MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
May 18, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 2:03 p.m., Tuesday, May 18, 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:
Mr. Bernie Anderson, Assembly District 31, Washoe County
STAFF MEMBERS PRESENT:
Mr. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
OTHERS PRESENT:
Charles W. Joerg representing the Nevada Manufactured Housing Association
Joan Clements, Administrator, Manufactured Housing Division
Richard D. Franklin, representing the Assessors Association of Nevada
David Pursell, Chief, Division of Assessments Standards, Nevada Department of Taxation
Frank Daykin
James W. Erbeck, Attorney, Woodburn and Wedge, represented Tellus Industries
Doreen Strickler, Advance Sports Information in Las Vegas
Irv Leifer, President of Venture Group World Wide, Inc. and The Sporting Edge in Las Vegas
Jeff Allen, President, Jeff Allen Sports, Las Vegas, Nevada
Yolanda Givens, an attorney from Las Vegas, representing several sports information entities in Las Vegas
Kelly Knievel, Owner, Western Express Service Company
Robert R. Garganese, President, North American Enterprises, Inc., Las Vegas, Nevada
Steve Sisolak, American Distributing Co., Las Vegas, Nevada
Andrew J. Yurcho, Corporate Counsel for Gerovicap Pharmaceutical Corporation
Carole Vilardo, Nevada Taxpayers Association
Dave Ramos, representing International Marketing
Steven F. Stucker on behalf of the Nevada Association of Independent Businesses
Lewis E. Laughlin on behalf of Laughlin Associates, Inc.
John P. Kuminecz, Commissioner, Department of Commerce, Consumer Affairs Division,
Charles Bell, Tellus Industries, Inc.
Following roll call Chairman Price opened testimony on AB 482.
ASSEMBLY BILL 482 - Establishes procedure whereby certain mobile homes may be converted from real to personal property for purpose of taxation.
(BDR 32-1775)
Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau, provided committee members with a Bill Explanation for AB 482 attached hereto marked Exhibit C.
Charles W. Joerg representing the Nevada Manufactured Housing Association (NMHA), spoke in support of AB 482. Mr. Joerg wanted to explain to committee members the problem the NMHA was trying to correct. He explained there was a procedure whereby one could convert a mobile or manufactured home from personal property to real property. The problem had arisen in a couple of instances necessitating the reconversion of the property back to personal property.
Mr. Joerg provided an actual instance stating there was a fire in a unit and the insurance company paid the homeowner off, took possession of the manufactured home, refurbished it, brought it up to code and then discovered the title could not be acquired. There was no mechanism in state law to acquire the title. Another scenario would be if an individual had an older model manufactured home (or a mobile home built prior to 1976) placed on land the individual owned and he/she wanted to sell the manufactured home (or trade it) and place a newer unit on the land. Again, title would need to be acquired. Mr. Joerg reiterated there was no mechanism in state law permitting an individual to do so.
Mr. Joerg pointed out there was some concern originally that AB 482 was written too broad and would allow individuals to use the law to reconvert to personal property solely to reduce property tax. Mr. Joerg stressed that was not the intent of AB 482. He proposed to amend AB 482 referring to page 1, between lines 9 and 10. He wanted to insert the owner would file with the division an affidavit stating the sole purpose of the reconversion to personal property was to effect a transfer of title to a new owner. Mr. Joerg offered several other technical amendments.
Mr. Joerg stated the next amendment would be on page 1, line 12 offering to delete the word "due" and in its place insert "for the fiscal year." The next proposed amendment on page 1, line 17, was to strike the words "from the division" and continue with the rest of the sentence. He proposed an additional amendment referencing page 2, line 43, offering to replace the semicolon with a comma and delete everything on lines 44 through 47 from the statutes. Mr. Joerg referred again to page 2, line 7, and proposed to strike the sentence beginning with, "The division may adopt such regulations..." through the period. He explained the division had all the regulatory authority it needed under NRS Chapter 489 and it was confusing to give the division authority under a tax statute to issue regulations.
Joan Clements, Administrator, Manufactured Housing Division, spoke in support of AB 482. She voiced with the amendments the Manufactured Housing Division had no problems with reverting property from real back to personal property.
Richard D. Franklin, representing the Assessors' Association of Nevada, testified in support of AB 482. He provided committee members with a copy of the Assessors' Association proposed amendments attached hereto marked Exhibit D.
