MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
June 8, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:29 p.m., Tuesday, June 8, 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
Ms. Myrna T. Williams, Vice Chairman
Mr. Rick C. Bennett
Mr. Peter G. Ernaut
Ms. 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
STAFF MEMBERS PRESENT:
None
GUEST LEGISLATORS PRESENT:
Assemblyman Chris Giunchigliani
Senator Matthew Callister
OTHERS PRESENT:
Mr. James Dan, Libertarian Party of Nevada
Mr. Ernest Walker, Councilman, Sparks, Nevada
Ms. Janice Wright, Department of Taxation
Ms. Juanita Cox
Ms. Carole Vilardo, Nevada Taxpayers Association
Mr. Howard Barrett, Nevada Taxpayers Association
Ms. Bonnie James, Las Vegas Chamber of Commerce
Mr. Gregory F. Betts, Nevada Rural School District Alliance College of Education
Mr. Henry Etchemendy, Nevada Association of School Boards
Ms. Bobbie Gang, Nevada Women's Lobby
Mr. Stan Warren, Sierra Pacific Resources and Sierra Pacific Power Company
Mr. Michael Alastuey, Clark County School District
ASSEMBLY BILL 639 Clarifies that sale of water is not taxable. (BDR 32-1748) (Exhibit C)
Stan Warren, representing Sierra Pacific Resources and Sierra Pacific Power Company, testified in support of the bill and explained the attempt of A.B. 639 was to exempt water, including bottled water and water sold through vending machines, from the state sales tax. Sierra Pacific Power Company supported the intent of the bill (Exhibit D).
Mr. Spitler asked if carbonated water, where carbonation was added at the well, was subject to the tax.
Mr. Warren stated he was not sure and thought a legal interpretation was needed.
Chairman Price clarified the subject being addressed was water for home consumption, not for immediate consumption such as soft drinks.
Ms. Lambert directed her question to Janice Wright and announced she knew of a store in Reno that had their water vending machine outside, but now it was inside next to the deli section. She wondered if it was still subject to tax, now that it was inside the grocery store with the other bottled water.
Janice Wright, Department of Taxation, reported the language of the statute which was passed exempting food declared food for human consumption did not include alcoholic beverages, pet foods, tonics, or prepared food for immediate consumption. The annotation stated the exemption was to be strictly construed, and was not intended to include sales by or from catering services or vending machines. The Department of Taxation faced two different situations, she claimed. There was the coin-operated machine referred to by Mr. Price, where a customer filled his own container with filtered water, she said. It was the interpretation of the department because it went through the machine, it was the vending machine that sold the water, and therefore it was subject to taxation. Ms. Wright confirmed Mr. Spitler's assumption that any bottled water that was sold would be considered food if one went to a grocery store, but when it was bought from a vending machine it was taxable.
Mr. Marvel asked Ms. Wright if this "muddied the waters" for the department.
Ms. Wright responded it did. In addition, she said, treating the water differently from any other item sold through a vending machine caused the department further complications. They believed clearly it was the intention of the Legislature to tax any item coming out of the vending machine but not to tax food purchased in a food store or for home consumption. The language and the regulations developed, she maintained, were structured in a format which caused them problems. She said the department was not in opposition to exempting the water. Ms. Wright explained they had prepared a fiscal note to explain the calculations of the revenue loss; they had determined a $113,000 loss in fiscal 1994 and approximately a $126,000 loss in fiscal 1995. It would cost the state some money to do this, and, she reported, they thought there would be problems in its administration.
Mr. Spitler asked how the Department of Taxation defined a vending machine.
Ms. Wright said the department defined it as being any item owned as tangible, personal property into which money went and an object came out. It also included the type of machine referred to by Mrs. Lambert.
Mr. Spitler wanted to know what other things fell under franchise taxes and then were taxed again. He called her attention to the case of the water coming out of the vending machine as being one of those instances.
Ms. Wright said she could not think of anything and said the water Mr. Warren had referred to was not subject to this type of tax.
ASSEMBLYMAN WILLIAMS MOVED TO INDEFINITELY POSTPONE A.B. 369.
ASSEMBLYMAN MARVEL SECONDED THE MOTION.
MOTION CARRIED.
SENATE BILL 335 Extends date of reversion of certain money appropriated last session to department of taxation. (BDR S-1882) (Exhibit E)
Janice Wright, Department of Taxation, testified in favor of S.B. 335 and explained during the last legislative session S.B. 346 was passed, which appropriated a half million dollars for the State Department of Taxation to have an automated collection system created. The bill was approved, she declared, on July 3, 1991. After that date it became evident the state was experiencing a budgetary crisis. The money was not provided to the Department of Taxation until April of 1992, at which time the department began the request for proposal process, which the Board of Examiners approved in March of 1993. In April, the department hired their contractor, and that individual company began work on the automated collection. She stated her department was requesting this appropriation be extended past the date when normally it would end. Ms. Wright explained if they had to finish up now, they would have only expended a few payments to the company; they were not expected to complete the work until eight or nine months from the date they began. She asked the committee to approve S.B. 335 to extend the appropriation.
