MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
February 23, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:20 p.m., Tuesday, February 23, 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. Bernard Anderson
Mr. Rick C. Bennett
Mr. Peter G. Ernaut
Mr. Ken L. Haller
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:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Mr. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
OTHERS PRESENT:
See Exhibit B, attached.
Chairman Price opened the meeting by stating bills would be heard in the order posted on the agenda.
Chairman Price opened testimony on AB 101.
ASSEMBLY BILL 101 - Authorizes department of taxation to waive payment of interest on certain taxes.
Mrs. Joan Lambert, Assembly District 29, spoke as sponsor of AB 101. She explained the bill would allow the Nevada Tax Commission to waive interest on taxes due by businesses, if considered appropriate. She cited instances where small businesses had received erroneous information from either the Department of Taxation or an accountant, had reported faithfully in full during the course of operation then, upon audit, found they owed additional taxes, penalties and interest for having underreported their liability. She further pointed out most businesses could not go to their clients and customers, after the fact, in order to collect money on undercollected amounts. Mrs. Lambert added there was no mechanism in statute, even if the business had written notes on reporting instructions which they had received, by which the tax department or the tax commission could waive all or a part of the interest even though they did have the ability to waive the penalty portion of the assessment on underpaid taxes.
In answer to a question from Mr. Marvel, Mrs. Lambert stated she had received most information and complaints on this issue from the creative industries in the past few years.
Mr. Keith Ashworth, member of the Nevada Tax Commission, was next to testify in support of the bill. He felt this bill would give the commission a tool which would allow them to do a better job. He explained during his tenure he had seen several cases where he would loved to have had the ability to reduce interest due on obligations. Especially, he said, for those who had voluntarily come forward to rectify their problems and those who truly had been given erroneous information. He elaborated the interest on some of these liabilities had, indeed, been very substantial. Indeed, some had been so sizeable companies had refused to pay and had gone to appeal; therefore, neither the tax nor the interest had been collected as yet.
He pointed out the commission had the ability now to waive penalties and to assess higher penalties on those who had gone out-of-state to avoid Nevada taxes. This would add to its ability to make equitable distinctions in the proper regulation of tax matters.
Mr. Ashworth introduced Janice Wright, Deputy Executive Director, Department of Taxation. Ms. Wright said she also felt this bill presented the opportunity to treat taxpayers in a fair and equitable manner. She stated the department would recommend an amendment in Section 1, at line 2, adding the words "or reduce" after waive. She explained such a change would allow the department or the commission to use discretion as to the amount of interest which would have to be paid when a return was received after the due date or a liability was incurred through an audit where interest was assessed from the day the tax was originally due. She suggested when a business person came forward to acknowledged the liability for back taxes, the department might appropriately prorate or reduce the amount of interest due from the time it became known. She remarked, in relation to the 70-100 audit cases she heard each year, some were related to cases which showed obvious efforts to avoid or evade taxes. This relief would not be available in those cases. It would be discretionary with the department or commission in cases where deficiencies were unintentional or beyond the control of the taxpayer. As of now, the department and commission were prohibited from giving any relief in such circumstance.
Mr. Ashworth stated from his perspective as an accountant, one of the difficulties in helping clients was to get all the reports to the various governmental entities on time. He said during his time in the legislature one of his main objectives was to get reporting dates standardized. He pointed out most businessmen depend on their bookkeepers for compliance and even if the report was one day late, penalties plus full interest for one month were assessed, and it might not really be the businessman's fault.
Ms. Wright responded to a question from Mrs. Williams by stating NRS 372.025 defined gross receipts as the total amount of the purchase price plus any services that were part of the sale. Ms. Wright stated there was currently a dialogue going on between the Nevada Coalition for Creative Services and the department relative to definition of which services were associated with a sale versus which were not. Mrs. Williams replied she was unaware of the legislature having put a tax on services. Perhaps it was a philosophical difference, she explained, but she had not become aware of this type of taxation until just recently. She felt there was something specious about an activity being taxed in one circumstance yet not in another. She felt the situation should be looked into more thoroughly.