Mr. Haller asked if there was a large monetary differential between personal and real property tax. Mr. Franklin asserted there actually could be quite a difference. It depended on the age of the mobile home. Mr. Franklin described the difference in the assessment value of a mobile home as personal property from a mobile home converted into real property. The biggest difference would be in the case of an old mobile home sold originally prior to 1982. If that was a personal property mobile home it would be valued by taking the original sales price and depreciating at 5 percent per year. If the mobile was sold after 1982, then it would be assessed beginning with the original sales price and each year the price would be factored up to cover inflation and then depreciated at 5 percent.
Mr. Franklin explained for a mobile home converted to real property, every year the assessor would arrive at what the current replacement cost of the structure would be and depreciate it at the rate of 1.5 percent. The value could be quite a bit higher than the value described in the first method for an older mobile home.
Mr. Franklin communicated it was true a house did depreciate at 1.5 percent per year, but at least the assessor was working with a current replacement cost and not the original sales price.
Mr. Haller expressed he had received a number of calls from constituents who were mobile home owners questioning if an individual did not have a foundation attached to the ground and "x" number of points, an individual could get the property attached and call it real property or not attach the property and call it personal property. Mr. Franklin thought it might depend on a particular county ordinance. The taxation statutes did not require a certain number of points. Mr. Haller said there were many confused mobile home residents. Mr. Franklin added in Washoe County the mobile home had to pass inspection by the building department before it could be converted.
David Pursell, Chief, Division of Assessments Standards, Nevada Department of Taxation, testified in support of all of the proposed amendments to AB 482. Mr. Pursell clarified on page 1, line 17, of AB 482, when the words "from the division" were removed the assessor still needed to receive the verification if there was no security interest on the mobile home. Mr. Pursell viewed lines 17, 18 and 19 as protection to whomever might be holding the mortgage on the mobile home. He was not entirely sure how the information would be presented to the assessor.
Mr. Joerg responded it would be the obligation of the owner of the property to provide documentation to satisfy the assessor, or possibly a preliminary title report disclosing that type of information. He believed it would be the responsibility of the owner accomplishing the conversion.
Mr. Joerg explained for a committee member there was no title available after the manufactured home was converted to real property.
Mr. Pursell thought it could be indicated through the department's regulations that it would be the obligation of the property owner. Mr. Joerg had no problem with that.
Mr. Joerg highlighted for a committee member a mobile home could not be converted if it was placed on leased land because a mobile home could only be converted if the property and mobile home were owned by the same person.
ASSEMBLYMAN ERNAUT MOVED TO AMEND AND DO PASS AB 482.
ASSEMBLYMAN HALLER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT.
Chairman Price opened the hearing on AB 471.
ASSEMBLY BILL 471 - Imposes fee on solicitation by telephone and provides for additional regulation of such solicitation. (BDR 32-415)
Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau, provided committee members with a Bill Explanation for AB 471 attached hereto marked Exhibit E.
Bernie Anderson, Assembly District 31, Washoe County, sponsor of AB 471, testified the concept behind AB 471 came from the realization there existed in Nevada a major business operating in the neighborhood of approximately $300 million and $500 million that could be included within the tax system. Mr. Anderson stated because of the nature of the telemarketing business it had caused a great deal of confusion about its purpose and its legitimacy.
Mr. Anderson asserted the intent of AB 471 was to include those businesses within the taxing structure of the state. Mr. Anderson introduced Mr. Frank Daykin and asked Mr. Daykin to interpret the legislation and try to clear up some of the additional problems the telemarketing industry had been having. There was a particular problem between the sellers and the owners of the institutions and the use of credit instruments. Mr. Daykin would explain the bill in its entirety with a few small amendments.
Mr. Anderson believed the telemarketing industry was asking to be regulated, needed to be regulated and needed to be taken into the taxing structure within the state and treated as an equal with other businesses. It was not the intent of the bill to tax the telemarketing business out of existence, but rather to recognize some businesses did wish to step in.
Frank Daykin, testifying in support of AB 471, illuminated AB 471 was a 45 section bill, the first 37 sections of which were devoted to taxation on the principle that "the golden eggs are to be gathered without killing the goose that lays them." Mr. Daykin did not believe the first 37 sections required a great deal of explanation because the mechanism of the tax was set up very much as other licenses, taxes and excises were structured.
Mr. Daykin stated AB 471 contained several sections beginning with Section 39 of AB 471 that ensured "the golden goose remains healthy." Mr. Daykin iterated, those sections "... without interfering with the regulation that is already in place in Chapter 599B of NRS, will put certain enterprises that are under present law exempt from that regulation under - first of all the liability to tax under this bill and secondly some substantive regulations which, to keep them separate from 599B, are here set forth in Chapter 598."
