MINUTES OF MEETING

      ASSEMBLY COMMITTEE ON TAXATION

 

      Sixty-seventh Session

      June 10, 1993

 

 

 

The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:25 p.m., June 10, 1993, in Room 332 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

      Mr. Robert E. Price, Chairman

      Mrs. Myrna T. Williams, Vice Chairman

      Mr. Rick C. Bennett

      Mr. Peter G. Ernaut

      Mrs. Joan A. Lambert

      Mr. John W. Marvel

      Mr. Roy Neighbors

      Mr. John B. Regan

      Mr. Michael A. Schneider

      Mr. Larry L. Spitler

 

 

COMMITTEE MEMBERS ABSENT:

 

      Mr. Ken L. Haller, Excused

 

GUEST LEGISLATORS PRESENT:

 

      Assemblyman Dean Heller, District 40

      Assemblyman Jim Gibbons, District 35

      Assemblyman Val Garner, District 14

 

STAFF MEMBERS PRESENT:

 

      Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau

 

OTHERS PRESENT:

 

      Clarence Eiche, President, Retired Public Employees of Nevada

      Kathy Kerish

      Janice Wright, Deputy Director, Department of Taxation

      Tom Rainford, Nevada Hearing Aid Specialists Association, and President, Nevada State Board of Hearing Aid Specialists

      Tom Morris, Nevada audiologists

      Carole Vilardo, Executive Director, Nevada Taxpayers Association

      Sam McMullin, Nevada State Podiatric Association and The Nature Conservancy

      Stephanie Licht

      Richard Franklin, Assessors Association

      John Sande, The Nature Conservancy

      Doug Busselman, Executive Vice President, Nevada Farm Bureau

      Graham Chisholm, Nevada Special Projects Director, The Nature Conservancy

      Joe Dahl, member, Elko Board of County Commissioners

 

Chairman Price announced Assemblyman Haller was out of intensive care.  It appeared he was doing much better and would be able to receive visitors.

 

ASSEMBLY BILL AB 631 -  Proposes to exempt from taxes on retail sales auditory devices and appliances and medical equipment and supplies if prescribed by physician. (BDR 32-975)

 

As sponsor of AB 631, Assemblyman Dean Heller, District 40, opened testimony.  Mr. Heller explained Clarence Eiche had asked him to introduce this bill, again.  Similar legislation had been introduced in 1987, 1989, and 1991.  All had failed in the Senate.  He said the bill would provide for amendment of the Sales and Use Tax Act of 1955, if the measure passed during the November, 1994 election.  Its purpose would be to exempt from taxation retail sales of auditory devices and appliances and medical equipment and supplies, if ordered and prescribed by a physician.

 

Mr. Heller referred to page 2, lines 11-13 which contained the language which would set out the specific exemption for auditory devices and appliances and medical equipment and supplies if ordered or prescribed by a licensed physician.

 

A definition and listing of medical equipment and supplies was pointed out on lines 26-30, page 2.

 

Mr. Heller stated taxes imposed on those types of items were regressive in nature.  He said he hoped this bill would give assistance to those who could least afford to pay sales tax, senior citizens and the disabled.  He would urge support of the bill.

 

Clarence Eiche, President, Retired Public Employees of Nevada, stated many persons who bought auditory and other medical equipment were people of limited financial means, i.e. the disabled and seniors with low to moderate incomes.  Those people could least afford to pay the sales taxes currently imposed. 

 

Assemblyman Heller explained the potential fiscal impact would be $265,000 (covering five months) in fiscal 1994-95  and $628,000 in fiscal 1995-96.

 

Mr. Spitler stated he was proud to be a co-sponsor of this bill.

He hoped it would make it through both houses this session.  He added he thought the best way to make the final decision in regard to this matter was via a vote of the people, for which this bill provided.

 

Assemblyman Jim Gibbons, District 25, submitted a proposed amendment to the bill.  The proposed amendment is attached as EXHIBIT D.  Mr. Gibbons explained this was an appropriate vehicle in which to include other medical devices, such as orthotics, in order to exempt them from taxation for the same reasons previously set forth.  He added orthotics and walking casts which were obtained through a physician's prescription were used in order to replace the function of a defective bodily part and should be exempted from sales tax.  He explained he did not want to pursue a new bill draft request and would, therefore, ask the amendment be incorporated into AB 631. 

