MINUTES OF MEETING

      ASSEMBLY COMMITTEE ON TAXATION

 

      Sixty-seventh Session

      March 30, 1993

 

 

 

The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:30 p.m., Tuesday, March 30, 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

      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:

 

      Wayne E. Carlson, Executive Director, Nevada Public Agency Insurance Pool

      Michael J. Griffin, C.P.A., Deputy Commissioner of Insurance, State of Nevada

      Teresa P. Rankin, Insurance Commissioner, State of Nevada

      Woody Thorne, Deputy Budget Administration, Department of Administration, State of Nevada

      Frank R. Guisti, Legislative Chairman, Life and Health Underwriters Associations, State of Nevada, and a Group Insurance Broker

      Carole Vilardo, Nevada Taxpayer's Association

 

 

 

Chairman Price opened testimony on AB 396.

 

ASSEMBLY BILL 396 -     Reduces insurance premium tax on insurance policies issued to state or its political subdivisions.  (BDR 57-1160)

 

Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau, provided committee members with a Bill Explanation for AB 396 attached hereto marked Exhibit C.

 

Wayne E. Carlson, Executive Director, Nevada Public Agency Insurance Pool (NPAIP), informed committee members AB 396 had been requested by his board.  He conveyed the bill draft did not read the way it was supposed to.  He explained NPAIP was a pool of local governments who jointly purchased excess insurance.  The cost of the excess insurance in terms of premium tax was approximately $50,000.  The board did not believe NPAIP should be subject to that kind of tax.  The board had discussed the issue and recognized the regulatory value of a portion of the tax and also examined the cost of regulation and discovered it was about 10% of the tax actually collected.  The intent of the bill was to reduce the amount of tax NPAIP had to pay to be proportional to the regulatory benefit it received.

 

Mr. Carlson suggested the credit not go to the insurance company.  He elucidated that was not the intent of NPAIP.  AB 396 should be amended at line 3 by deleting, "An insurer that issues any policy of insurance to", then line 3 would begin with, "The state or a political...."  He proceeded indicating on line 7 the words, "tax is paid" should be replaced with "policy premium is paid."  He added on line 10 of AB 396 the words, "A broker who writes insurance coverage for" should be deleted and the sentence should begin with, "The state or a political...". 

Mr. Carlson explained essentially the local governments would pay 10 percent of the normal premium tax, which was 3.5 percent of the premium.  The local governments would pay .35 percent in the form a premium tax on the insurance procured.  One other amendment he requested was to make the bill effective July 1, 1993, since most of the coverage was renewed on July 1st.

 

Mr. Carlson reiterated the purpose of the bill from NPAIP's standpoint was NPAIP would pay for the regulation that they received the benefit of and asked for relief on the amounts in excess of that.  It would apply to all political subdivisions who buy insurance, whether it was property, liability, health or any other kind of insurance.

 

Michael J. Griffin, C.P.A., Deputy Commissioner of Insurance, State of Nevada, spoke with reference to the fiscal impact of AB 396.  Preliminary investigations concluded by Mr. Griffin's staff, indicated the fiscal impact of AB 396 could be in excess of $1 million to Nevada.

 

Mr. Griffin stressed the investigations were very preliminary and emphasized it would take a substantial amount of effort to provide hard and firm numbers.  He believed AB 396 would have a substantial impact on the premium tax collected by the state of Nevada.

 

Mr. Griffin said the commission found Churchill County spent approximately $2.2 million for health and dental benefits paid to their employees.  That worked out to be about $77,000 worth of premium tax.

 

Mr. Griffin stated the Commission could continue with their efforts to determine what would be considered the exact impact on the state of Nevada from a fiscal standpoint, but believed it would be a herculean task.

 

Chairman Price asked if the tax money currently being transferred was from local or state sources.  Mr. Griffin said the state could be paying premiums in the area of excess insurance.  Mr. Griffin added the larger of share the $1 million would be at the county or local level, but until an in-depth analysis was completed, he hesitated to represent what portion of the $1 million was county, local or state.