Mr. Daykin proceeded, "The first important one of these is to require any seller who is subject to these broader regulations, if he intends to accept credit cards, to make an arrangement with a financial institution to factor those cards. That is to say handle them and collect them in the usual course of business; and he will be required by any financial institution that accepts that to put up a very substantial security because, of course, he's going to be getting money and they've got an obligation to collect; and the bill provides that if he goes out of business that security goes first to, of course, meet his obligations to the financial institution; secondly to the protection of anybody who bought goods on credit (maybe got charged for them and didn't get the goods.) That's one element of the regulation."
Mr. Daykin continued, "A second element, important element of the regulation is to require each seller to file with the Consumer Protection Division the script that he intends his salesmen to use, get it approved and then require every salesman to sign a written undertaking to use that script and only that script. ...This is to prevent the salesmen from going on frolics of their own. Remember they work on commission. Or, if they do act irresponsibly - that is violate the written promise to follow this script - then to assume the responsibility for whatever harm is caused. And in that instance, just as in tort law, excuse the employer from that responsibility because this is not something they did in the course of their employment, it is something they did in violation of their employment. ...The tax and those two items of regulation are the basic purpose of this bill. I will be glad to answer any questions upon the drafting and Jim over here can tell you all you need to know about telemarketing..."
James W. Erbeck, Attorney, Woodburn and Wedge, represented Tellus Industries, and was present primarily to speak about salesmen's responsibilities. Mr. Erbeck referenced sections 42 and 43 of AB 471 stating those sections contained information regarding what could be done to accord much greater responsibility to the salespeople. Tellus Industries and the rest of the telemarketing companies took the position that management, or the owners of the companies, should be absolved of any responsibility for any deceptive trade practices; however, the salespeople, who were on commission, were the ones who had the exposure to the customers and continually engaged in misrepresentations. The misrepresentations were either a violation of the law or caused civil responsibility for the company itself. He iterated in one phone call there could be four civil violations that could add up to $10,000 to $20,000 worth of fines.
Mr. Erbeck stressed without control over the salespeople, the salespeople would go to any extreme to close a transaction and then all the responsibility fell back upon the ownership. Mr. Erbeck believed without sufficient control over the salespeople by regulations or statutes, the law would continue to be violated. Mr. Erbeck asserted the telemarketing industry was in grave trouble. It would not be cleaned up until the salespeople had a greater degree of responsibility placed directly upon them. The current law provided all that could be done to a salesperson, that made financial sense in terms of the judicial system, was the individual's license to sell was revoked. Then it could be appealed through filing a petition for judicial review and the result was six to twelve months of a salesperson still working.
Mr. Erbeck expressed should AB 471 be passed, the Attorney General's office could go forward more quickly and put the salesperson out of work as soon as possible. The resulting civil penalties and any potential criminal liability would still remain for the companies, but the salespeople could be put in line much quicker. Mr. Erbeck believed without control of the salespeople, nothing could be done in the telemarketing industry.
Mr. Schneider asked if AB 471 passed and the recourse came back directly to the employee, what would happen to the employer. Mr. Erbeck said the employer would still be subject to NRS Chapter 598, the deceptive trade practices violations, civilly and criminally including obtaining money under false pretenses, criminal sanctions as well as other federal sanctions which might include wire and mail fraud. There was a statutory scheme criminally in place granting the Attorney General's office, the District Attorney's office or the federal government to proceed directly against the owners and the management level employees. There was a greater amount of stability moving against the owners and the management level employees, especially in a solid company.
Mr. Erbeck expanded stating the current set up allowed the sales people to deceive and get away with it and continue working. Finally after an employee was finally permanently revoked after a Petition for Judicial Review, the employee could move to another state.
Mr. Schneider clarified it would be set up similar to the real estate industry where the broker would hold the master license and was ultimately responsible, but the sales person would also be licensed and could also be held accountable.
Mr. Ernaut questioned the harshness of AB 471. He thought it could be more rigid. He had a hard time rectifying the fact management could be held to a much higher threshold than the employee, when many times it was the employee independently operating outside the management.
Mr. Ernaut saw AB 471 as regulating the industry and creating revenue toward the general fund. Mr. Ernaut believed the second or third offense should be much more severe than presented in AB 471. Mr. Erbeck articulated AB 471 was just the first step although he agreed the penalties should be stricter. Mr. Ernaut believed the second offense should be a criminal offense.
Mr. Anderson noted the scheme was put together based upon the belief the Consumer Affairs Department would remain as a regulatory agency for the industry, but that could be changed due to any later legislative action. A trailer bill could be put together in order to straighten it out. It was an issue yet to be settled as to where the responsibility would fall.
Mr. Daykin commented AB 471 did not prevent criminal action against the salesmen for false representation, but was part of the scheme and a part that would likely be put into effect.