ASSEMBLYMAN MARVEL MOVED TO DO PASS S.B. 335.
ASSEMBLYMAN SPITLER SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
ASSEMBLY BILL 676 Shifts part of taxes for schools from sales to property in 2 fiscal years and repeals certain limitations on amount of revenue that may be received by local government. (BDR 32-313) (Exhibit F)
Assemblyman Chris Giunchigliani, Assembly District 9, explained her intent in introducing A.B. 676 was for the purpose of dialogue. She maintained it was time to look at a stable source of funding and thought this bill could be a vehicle for that opportunity. She requested Senator Callister continue with an explanation of A.B. 676.
Senator Callister called attention to two handouts, Nevada Tax Flow (Exhibit G), and a memo dated May 9, 1993 from Dan Miles, Fiscal Analyst on the Senate side, (Exhibit H). He wanted to point out when returning to session 18 months from now, the state would be looking at an $80 million deficit hole in the budget. That was before, he stated, any consideration was given to the possibility some portion of the $47 million net benefit the Legislature hoped to achieve through the hospital provider tax might not mature. When that happened, he stated, $47 million would be added to the $80 million. The senator claimed at some future date the possibility of the gaming projections would not be quite as rosy as they were last month due to more than twenty locations in two states adjacent to Nevada, Arizona and California, where there were existing Indian reservations. There was a good possibility slot machines would be installed on those reservations and suspected that would come within the biennium.
Senator Callister spoke of volatility versus stability in the tax base and referred to the Nevada Tax Flow (Exhibit G), which showed where Nevada spent its money. He then called attention to the next page of his handout which outlined a mix of Nevada's revenue base. In the balance of revenues, he stated, the most significant were the insurance premium, mining, and the business taxes. Senator Callister advised only the insurance premium tax and business tax were treated as stable taxes.
Senator Callister referred to five "pie" charts for Arizona, Nevada, Idaho, Utah, California. With Nevada, he noted the only stable component was a 22 percent reliance on property tax.
Nevada, he pointed out, was one of the few states that funded all of its operating costs of education at the state level. That was a key component to the problem, he maintained. Nevada, Senator Callister reported, had 59 percent of its assessed valuation in non-residential ownership.
Chairman Price read a letter he had received from a Colorado senator and a member of their Appropriations Committee, commenting on an article the senator had read where the committee was "killing" the proposed one-time tax, advising he thought the committee had acted properly. The senator maintained, "One-time money is bad public policy and should be used only in dire emergencies...".
Ms. Lambert asked Senator Callister about the broadness of the property tax base. Eighty seven percent of Nevada's land, she remarked, was owned by the federal government, and by the time state and county was taken out, there was about ten percent. A lot of that land had agricultural exemptions, she stated. Several years ago, Ms. Lambert reported, roughly about five percent of Nevada's property was subject to the regular property tax rate. She felt that was a pretty narrow base compared to a state like Michigan, where one saw a broad base.
Senator Callister stated because there was so little of it, there was the need to share the taxable base between local and state governments. This bill allowed the local governments to increase their available sales tax reliance by enough to offset the extent to which the state would be taking future taxes. It was the senator's contention if the same revenue base was shared, maybe the same concerns would be shared with the locals, and maybe they would be a little more responsive to the subject of all growth at any expense.
Ms. Lambert stated she had not seen all of Senator Callister's bill and asked if he was proposing the state take some of the property tax revenue and give the locals more sales tax.
Senator Callister explained the state would reduce its sales tax, increasing its property tax. He did not think it was good policy to give the local governments almost exclusive reliance upon the stable revenue and the state an exclusive reliance on a volatile revenue base.
Mr. Neighbors stated without a vote of the people on this matter, it looked like there could be some real problems. The previous night there had been some discussion in one of his districts about increasing the taxes in Hawthorne by about 16 cents, he said, and there were a lot of people very concerned about the possible raise in taxes.
Ms. Giunchigilani remarked it was important to stop legislating through fear of not being reelected. She declared there was the possibility the bill would not happen this session, but it would be irresponsible to continue to stick their heads in the sand.
Mr. Neighbors stated he was not opposed to funding schools, and he felt most of the legislators came to Carson City with a message from their people. It would be interesting to see where the priority would be with the people - property tax or sales tax.
Ms. Giunchigilani declared originally A.B. 646 had been drafted not only to "reshift the shaft" but to put a sales tax on services and to lower the state sales tax. Just a plain sales tax, she said, was the most regressive tax as it affected middle and low income persons, as well as senior citizens more than anybody else. Rather than confuse the issue, she explained, she took that part out and left something to focus on. In educating, she said, people had to be convinced growth did not pay for itself, that minimum wage jobs were not what was going to help Nevada, and yet that was the majority on which the service industry was based. Those people did not make enough money to purchase the service on which the sales tax and budget were based.
