further business to come before the committee, the meeting was adjourned at 3:07 p.m.
RESPECTFULLY SUBMITTED,
_________________________
LINDA CHANDLER LAW
Committee Secretary
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Assembly Committee on Taxation
January 26, 1993
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