 

Teresa P. Rankin, Insurance Commissioner, State of Nevada, responded to Mr. Ernaut stating she believed there was an assumption being made that the premium tax was paying for regulation of insurance when in fact that was not the case.  The amount of premium tax collected was between $67 and $69 million and with the prepayment in a couple of weeks it would be substantially more than that.

 

Ms. Rankin articulated the proposed budget of the department would use about $800,000 of the general fund out of the approximately $80 million brought into the state in revenue.

 

Mr. Spitler asked if other states gave waivers.  Ms. Rankin responded stating there were a couple of states that exempted state or local governments from the premium tax.  Mr. Spitler asked if AB 396 would impact an insurance company that wrote insurance for a political subdivision or a community in another state.  Ms. Rankin believed if the policy was sold to a group in Arizona, Arizona's law would apply. 

 

Mr. Ernaut asked for Ms. Rankin's best argument against amending AB 396 to read 100 percent as opposed to the 90 percent figure.  He took the theory to its logical extreme that taxpayer's should not pay taxes on something the taxpayers were already paying for.  It was Ms. Rankin's position government should pay for regulation.  She vocalized NRS Chapter 679B stated the general fund should support the Department of Insurance.  Ms. Rankin denoted the budget was not drafted like that this session.  She explained at the present time the general fund relied on premium tax, which included the collection of the tax on governmental entities, to support governmental functions in Nevada.

 

Ms. Rankin conveyed the Department of Insurance tried to prepare an estimate based on the preliminary numbers Mr. Griffin had provided.  She informed the committee AB 396 was not limited to excess coverage as NACO was asking for, but addressed the group committees' purchase of insurance from health maintenance organizations, all health, dental, disability and excess coverage for worker's compensation and anything purchased by any governmental entity.  She noted a political subdivision could include Incline Village improvement district and school districts.  She stressed AB 396 had immense ramifications.

 

Ms. Rankin expressed concern with the fiscal note because it was difficult to survey all entities.  How could everyone be surveyed to catch every coverage for every political subdivision?  She said there could be political subdivisions the department was not aware of.  It was her belief in terms of the general fund the minimum would be at least the $1 million Mr. Griffin had estimated, but it could go much higher.  The budget was being balanced based on those taxes.

 

Mr. Ernaut asked for an estimate of the fiscal note if AB 396 was amended to include only the state and not the political subdivisions.  Ms. Rankin summarized the state was largely self-insured for its property casualty coverage, although the state did purchase some coverage.  Additionally the state purchased coverage through the Health Committee.  Those numbers would need to be obtained from the Risk Management office, but Ms. Rankin believed it would not be as large as the numbers given above.

 

Mr. Ernaut believed it would be more equitable and fair to eliminate the political subdivisions.

 

Woody Thorne, Deputy Budget Administration, Department of Administration, State of Nevada, wanted to make sure the committee understood if action was taken, the amount of the fiscal note would be deducted from the general fund revenues and would not be available to the state for its operations.  He also pointed out the taxpayer was the insurance company.  The taxpayer was not the one paying the premium.  He explained the insurance company paid a tax and the basis of that tax was the premium volume.  He questioned whether the true taxpayers were actually being relieved of the true burden.  Mr. Thorne continued alluding to the tax imposed on health insurance coverage stating there were both the entity itself as a taxpayer, and additionally the employee who contributed toward the premium.

 

Ms. Rankin explained the property casualty coverage for Nevada was specifically prior approval, except for what was called surplus lines coverage where the rates were not filed, i.e. aviation coverage, certain coverages that were not available in the admitted regulated market.  With regard to health insurance, Nevada was prior approval for individual policies and life insurance policies.  With regard to group health there was no form and rate review.

 

Chairman Price asked if the insurance rate included the tax.  Ms. Rankin stated the rate did include the tax.  Chairman Price questioned if AB 396 was passed, would the policies be reduced by the amount of the tax or would the tax become a part of the premium and a profit for the insurance company.  Ms. Rankin did not believe it would be dollar for dollar even for the filed rates that were reviewed.  She believed the consumer would see a rate reduction by a percentage, but not dollar for dollar.  She communicated the company would not owe the tax.  The company was the taxpayer.  The tax was calculated on the company's gross premiums, not the individual's policy.   It was an average that went through the rate filing, based on gross premiums and then the company's gross premiums was what based the tax.