 

Mr. Marvel asked what the fiscal note would be on the amendment.  Mr. Gibbons stated he had not obtained one, but he would do so immediately and report back to the committee.

 

Kathy Kerish stated this bill would bring Nevada law more in line with California law, exempting orthotic appliances, custom biomechanical devices, and replacement parts when prescribed by a physician.  The definition of these devices would be included in the term medicine or medication.  The policy for the exemption from sales tax, provided by the attorney general's office, included two tests: that it be a substance commonly used and recognized for internal or external application in the diagnosis, prevention, and/or cure of disease or affliction of the human body; and, it must be subject to control by a licensed physician for the treatment of a specific patient.  She added this would not include generic, over-the-counter products which could be purchased at a retail outlet. 

 

Chairman Price asked if there was language in the bill which defined supports.  Ms. Kerish stated all prosthetic devices would be exempt.  Mr. Gibbons added the proposed amendment language would clarify both orthotics and prosthetics.  Passage of the bill and the amendment would help to reduce health care costs.  He asked for a sincere consideration.

 

Mr. Marvel said every session the legislature had to deal with requests for more and more exemptions while being unable to replace those funds from other sources.  The more exemptions granted the weaker the integrity of the tax base.

 

Mr. Gibbons asked if there should not be some balance test.  He said he did not believe health care cost containment should be subservient to budget matters.

 

Mrs. Williams said this was her fifth session on the Taxation Committee.  The committee had had to struggle with granting or denying exemptions each session.  She felt some of the programs which had been eliminated, such as deaf and blind services, had fallen because of exemptions which had been granted previously.  Although she had supported the concept of this bill in prior sessions, she did not believe she could vote for anymore exemptions because of how difficult it made the budget process.

 

Mr. Gibbons agreed there were budgetary considerations which had to be dealt with; however, he believed the sales tax issue here also impacted the state, because, when the state purchased items for indigent care patients, it also had to pay the applicable sales tax.  He said it was a delicate balance issue.  Mrs. Williams added the very programs which she was trying to maintain provided services to somewhat the same group of people.  He said he would not disagree with her point.

 

Janice Wright, Deputy Director, Department of Taxation, testified current law excluded prosthetics devices for human use, in addition to appliances and supplies.  This bill added auditory devices and appliances and medical equipment and supplies -- if ordered or prescribed by a licensed physician.  The medical equipment and supplies language in the bill and amendment would, indeed, include the kind of supplies one could buy at Osco and K-Mart.  Regulation currently provided in its policy statement the definition of a prosthetic device.  It was a device which replaced something.  It did not include crutches, braces and other similar products.

 

Ms. Wright asked where the scope of the exemption would stop.  She said the fiscal impact statement which had been prepared was not based on such widespread exemption because they could not estimate its impact.  It was not possible to break out from the general retail businesses those sales tax revenues which attached to sales of supplies.  The various items supplied might include spas and jacuzzis, air conditioning units and even specially equipped vehicles.  The department did not analyze any impact of the broader language included in the proposed amendment.  If it was the intention of the committee to allow those types of exclusions, she would ask the language be very specific about what would be exempted so it would not cause interpretive problems in the future.

 

Ms. Wright also stated there was an exemption on eyeglasses of the 4.5 percent portion of the sales tax, but not on the two percent.  She questioned whether the committee would want to include those devices also in this bill so ocular devices would also be exempted from the two percent portion of the sales tax.  In such instance, a single ballot question would set the tax policy on all these similar issues.

 

In answer to a question from Mr. Marvel, Ms. Wright said there was a listing of all exemptions which had been requested and granted to any entity.  She would supply the list.  She responded also it was difficult to estimate the dollar value represented by those exemptions because those revenues were no longer tracked, because they were exempted.  Those exemptions were not a credit against the sales tax due, they were simply not required to be reported to the department.

 

A discussion of what and who was currently exempt from sales tax followed.