Mrs. Lambert noted the exemptions on pages 3, 4 and 5 of AB 471 seemed to parallel the exemptions in NRS Chapter 599B, except for (h) in Chapter 599B had been left out. It was "any publicly traded corporation which has securities registered with the Securities and Exchange Commission...." Mrs. Lambert asked why that exemption had been omitted. Mr. Daykin explained the reason the exemption had been excluded was that the largest and most lucrative of the telemarketing enterprises would fall (all of them) within the exemption because the stock was publicly traded. Therefore, those companies' were left out of the exemption to make the "taxation net sweep the widest."
Mr. Daykin understood there was an amendment offered that would return the exemption to many (but not all) of the publicly traded corporations.
Mrs. Williams wanted to know what the fiscal note would be due to the fact all the scripts had to be approved by the Consumer Affairs Division. It seemed the scripts should be perused by an attorney for various reasons and that would cause a fiscal impact. Mrs. Williams also believed there would be a fiscal impact if the penalties were stiffened. Mr. Daykin referred to the cautionary language contained in Section 42 of AB 471 reading, "Acquiescence by the division in the language of a script does not constitute approval by this state of the product or service to be sold, or endorsement by this state of the truth of the language." Mr. Daykin said the language was included to guard against liability on the part of the state.
Mr. Daykin conceded there would be a fiscal note if the penalties were stiffened. If a criminal penalty was imposed there would be a fiscal note against local government (imprisonment in the county jail). If a felony offense was incorporated then there would be a fiscal note for the state (imprisonment in the state prison).
Mr. Regan submitted to the committee members a proposed amendment to AB 471, a copy of which is attached hereto marked Exhibit F. Mr. Regan read from Exhibit F the proposed section (w). That paragraph would cover all of the telemarketing firms throughout the state of Nevada and include the firms in AB 471.
Mr. Regan explained since "we are increasing the size of the pie," he proposed an amendment to AB 471 on page 5, Section 14, line 37 by deleting "4 percent" and inserting "2 percent."
Doreen Strickler, Advance Sports Information in Las Vegas, testified in opposition to AB 471. She reflected when the original telemarketing bill went into effect it was not meant for sports advisory services. The sports advisory services were "caught in the net," although the services complied. She revealed there were 20 licensed services and others that were not licensed. Ms. Strickler's company paid the $5,000 state annual fee, licensed the salesmen and paid for a bond. She disclosed the company was not making millions of dollars.
Ms. Strickler told committee members her company grossed approximately $150,000 per quarter. Ms. Strickler iterated at 4 percent it would cost her an additional $6,000 every quarter, or $24,000 per year. That was one-half of her net profit. She would not work for $24,000 per year. She detailed her monthly expenses for the committee and explained she was left with only $15,000 per quarter, 30 percent of which the federal government took. She stressed logistics-wise she could not do it. She emphasized she would not be paying the $5,000 state annual fee, would not have 16 salesmen needing to be licensed and would not have four students working for her. She would not be able to conduct business in her usual manner.
Ms. Strickler pointed out Advance Sports Information sold sports information and would not be able to comply with the submission of a set script to the Consumer Affairs Division. She explained her price changed daily and the seasons changed.
Ms. Strickler explained for a committee member different services operated different ways. Some services sold up front before the information was given, but her service did not. Her service gave the selection over the telephone, when the game won then the customer would send the money. If the game lost the customer did not send anything. Her company did not accept credit cards.
Chairman Price asked if her company telephoned individuals that were interested in placing bets on games. Ms. Strickler explained there were several different ways it could be done. In her case, she purchased names and phone numbers of players. She would not just pick up a phone book and call any phone number.
Mr. Ernaut thought her way of doing business was closer to telemarketing than the other type of sports information services.
Chairman Price asked Ms. Strickler if she necessitated any recourse against the individuals who did not pay. She indicated it was just a verbal agreement and no recourse was taken.
Irv Leifer, President of Venture Group World Wide, Inc. and the Sporting Edge in Las Vegas, testified in opposition to AB 471. He explained his company was a sports information service, but did business differently than Doreen Strickler. He explained his company did not give away any information in advance. His company advertised everything, therefore all the telephone calls were incoming, not outgoing.
Mr. Leifer said he spent a sizeable amount of money each year advertising in magazines, television, radio, etc. He explained the sports information services appealed to a very small market.
Mr. Leifer illuminated a year and a half ago he moved his business as an export brokerage company with the sports service from California to Las Vegas to avoid some of the types of problems he had been currently facing. He really did not mean the regulation, but the tax. He communicated in Nevada there was a $50,000 bond that needed to be posted as well as a $5,000 licensing fee. There were controls in Nevada, but in the long haul it still was a better situation than California from a business standpoint. He believed if AB 471 was passed it would drive him back out of the state of Nevada. He thought that would be a shame because he employed approximately 20 to 25 people from September through March and approximately 10 people year-round due to the export business.