A discussion of services incidental to the sale followed. Mr. Ashworth stated the tax commission would really appreciate some guidance from the legislature as to its intent in this area. In response to a question from Chairman Price, Ms. Wright replied enforcement had not become more stringent to compensate for the tight budgetary times. However, it might seem so due to service industries having become a larger, more prolific segment of business in which it was easier to focus the differences in the services incidental to the sale. She stated the applicable statute had been in existence for many years and it had remained unchanged. The department had made no policy change in its administration. The department, she said, would also appreciate the committee's guidance, which would not be subject to argument, by including the language directly in this bill.
Mr. Marvel suggested, additionally, an amendment be included to allow for proration on interest due for late receipt. Mr. Ashworth agreed proration should be an option available to the department and the commission.
Next to testify was Nickie Price, owner of Exact Art Design and President of Nevada Coalition for Creative Services. Her remarks are attached as Exhibit C. Ms. Price requested written testimony of David J. Wechsler be incorporated into Exhibit C, as part of her presentation.
Discussion of Ms. Price's comments ensued. Analogies were made between creative art services and professions such as attorneys and accountants services (which are not taxable) as well as services performed attendant to the sale of used cars (which are taxable). On conclusion of the discussion, Janice Wright, Nevada Department of Taxation, stated, in response to a question posed by Chairman Price, there would be no fiscal note on this bill as to any change in the budget for the department. However, there would be the possibility of a reduction of funds collected and deposited into the general fund, which might require a fiscal note. She also explained there could be a cost attendant to reducing or prorating the tax due to the Department of Data Processing possibly charging the Department of Taxation for altering the existing program or creating a new program to make allowance for those reductions.
Next to testify was Gerald Lodge, owner of Lodge Graphics in Las Vegas. His prepared testimony and supporting documents are attached as Exhibit D. He told the committee the assessment of interest on the tax liability which resulted from the company's audit in April of 1991 had been an extreme hardship on their company. The interest assessment alone was $8,789, and it was currently under appeal. Additionally, he told the committee the amounts assessed against his company were based on estimates made by the auditor. If amounts were due, he added, his company wanted them to be arrived at through an accurate review, not an estimate.
In response to a question from Chairman Price, Mr. Lodge replied his company had tried to obtain loans to pay the tax and interest but the company had been unable, to date, to obtain funding to pay the debt. He stated, due to the competitive nature of the business, they could not surcharge their clients to make up the shortfall because it would literally put them out of business. Further, if the state was to demand immediate full payment, it would put them out of business.
In answer to a question from Mrs. Williams, Janice Wright of the Department of Taxation responded the department was currently struggling with the difficulty in differentiating between intellectual products (creative artists versus attorneys and accountants, for instance). Therefore, the department was requesting guidance on the matter from this committee. Discussion ensued.
Ms. Wright answered Mr. Neighbor's question by saying most companies were audited every three years, or so. However, by the time the audit was finalized, and the hearing process completed, it could be almost five years from the date the oldest taxes were due and interest accrued from the day taxes were originally due.
Mr. Ernaut suggested the bill be effective upon passage and approval as it potentially included relief for those companies currently at the hearing or appeal stage, in addition to those which would be audited in the future. Ms. Wright stated there were many cases before the tax commission being held in abeyance until a decision could be made this session.
Next to testify was Denny Weddle, President of Weddle Caldwell Advertising of Las Vegas. He spoke from notes which are attached as Exhibit E.
Ms. Carole Vilardo, Executive Director of Nevada Taxpayers Association, stated her organization supported the bill and she agreed with the amendment to "reduce" or waive interest and it should apply to pending matters. However, she felt the committee should be very careful and specific about companies which would be included as pending so as to eliminate any inference of inclusion of previously settled matters with other audited companies.