 

Ted Zuend, Deputy Fiscal Analyst, summed up the discussion and said fiscal information could possibly be established, but the department might have to base it on consumer or retailer surveys and they would be expensive to conduct.  He elaborated when an item became exempt from tax (like food had been) the impact could be determined by comparing the sales tax report figures for the period prior to the exemption with those succeeding it.  Trying to establish figures for the reverse process was more difficult because the sales totals exempted from tax were simply not reported.  Ms. Wright said she would meet with Mr. Zuend to develop some information to submit to the committee.  She also stated she would provide a complete list of all entity names which were currently granted an exemption.  A listing of the types of items would be more difficult and would take time to compile.

 

Tom Rainford, Nevada Hearing Aid Specialists Association, and President of Nevada State Board of Hearing Aid Specialists, stated he would support the removal of sales tax from auditory devices.  He stated his associations had previously collected several thousand signatures from consumers who advocated the exemption.

 

Tom Morris, representing dispensing audiologists in Nevada, stated he also supported the original form of the bill.  He added it was critical everyone realized what was important, i.e. what was fair, just and right.  Although the fiscal issues were important, he believed they could be worked out.  Since prescriptions and eyeglasses were exempt from sales tax, he believed it was not fair to tax hearing aids.

 

Carole Vilardo, Nevada Taxpayers Association, spoke in opposition to AB 631.  She thought there was no question medical device exemptions should be considered, in total.  However, because of the myriad of exemptions which had been granted previously, the sales tax system had become very inequitable and out of control.  The increase in the sales tax rate, the difficult economy, along with the increases in health care costs had resulted in the application for exemption for more and more products.  It was Ms. Vilardo's position no more exemptions be granted, regardless of merit, until the interim study report on tax policy could be reviewed during next session.

 

Ms. Vilardo indicated to Chairman Price the statutorily exempted items were listed in the index portion of the tables of contents in NRS Chapters 372, 374, 361 and 362.  She indicated she had met with Mary Santina and learned as the sales tax form was now,  an entity did not have to identify the type of exemption or amount of each type, only a total aggregate exempt figure. 

 

In answer to a question from Mrs. Williams, Ms. Vilardo stated the idea of a universal tax form was being considered in a bill before the Government Affairs committee.  Ms. Vilardo said she did not know where the bill stood strategically, she hoped it would pass this session.  Ms. Vilardo said the revamping of the forms would allow for creation of a hard database from which significant tax information could be gleaned for future use.

 

Replying to another question from Mrs. Williams, Ms. Vilardo said there was language, both in statute and in regulation, which was ambiguous and needed to be identified, updated and clarified, especially relative to rental/lease items, et cetera.

 

Mrs. Williams asked if the department or the tax commission could grant exemptions by regulation.  Janice Wright responded they could not.  Ms. Wright said, according to the Nevada Tax Code, the commission could define what complied with statute.  For instance, the commission could define what would qualify for an exemption as a "newspaper", but it could not add some other item to that category.  Ms. Vilardo added the Nevada Administrative Code would be another source in compiling a list of exemptions.  Ms. Vilardo also clarified human organs and blood were not sold; however, transport and procedures to remove or implant might be charged tax.  Ms. Wright stated there was no sale of tangible personal property involved with the sale of body parts.  And, since there was no sale of tangible personal property, neither the delivery charges nor any other directly related portion of such a transaction would be taxable.

 

Mrs. Williams said the two most important tax areas for study during the interim were special taxing districts and exemptions.

 

Sam McMullin, Nevada State Podiatric Association, spoke in support of the bill and Mr. Gibbon's amendment to include orthotics.  He reiterated the body part versus bodily function comparison and said he believed the amended bill should be seriously considered so the final decision could be made by the voters.  He stated the current law was illogical.

 

Chairman Price called for testimony on AB 685.  The bill explanation is attached as EXHIBIT E.

 

ASSEMBLY BILL 685 -     Authorizes each county to establish program to allow senior citizens to pay property taxes through provision of services.     (BDR 32-1459)

 

Assemblyman Val Garner, Las Vegas District 14, explained this bill was drafted on behalf of senior citizens and anyone else who thought they would one day become a senior citizen.  He explained he had submitted a similar bill in the 1991 session.  He contended the bill would simply allow individual counties the ability to assist seniors who could not afford to pay their tax bills by implementing the proposed program.  He felt it would benefit seniors who experienced financial hardships.