Mr. Leifer also wanted to point out he believed the owner of the business was the one who was responsible for the way the business was run. He mentioned if a there were salesmen stealing or performing illegal actions, it was the owner's responsibility to terminate those salesmen, not to continue to maintain illegal operations.
Mr. Leifer elucidated his company had a script and everyone of his salesmen were monitored through a phone service. His company could listen to any salesman at any time.
Mr. Leifer believed the telemarketing business required some regulation, but he thought the regulation should be placed on the owners of the company.
Mr. Leifer relayed the Sporting Edge did not even fit in the telemarketing scheme, because his company did not call anyone. The customers telephoned in. The customers knew what they were buying when the call was made. He felt his company was blocked into the telemarketing umbrella when in fact the sports services did not fit.
Mr. Ernaut pointed out the way Mr. Leifer did business was similar to a watts line, or even catalog sales. Mr. Ernaut did not believe the sports services were telemarketing sales. It was even separate from Ms. Strickler's business. Mr. Leifer stated the business was more like a stockbroker than like a vitamin company, because the customers knew what service was being offered.
Mr. Ernaut asked if the Reno-Gazette Journal would fall under AB 471. Mr. Leifer theorized if the sports services were taxed, there were many companies that would fall under the same type of sales. The bill just did not fit for the majority of the people in the business.
Jeff Allen, President, Jeff Allen Sports, Las Vegas, Nevada, testified in opposition to AB 471. Mr. Allen provided committee members with a copy of his prepared testimony attached hereto marked Exhibit G. Mr. Allen read from his prepared testimony. He concluded a tax on sports information services would be devastating and would force closure or relocation.
Yolanda Givens, an attorney from Las Vegas, representing several sports information service entities in Las Vegas, requested an exemption be placed in AB 471 on behalf of the sports information services. She knew many of the distinguishing characteristics had already been brought before the committee, but she wanted to highlight a few more. Ms. Givens pointed out in the sports information service industry there were not scripts. She pointed out the only common denominator with the telephone product marketers was the sales were consummated over the telephone. Other distinguishing factors were there were no offers, no incentives, no premiums and no fulfillment of a product. It was just simply the selling of information.
Ms. Givens referenced the title page of AB 471 which stated the act was to provide for additional regulation. She relayed "additional" to her meant somehow the current regulation was inadequate. She wanted to relay the sports information services industry had very few complaints. It was a very narrow market being targeted and most of the individuals were subscribers and renewal type individuals. There was no "cold calling" and primarily inbound calling.
Ms. Givens pointed out the sports information service was a small industry in comparison to the telemarketing industry as a whole. She asked the committee to reconsider whether or not AB 471 should be passed without carving out an exemption for sports information services, or at least a reclassification with regard to the taxation on the sports services industry.
Ms. Givens responded to Mr. Ernaut explaining the sports services industry advertised in various sports publications. The market was very tailored. Mr. Ernaut just wanted to be sure the language would be drafted to distinguish the difference between the sports services and other businesses that solicited inbound calling through publications. Ms. Givens was not sure of the technical language but would get back with Mr. Ernaut if he so desired.
Mr. Allen clarified for Mr. Haller what type of sports information was provided to the consumer.
Mr. Allen referenced page 5, section 13, paragraph (u)of AB 471, stating it could be amended to read, "The solicitation of a previous customer or inquiry of the business on whose behalf...." Mr. Allen thought that exemption might cover the sports services in general, although there could be a problem with (u)(3). Mr. Ernaut said there could be a problem with stockbrokers because stockbrokers made calls all of the time.
Mr. Leifer added he had telephoned a stockbroker in New York and within a week had at least 20 different brokerage companies sending him information.
Mr. Leifer clarified why individuals used sports services.
Due to conflicts of other meetings, Chairman Price recessed the hearing until later that afternoon.
Chairman Price reconvened the hearing and recognized Mr. Spitler for comment.
Mr. Spitler mentioned Section 13 exempted local utilities from AB 471. Mr. Spitler indicated he was employed by Sprint Central Telephone Company of Nevada, a public utility company, and would be abstaining from the vote should AB 471 change the section of the statute.
Mrs. Lambert declared her husband was employed by a utility regulated business, and she would also be abstaining from the vote if AB 471 altered the statute.
Kelly Knievel, Owner, Western Express Service Company, had been in business for ten years and opposed AB 471. Mr. Knievel clarified his company entrusted its customers to pay after the merchandise was received. He stressed there was also an unconditional money back guarantee for thirty days after receipt of the merchandise.