 

Frank R. Guisti, Legislative Chairman, Life and Health Underwriters Association for the State of Nevada, and a Group Insurance Broker, had a large number of public entities that purchased group insurance through his office.  He iterated one of the cost factors in determining what the rates would be for a particular plan of benefits was a factor called retention.  Retention covers the costs of processing claims, company overhead costs, brokers' commissions, any printing needed to be done and premium tax.  Mr. Guisti said if one of his accounts had a formula where the retention factor was 13.15 percent, if AB 396 was passed the retention factor would drop to 10 percent.  Therefore, there would be a rate reduction for that group insurance product.

 

Carole Vilardo, Nevada Taxpayer's Association, was opposed to AB 396 due to the huge budget constraints this year.  She asked the committee to consider if AB 396 was passed what would the reductions be in revenue to the local governments and what would the reduction be to the state government from the revenues that would not be plugged in.  She asked if there was an offsetting reduction that equalled the amount of the expense of the insurance policy for the local governments and for the state.  She said if the committee did not find the same reduction in expense as there would be in revenue, then the Nevada Taxpayer's Association had to oppose AB 396.

 

Chairman Price closed testimony on AB 396.

 

Chairman Price provided Exhibit D for committee members and mentioned SB 307 had been passed as an emergency item concerning the new proposed park district.  He referenced Exhibit D which was a series of articles in City and State magazine regarding taxing districts.  He noted in the current issue it discussed the problems of the taxing districts.

 

Chairman Price voiced the whole subject matter of taxation, tax policy, taxing districts might be worthy of examining as an interim study.  Chairman Price suggested a resolution be drawn up suggesting an interim study with regard to taxation matters.

 

            MR. REGAN MOVED TO DRAFT A RESOLUTION WITH REGARD TO AN INTERIM STUDY COVERING TAXATION POLICY, DISTRICTS AND RELATED MATTERS.

 

            MR. SPITLER SECONDED THE MOTION.

 

Mrs. Lambert suggested looking at debt for all the districts in local government.  She thought the interim study should be focused on something more specific.

 

Mrs. Williams mentioned for many years there were discussions with regard to all kinds of special districts.  She said if the committee wanted to address the problem shown in Exhibit D the committee should look at all of those districts and determine whether or not Nevada was prepared to continue supporting those type of districts.  They have been proliferating.  She believed it was a policy issue that needed to be studied.  She stressed sometimes a district would be created for one specific reason and then when the reason was solved, the district continued on forever.  Mrs. Williams thought Mrs. Lambert's concern about debt limits would be very legitimate.

 

Mr. Spitler said he was concerned about the park issue bypassing the general obligation bond.  He asked when someone went into default in the big picture, who ultimately became liable and what actually was going on with total debt.  He thought this was a good time to clean up what it is taxation is looking at so it was understood fully what was being paid for by fees and how it impacted the ultimate debt with the special districts.

 

Carole Vilardo, Nevada Taxpayer's Association, spoke to the committee previously about the problems with the metro bond issue and the parks bond issue, in addition to the debt question raised.  She asked that the study examine the districts Nevada currently had.  She said the committee would find there were multiple variations for approval.  She asked that part of the study place some sort of criteria that needed to be met when an entity came before the committee to be judged.  She said there were negative referendums, special improvement districts in impact fee areas where one could go out and develop the district and the provisions were there for a negative referendum to stop the district formation.  She continued stating there was another district that was a special district, and it had a negative fee referendum with slightly different provisions as to how the negative impact referendum would be conducted, but then the governing body could override that.  There was no vote.  It was all over the board.  The whole issue needed to be cleaned up.  Statutory guidelines needed to be established or an intent someplace within statute as to what would be or would not be considered in looking at the districts.  She supported this interim study and believed it was long overdue.

 

            THE MOTION CARRIED UNANIMOUSLY.

 

There being no further business to come before committee, the meeting was adjourned at 2:06 p.m.

 

      RESPECTFULLY SUBMITTED:

 

 

                             

      DIANNE LAIRD

      Committee Secretary

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Assembly Committee on Taxation

Tuesday, March 30, 1993

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