Ms. Vilardo expanded on her comments by stating she felt some of the difficulty in this area was brought about by the language which had been written and passed in 1955 as NRS 372. There had been no change in the language thereafter because in 1956 a referendum was passed and since that time the legislature had not addressed any change of or addition to statutory language.
Many of today's service charges had not been anticipated according to Ms. Vilardo, and had come about due to changes in the way society functions. For example, in 1955-56, there were no charges for delivery of a pizza, alteration of clothing, mileage charges for car rentals, etcetera. Most of those charges had been initiated since 1983. Such changes, she said were not brought about by or resultant from anything the department had control over. But, she said, these changes presented a substantive issue which needed to be addressed in depth this session and would take a great deal of work.
She said the consensus among most states currently was tax on services was not levied on professions which were regulated by certification, such as lawyers, accountants, architects and doctors. The three states which have had little or no problem in this area tax everything. Those states were New Mexico, North Dakota and Hawaii.
In response to a question from Mr. Ernaut, Ms. Vilardo stated the language for the amendment on reducing interest on pending cases should be worked out with the department and the tax commission.
A discussion followed as to whether or not allowing a reduction in interest due on pending matters would have a fiscal impact. Keith Ashworth stated it would not result in a tremendous impact on the budget. He felt the actual amount of interest waived would be negligible under normal conditions, where extenuating circumstances existed and it was not the intent of the taxpayer to avoid or evade the tax.
Mr. Ashworth pointed out, as a member of the tax commission, he would prefer being able to collect the tax, rather than insisting on the interest on the tax and having the businesses either appeal the interest assessment or maybe go out of business. He cited an instance about two years ago where even though the commission waived the penalty for a businessman it could not waive the interest and the man closed the business: the state received nothing. Had it been able to waive the interest, he felt the state would have at least received the tax, and maybe have saved the business for a while.
Mr. Ashworth told the committee he felt two major points had been addressed here: first, this bill itself; and second, the subject of taxing the creative arts industry. He also explained Assemblyman Gibbons had a bill draft request which covered this subject. He further speculated the surge in liabilities of the creative artist companies might be the result of the auditing cycle and the industry might have come up for audit just in the past few years.
Two years ago, he explained, there were many similar complaints from the car rental industry. The Tax Commission had put a committee together to work with the car rental industry in order to resolve the matter. From past experience he suggested the committee either form a subcommittee or as a committee of the whole meet with members of the creative arts industry and representatives from the tax department itself to work it out so proper legislation could be put into place.
Ms. Wright said the language should give the department rather than the commission the ability to waive or reduce so the department would be enabled to handle the reductions before they go to the commission level. Mr. Ashworth added the commission did approve or disapprove each of the department's hearing officers decisions, based upon an explanation of the circumstances in each case.
Mrs. Williams stated she was happy this subject was being addressed in this session as there were so many disincentives to creative people in society. Perhaps this would help to encourage creativity.
Next to testify was Andrea "Ande" Engleman, Executive Director of the Nevada Press Association, and Sam McMullen of the Nevada Broadcasters Association, in support of the bill and its amendments as proposed by Janice Wright. Ms. Engleman asked the committee to include an amendment to make information public relative to the company's name and how much was waived or reduced. She said she was aware of the tax department's feeling that there were existing confidentiality requirements within its regulations which might oppose such information becoming public knowledge. Therefore, enabling language should be specified in the bill itself.
She elaborated, in 1987 one small rural newspaper was audited and the audit resulted in assessment of tax on many items they previously had not been told to include as taxable. It seemed as the auditor changed so did the rules which were applied to the audit. She said the taxes assessed were approximately $3,000 and the total bill for taxes, penalty and interest was in excess of $6,000 which was an extreme hardship to such a small, rural business.
A discussion followed relative to taxability of such things as royalty checks resulting from the sale of a book.