Mr. Knievel provided committee members with a statement attached hereto marked Exhibit H presenting the industry's position.
Mr. Knievel stated the sports services attempt to minimize being "caught in the net" was ill-founded.
Mr. Knievel emphasized his profit margin was approximately six percent. A four percent tax would take $20,000 of a $30,000 salary to the state general fund. A two percent tax would take $10,000 from the same $30,000. A four percent gross tax was really 66 percent of net profit. A two percent gross tax was really 33 percent of net profit. He believed his six percent profit margin was above industry standards.
Mr. Knievel asked for clarification on Section 22, page 7 of AB 471. Section 22 seemed to state the money collected by the tax must be earmarked for telemarketing enforcement. Mr. Knievel stated to his knowledge there was a million dollar surplus in the telemarketing fund in 1993. Chairman Price responded it was not inconceivable AB 471 was put together as a money generator for the general fund.
Mr. Knievel was not opposed in participating in a fair, across the board increase in the employee business tax along with everyone else.
Mr. Knievel iterated the way AB 471 currently read was publicly traded companies, such as Tellus Industries and Spiegel Catalog, were not exempt. If an exemption was introduced for publicly traded companies, Tellus and other similar companies would become exempt. That would put licensed telemarketers at a competitive disadvantage. Furthermore, the exemption of any company from the tax would defeat the stated purpose of AB 471, which was to raise money for the general fund or the telemarketing fund.
Mr. Knievel knew of no other telemarketer, except for Tellus Industries, who was in favor of AB 471. He could not figure out why a company would volunteer to pay a tax. What motivated Tellus Industries to submit to a tax that would cut its profit margin by one-third was beyond him.
Mr. Knievel referenced Sections 42 and 43 of AB 471 explaining all telemarketing companies had a verification process. The purpose of that verification process was to explicitly acknowledge the customers understanding of the exact terms and conditions of the sale. In case a salesman misrepresented or in case there was a misunderstanding, the verification process served the purpose of catching the misunderstanding and canceling the order. It was the company's responsibility to have a verification process in place to prevent salespeople from misrepresenting and prevent misunderstandings. Mr. Knievel did not believe Sections 42 and 43 were a necessary part of AB 471.
Mr. Knievel added for the committee's information the Nevada Development Authority (NDA) advertised in the "Telemarketing Magazine" that Nevada did not tax its telemarketing industry. Mr. Knievel provided a copy of the "Nevada Business Guide" denoting pages 4 and 5 displayed Nevada's tax structure (Exhibit I). NDA invited telemarketers to relocate to Nevada. If AB 471 was passed it would be at odds with the campaign the state of Nevada was running.
Mr. Knievel also submitted for the record a copy of numerous newspaper ads (Exhibit J) underscoring the fact companies were not regulated by any kind of license fees and no license was required by salespeople to work for the company.
Mr. Knievel clarified for the committee NRS Chapter 599B stated if the product was defective or the sales presentation was misrepresented, the customer had 30 days to return the merchandise. Mr. Knievel's company policy was if the customer for any reason whatsoever was dissatisfied with the purchase, the customer had 30 days to return the merchandise for a full refund.
Mrs. Williams asked if Mr. Knievel said there were companies who were unlicensed and advertising. Mr. Knievel said that was correct. The companies were advertising for salespeople in the want ads and stressed the fact no license was required to go to work for the company. Mr. Knievel stated the companies were not licensed under NRS Chapter 599B. Mr. Knievel explained Tellus Industries was not licensed under NRS Chapter 599B. If there was an exemption placed into AB 471, then Tellus Industries would not be licensed under NRS Chapter 599B. Chairman Price asked if that was the difference between being a publicly traded company and a non-publicly traded company. Mr. Knievel said that was correct.
Robert R. Garganese, President, North American Enterprises, Inc. (NAE), Las Vegas, Nevada, spoke in opposition to AB 471. He echoed the sentiments of Mr. Knievel. NAE had been an ongoing telemarketing firm for seven years. Over the years the telemarketing industry had been struggling to gain acceptance as a legitimate industry. Mr. Garganese believed with the passage of NRS Chapter 599B, it helped achieve the goal and made telemarketing a vital source of much needed revenue for Nevada. Mr. Garganese believed with the passage of AB 471, it would tax the telemarketers right out of business due to the fact the telemarketers agreed to comply with NRS Chapter 599B.
Mr. Garganese stated the only entities to benefit from AB 471 would be the few companies who used the exemptions as a means of avoiding payment of any fees. It was an inequitable, unfair competitive advantage exempt companies had over licensed ones creating a situation that was totally unfair for the companies embracing NRS Chapter 599B since its inception.