Chairman Price mentioned he had voted against the tax shift in 1979, however when dealing with taxes at that time, primarily brought on by the pressure of Proposition 13, the property tax in Nevada was approximately .4 percent of the property tax rate. Property tax across United States has historically been at the bottom of the list as far as being popular.
Mr. Mike Schneider asked Senator Callister if he was in favor of slowing growth.
Senator Callister said he was not.
Ms. Myrna Williams recalled the legislators had all struggled through the years with how to get a more stable base. She remembered fighting the constitutional amendment on income tax, not because they wanted it but because they felt they should never say never, just in case emergencies such as Nevada was facing now might occur. She asked Senator Callister if he had thought about a split roll for property tax, which provided the residential owners with a lower rate than the business property owners.
Senator Callister agreed that was a possibility, but not until they had arrived at some difference in the present distribution in the property taxes.
Ms. Williams suggested if one looked at Price Waterhouse they would see most states tax commercial property at a different rate than residential which, depending on the wealth of the state, could make a huge difference. She did not think the way taxes were structured would have any effect whatsoever on the age of the population moving into the state.
Senator Callister did not agree and suggested if those people were questioned, it would be found they viewed Nevada as a tax haven because there was no income tax, property tax was quite low, and there was no sales tax on food or services.
Ms. Williams stated she wanted to go on record that whatever position she took, it was understood it was not out of fear.
Ms. Debbie Cahill, representing the Nevada State Education Association, testified in favor of A.B. 676. She reported during the 1989 session, she became very familiar with the
the membership's concerns about a broad, stable source of funding for education. She said in the past few years, her organization had made a very strong commitment to education and improvements in education. She echoed Senator Callister's testimony.
Mr. Mike Allistway, Clark County School District, testified A.B. 676 provided a unique and favorable vehicle for discussion critical to all. Earlier this session, he stated, the legislature had the grievous task of considering and passing S.B. 329, which provided for a $51 million supplemental, followed by an $18 million reduction of the budgets of public schools in Nevada. The contract between the state and the local school districts, which Senator Callister spoke of earlier, was broken by the state out of necessity for the second time in ten years. He hoped the committee would look favorably at A.B. 676.
Mr. Ernaut asked what response one had for senior citizens who were on a fixed income, had no kids in school, and were told their property taxes were going to go up.
It was Ms. Cahill's contention they did receive a benefit in the long run in supporting the schools, and it was a matter of educating the public.
Mr. Greg Betts, representing the rural school districts, wanted to go on record by saying education was too precious to be subjected to the instability of the present funding. He thought this bill would take some courageous leadership.
Mr. Henry Etchemendy, representing the Nevada Association of School Boards, stated the association did not have a formal position. However, the association had a standing position for many years in support of stable and broad-based revenue sources for public education. The association firmly believed the concept of A.B. 676 was a step in that direction.
Mr. James Dan, Northern Regional Representative of the Libertarian Party of Nevada, spoke in opposition to A.B. 676. During a recent campaigning effort for a friend, Mr. Dan reported he was received with outrage at the current level of property taxes, let alone increases in property taxes. There was a lot of mistrust, he claimed, and a lot of anger against a property tax increase. He questioned Senator Callister's comment that there was a lot of support for a tax shift. If the state of Nevada had problems making ends meet with an unstable revenue source, he questioned, what did that do to the average person who tried to make ends meet. Mr. Dan said he did not see how a person's stable income was guaranteed in order to meet the tax increase. At least when times were bad, he limited his spending, he said, and when they were good he spent. Mr. Dan claimed growth did not pay for itself. It was his opinion it should be made to pay for itself, and he did not feel it was fair when new growth came to the state and put the cost on the backs of the residents. Nevada seemed to bring in more and more people by building more developments and then putting the costs of the infrastructure and schools on the current tax base. Builders should be made to pay for the impact, so this problem could be eliminated, he claimed. Mr. Dan declared as a Libertarian he was opposed to any new taxes, but as an individual taxpayer he found the sales tax far more palatable to pay than a property tax.
Mr. Ernest Walker, City of Sparks, declared he echoed James Dan's testimony.
Ms. Carole Vilardo, Nevada Taxpayers Association, declared her organization was opposed to the bill as written and presented a supplement to her testimony (Exhibit I).
Ms. Bonnie James, representing the Las Vegas Chamber of Commerce, stated her organization was opposed to A.B. 676. She felt it was too late in the session to come up with a major piece of legislation regarding basic tax policy.
There being no further business to come before the committee, Chairman Price adjourned the meeting at 3:30 p.m.
Respectfully submitted,
Barbara D. Tonge
Committee Secretary
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Assembly Committee on Taxation
June 8, 1993
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