Mr. McMullen addressed the committee by explaining the creative services issues regulation change. The change, he said, attempted to provide a subjective test to determine the reason for the transaction to begin with, whether it was for the purchase of a retail-type product or whether it was to obtain particular services. He indicated, however, there had still been no legislative or governmental policy decision, which he was aware of, to tax services. He said this was not just a creative services issue. It was related to any service industry which could be broken out to labor versus materials as decided in a very subjective test situation. He said he had been a part of several negotiating sessions but he felt it would be clearer to set forth legislative intent in statute rather than by departmental regulation.
After a brief discussion, Mr. Marvel stated he felt this was definitely a gray area in the law. He was not sure the legislature should be setting policy. Rather, it should be setting guidelines for the department and let them set policy by regulation.
Ms. Engleman stated she felt if notice of this meeting had stated specifically it would cover a discussion of creative artists and others interested in taxes on service attendant to a sale, there would have been a tremendous response from many different areas of business.
Responding to Mrs. Williams, Mr. McMullen stated the subjective test regulation was proposed following a meeting July 20, 1992. Mr. Ashworth added there had been a subcommittee formed by the commission in April, 1991, but no actual regulation had been finalized. Further, Mr. Ashworth stated there were differing opinions as to how the object of the transaction should be addressed for tax purposes. He felt it was a subject for the legislature to look into this session.
Last to speak on this bill was C. J. Hadley, freelance writer, editor and photographer. She pointed out most of those suffering under the current translation of law were innocent of any intentional wrongdoing. Most of them had depended on information either from the department or from accountants who had advised them incompletely or erroneously and who could not afford to pay large penalty and interest payments. She reaffirmed most creative artist companies were small and independent and were serious about supporting this state, but because of these assessments many were finding it impossible to continue in business. She added fiscal responsibility was just as important for the state as for the taxpayer, and without the ability to deal with taxpayers on a case-by-case basis, many businesses would fail or go elsewhere to conduct business.
Ms. Hadley stated if services were to be taxed the issues to consider should be equity, fairness and clarification of the law. She added those concepts were critical because current application of the law was not consistent. Her feeling was, it was easier for the tax department to collect taxes on services from politically weaker and less fiscally competent people in the creative fields than to collect it from lawyers, accountants and architects who have their own lobbies. She suggested support of Assemblyman Gibbon's bill and asked the committee to take the matter very seriously.
Chairman Price called for testimony on AB 102.
ASSEMBLY BILL 102 - Revises procedures for receiving taxes assessed upon real property tax roll.
Mark Aston, Clark County Assessor, addressed the committee stating AB 102 was primarily a housekeeping bill, relative to parts of the statute which apply to the county treasurers. The changes reflected in the bill originated from a compliance audit which was done on the Clark County Treasurer's Office. It was determined some of the statutes needed to be changed or repealed. He said he was in support of AB 102 with minor exceptions. He explained he had spoken with several of the other county treasurers and the part of the bill they wanted amended referred to taking out the provisions relating to banks acting as depositories in a lockbox facility. Those needed to be eliminated because some of the treasurers had already tried using banks and it had not worked well. The banks had accepted payments of any amount from taxpayers without researching whether penalties or other assessments might have been due. Accepting partial payments disrupted the collection process for foreclosures, reconveyances and trustee actions.
He supported passage of the bill with the following amendments: delete Section 1 entirely; alter Section 2 by eliminating "designated agents" on line 11; and on Page 2, eliminate Section 4 entirely (and renumber); keep the repealers at the end of the bill. In answer to a question from Mr. Neighbors, Mr. Aston stated it had not been their intention to include personal property collection issues in this bill.
Testimony on AB 102 was closed.
Chairman Price called for testimony on AB 183.
AB 183 - Requires that proposal for imposition of ad valorem tax for additional officers be submitted to voters of areas where metropolitan police department has been created.