Mr. Garganese's real opposition to AB 471 was he simply could not afford it. Mr. Garganese provided committee members with a copy of his profit and loss statement (Exhibit K) from his company. Contrary to public opinion not all telemarketers profit $1 million per year. The tax was not feasible. His company's bottom line last year was barely 5 percent. He urged the committee to vote against AB 471. He strongly opposed any telemarketing tax being placed on the industry.
Mr. Haller referenced Section 22 of AB 471 questioning if in fact the monies were earmarked for the telemarketing fund. Mr. Zuend responded the language was virtually boiler plate. A separate account was set up for deposits of certain taxes. It was simply an account in the general fund. It was not earmarked for any particular use.
Steve Sisolak, American Distributing Co., Las Vegas, Nevada, testified in opposition to AB 471. Mr. Sisolak thanked the committee for meeting after the recess to hear the telemarketers. Mr. Sisolak echoed the statements of Mr. Knievel and Mr. Garganese. It was Mr. Sisolak's opinion the passage of AB 471 would be a step backward with regard to the regulation of the telemarketing industry. The legitimate upstanding telemarketing businesses would pay the tax or move, but the shady telemarketing businesses would go back underground and a bigger problem would be created.
Mr. Sisolak stated if this tax was passed along to consumers, it could be deemed a sales tax. Mr. Sisolak said sales tax could not be collected from the customers out of state. His customers already paid a use tax. He iterated under NRS Chapter 599B and under AB 471, Section 39, subsection 3, sellers were defined. He stated all the people provided exemptions were in effect sellers (telemarketers), but were not telemarketers subject to regulation under NRS Chapter 599B. All the people under the 24 exemptions in AB 471 were telemarketers. He was of the opinion it was a violation of the Fourteenth Amendment in the United States Constitution. He thought AB 471 could be a constitutional challenge in its entirety. There should be no exemptions. It was a violation of the equal protection amendment of the United States Constitution.
Mr. Sisolak stated the proposed amendment (Exhibit F) was to clarify so publicly traded companies were placed back into AB 471, but Tellus Industries would be included in the tax. Mr. Sisolak pointed out there could be a problem with the wording of the amendment stating if Tellus Industries changed its name and started a new corporation with new subsidiaries, the company would not be subject to the tax. It was a large loophole.
Chairman Price stated Mr. Sisolak had made some interesting arguments under the equal protection clause. Chairman Price said within Nevada there were exemptions made for some people. He stated constitutionality had been raised, but not challenged. He provided an example where there was ad valorem property tax, and exemptions were given to veterans, seniors, widows and various other taxes too. He said possibly it could be certification for a challenge. Chairman Price iterated the Legislative Counsel Bureau's attorneys would take a look at AB 471. Further discussion ensued between all parties.
Mr. Neighbors iterated the difference between the sports services and the services provided by Mr. Sisolak's company was the sports services were not selling something tangible.
Mr. Sisolak pointed out the elimination of 22 sports services licensees would have a significant fiscal impact on the telemarketing budget.
Andrew J. Yurcho, Corporate Counsel for Gerovicap Pharmaceutical Corporation, a licensed telemarketer, testified in opposition to AB 471. Mr. Yurcho asserted AB 471 blamed everything on salespeople. Mr. Yurcho's company had very strict verification procedures, unconditional warranties and refunds up to one year. He was opposed to pointing at an industry and attempting to tax the industry.
Mr. Yurcho had a problem with Section 41 of AB 471. Section 41 attempted to keep people from factoring. Mr. Yurcho believed Section 41 would allow any company that was exempt from NRS Chapter 599B to still do business by going to another factor. Mr. Yurcho professed Tellus Industries was probably the largest factor in the business in Nevada.
Mr. Yurcho surmised the smaller telemarketer would fall by the wayside with the additional fees and regulations set out in AB 471. He believed the smaller companies would go to a company like Tellus Industries and work out a factoring arrangement for them. Tellus would process the paper and then there was another company in Nevada no longer registered. There would be one giant unregulated and unregistered industry.
Carole Vilardo, Nevada Taxpayers Association, opposed AB 471. Ms. Vilardo remarked the testimony on AB 471 had been interesting. She only wanted to address the issue of taxation. She submitted to the committee telemarketing was not an industry, it was a marketing practice. The exemptions were extremely diverse and were industry exemptions. Industries happened to use a marketing practice that was telecommunications.