Steve Waugh, Assistant Sheriff Las Vegas Metropolitan Police Department, spoke in support of the bill and said this was one part of a referendum which was going before the voters in June 1993. He distributed handouts explaining the proposed program which are attached as Exhibit F. He explained the three-part referendum as outlined in the two handouts entitled Neighborhood Oriented Police Protection and Enforcement. He stated passage of AB 183 in a timely manner was pivotal to getting this plan before the voters so they could decide what should be done within the various neighborhoods and outlying areas of Clark County relative to the program.
Assistant Sheriff Waugh reviewed which governmental entities and groups of voters would be affected by each part of the plan and how the costs would be covered, either by assessment or bond issue. He told the committee the national trend was moving toward community oriented policing. This bill would allow the department to add neighborhood officers by increasing the ad valorem tax. It would enable the department to more readily meet the needs of the individual areas, if the voters supported the concept. He concluded by stating passage of this bill would allow the department to do the necessary marketing and advertising prior to the election.
Captain Randy Oaks, representing Las Vegas Metropolitan Police Department, went through the bill section-by-section. After the review, Captain Oaks responded to a question from Mrs. Williams by elaborating the jail construction would be supported by a $20 million bond issue, the substation construction would be supported by a $24 million bond issue, and the 300-man increase in officers would be funded from the increase in the ad valorem property tax.
Assistant Sheriff Waugh further explained the increase in salaries over time would be offset by increases in assessed valuation and continued growth within the area. After a brief discussion of the problems with rising crime rates attendant to the 89109 and 89119 areas, Assistant Sheriff Waugh pointed out without the increase in officers, the other parts of the plan could not be implemented.
Mr. Spitler commended the department for having brought the program forward stating it had been a long time coming. Mrs. Williams added her ride-along had impressed upon her how dangerous and important it was to have more officers on site in her 89109 area. She felt the decision should be put to the voters in those areas to help rectify the problem. Mrs. Williams and Mr. Spitler told Mr. Waugh and Mr. Oaks they would be following the implementation of the program closely as to its effectiveness.
In answer to Chairman Price, Assistant Sheriff Waugh told the committee the bill was time critical. They would hope to have the bill passed and become effective 60 to 90 days prior to the June election.
A brief discussion on county islands followed relative to how the tax levies versus services provided by the programs would affect those area.
ASSEMBLYMAN MYRNA WILLIAMS MOVED TO DO PASS AB 183.
ASSEMBLYMAN REGAN SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
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AB101 - Authorizes department of taxation to waive payment of interest on certain taxes.
Discussion relative to whether or not information on waived or reduced interest should be publicly disclosed followed. It was decided the committee would request three amendments in two documents. The amendment relative to making the information public would be drafted in a separate amendment. Chairman Price stated the bill would be rescheduled for further discussion after receipt of those amendments.
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AB 102 - Revises procedures for receiving taxes assessed upon real property tax roll.
Mrs. Lambert stated she would contact Assemblyman Gibbons regarding his bill draft request on the taxability of creative services and report back to the committee. No action was taken.
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AB 1 - Prohibits increase in assessed valuation of real or personal property of business when improvements are made to remove certain barriers for persons with disabilities.
Mr. Marvel presented Amendment No. 22 to AB 1, attached as Exhibit G, to the committee.
ASSEMBLYMAN MARVEL MOVED TO AMEND AND DO PASS.
ASSEMBLYMAN MYRNA WILLIAMS SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY BY VOTE OF THOSE PRESENT.
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BDR 31-122 - Authorizes local governments to impose property tax for "pay as you go" financing of public works upon approval of voters.
MR. MARVEL MOVED FOR COMMITTEE INTRODUCTION OF BDR 31- 122.
MR. NEIGHBORS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY BY VOTE OF THOSE PRESENT.
There being no further business to come before the committee, the meeting was adjourned at 3:56 p.m.
RESPECTFULLY SUBMITTED:
LINDA CHANDLER LAW
Committee Secretary
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Assembly Committee on Taxation
February 23, 1993
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