Ms. Vilardo emphasized AB 471 was bad tax policy and was discriminatory policy. If it was the desire to use AB 471 for the general fund there should be no exemptions. She believed in regulating an undesirable practice out of business, not taxing an undesirable business out of business. She urged the committees opposition to all of the sections of AB 471 dealing with the tax. The Nevada Taxpayers Association would like to see some good tax policy and AB 471 was not it.
Dave Ramos, representing International Marketing, noted for the record his opposition to AB 471. He echoed the previous remarks.
Steven F. Stucker on behalf of the Nevada Association of Independent Businesses, opposed AB 471. Mr. Stucker provided committee members a copy of his prepared testimony attached hereto marked Exhibit L. Mr. Stucker read from his prepared testimony.
Lewis E. Laughlin on behalf of Laughlin Associates, Inc., spoke in opposition to AB 471. Mr. Laughlin submitted prepared testimony attached hereto marked Exhibit M. Mr. Laughlin agreed with Ms. Vilardo in that AB 471 dealt with two very different types of law. One of the laws was a tax law and the other one was a regulatory type of law. A decision needed to be made as to which type of law the committee wanted to pass. Mr. Laughlin read selected portions of his prepared testimony (Exhibit M) including an exemption outlined on page 2 of Exhibit M.
Mrs. Williams pointed out the gaming industry was subject to regulation and tax as well as the mining industry. There were many industries subject to both.
Mr. Laughlin clarified his intent was not that an industry should not be subject to both regulation and tax, but rather what part of that issue the Taxation Committee chose to deal with.
Mrs. Williams saw AB 471 as a fund raising bill for the general fund. She did not think the fund raising perspective could be considered without considering regulation. Discussion ensued between all parties.
John P. Kuminecz, Commissioner, Department of Commerce, Consumer Affairs Division, explained Consumer Affairs was consumer protection and a pro good business agency that dealt with enforcing Nevada's deceptive trade acts in general and with telemarketing in particular. Mr. Kuminecz testified his position on AB 471 was neutral. His department was self funded in terms of regulating the telemarketing industry through fees and other assessments.
Mr. Kuminecz commented on a few of the regulatory portions of AB 471. Mr. Kuminecz stated the shift of liability from owners to salesmen was contrary to the general consumer protection law where the owners were vicariously liable for the conduct of the employees. The owners had a duty to monitor the employees and ensure the employees were complying with the law or terminate the employee. The Consumer Affairs Division had found abusive companies encouraged salesmen abuses.
Mr. Kuminecz believed the language would cause severe problems as well as a fiscal impact. There was compiled a record of $2.7 million in three and one-half years in consumer restitution from telemarketing companies and actions by the Consumer Affairs Division. The Consumer Affairs Division was able at this point to go directly to the companies to receive the restitution, refunds, negotiated settlements, fines or penalties on behalf of consumers. He was of the opinion the ability to do the same would be available in going against the salespeople themselves. It was his understanding the drafters meant the language in addition to the current protection for liability within NRS Chapter 599B, but he did not view it as assistance, particularly when it was tied to the script.
Mr. Kuminecz explained the Consumer Affairs Division currently accepted all promotional materials from the companies for its files to view what was being represented. The language was not approved nor was the pitch. The companies that did not require scripts were not required to produce scripts. The scripts were required to be produced only if they existed and were part of the promotional materials. The Consumer Affairs Division felt the seller bears the entire responsibility to be his own attorney or to have his own attorney represent whether the promotional material withstood the legal test of representing his company accurately and not misrepresenting to the consumer.
Mr. Kuminecz stated if the scripts were to be produced, it would involve some fiscal impact on the telemarketers themselves because of hiring additional staff as well as additional staff both in the Consumer Affairs Division and the Attorney General's office.
Mrs. Williams asked Mr. Kuminecz about the testimony heard earlier regarding the unlicensed telemarketers who advertised. Mr. Kuminecz believed the telemarketers referred to were exempt companies that fit under the category of one of the 25 exemptions. Those companies could grow larger because they would take other companies under them who did business as that company. He added there were salesmen who could not be licensed and would find employment with the exempt companies. That was why those companies could make the claim in the newspaper the salespeople did not have to be licensed, because the company itself was exempt and unlicensed.
Charles Bell, Tellus Industries, Inc., provided for the record copies of the United States Securities and Exchange Commission's Form 10-Q Quarterly Reports of Tellus Industries' for periods ending December 31, 1992 and March 31, 1993, copies of which are attached hereto marked Exhibits N and O, respectively.
There being no further business to come before committee, the meeting was adjourned at 6:50 p.m.
RESPECTFULLY SUBMITTED:
DIANNE LAIRD
Committee Secretary
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Assembly Committee on Taxation
Tuesday, May 18, 1993
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