 

Stephanie Licht spoke in support of the bill.  She said the program would not only benefit seniors who needed financial assistance, but it would also provide an experienced work pool which could benefit the counties in many positive ways.

 

Carole Vilardo said there was no doubt many seniors had experienced financial hardships; however, there already existed statewide programs such as the senior renter's rebate which addressed similar problems.  She asserted if such a program was enacted it should include specific qualifying income and resource levels.  Because seniors were a politically strong segment of the population, many programs were proposed for their benefit.  Many senior households were definitely not on a fixed-income budget and were very comfortable.  She added there were some young families which had experienced financial difficulties, who were buying homes and might need tax relief.  Those families, regardless of their comparative age, also would benefit from such a "work-for-taxes" program.  She felt equity among taxpayers was important.  In conclusion, she stated this was another area which illustrated poor tax policy, or lack thereof, which had to be examined during the interim.

 

Mrs. Williams pointed out there was a means test provision within the bill and Ms. Vilardo agreed.  However, Ms. Vilardo stated AB 685 was special interest, exemption driven legislation.

 

Ms. Lambert asked Ms. Vilardo if she did not feel since the compensation wage in this bill would be minimum wage, it would help alleviate some of the skyrocketing labor costs for county services.  Ms. Vilardo said although her point was probably true, there were two programs which could presently be utilized to effectively gain the same benefits.  The federal RSVP program and the Clark County Work Fair Program were two examples.

 

Ms. Vilardo added, from a tax policy perspective, this was the time, due to the state's rapid growth, to sit down and evaluate where the state was, what was in the law, where the state wanted to go, and why.  That process would take more time than was involved in a legislative session.

 

Mrs. Williams  commented the difference between a senior family and a young family facing financial difficulties was the young family had many options and could take almost any job to generate additional funds.  Seniors oftentimes were not physically able to do so.

 

Ms. Vilardo said perhaps Mrs. Williams comments were valid, but primarily what the bill addressed was a senior who was possibly disabled and unable to pay his taxes.  Such a situation could apply to any disabled person regardless of age.  Additionally, quite often, seniors had far more experience to rely on in order to win a job. 

 

Chairman Price asked Mr. Garner which portion of the property tax would be waived.  Would the waiver apply to the county and state portions of the property tax, he asked.  Mr. Garner replied the portion which could be worked off would only be the county's allocation.  Discussion followed as to methods and enforcement with no conclusions drawn.

 

Mr. Neighbors said he was opposed to all exemptions.  He was concerned about exempting seniors from paying their property tax because they had not had children in the schools for years and it was becoming more difficult to fund school construction in most counties.  He also questioned what the county liability for working seniors would be.  He thought it was valuable to try to do something to benefit seniors, but felt there were other perspectives to be considered.

 

Mr. Ernaut said he was not sure young couples who could qualify to buy a home needed financial assistance.

 

Chairman Price  called for testimony on AB 640.  The bill explanation is attached as EXHIBIT F.

 

ASSEMBLY BILL 640 -     Makes various changes relating to assessments and liens concerning property owned by Nature Conservancy.  (BDR 32-1833)

 

Richard Franklin, Assessors Association, reminded the committee this bill came into existence following testimony on  the assessors' omnibus bill.  The changes proposed addressed the conflict in current statute between NRS 361.111 and 361A.286, where the agricultural statute provided for cancellation of liens when properties were transferred to tax exempt organizations.  He added various amendments had been proposed and they would be outlined by Mr. Sande.

 

John Sande, The Nature Conservancy, submitted an amendment to Section 1 of the bill which is attached as EXHIBIT G.  He said currently any real property and improvements which were acquired by the Nature Conservancy, when ultimately transferred to a governmental unit, were exempt from taxes forever.  This bill would provide if the land was held to ultimately go to the state or local governmental entity it would still be exempted.  However, if it was held and ultimately transferred to the federal government it would be a taxable event and the deferred tax would become due and payable as agricultural land taxes.  If transferred to some other third-party nongovernmental entity it would be a taxable event at whatever the use of the land was at the time of transfer.  It was actually a broadening of the tax which was acceptable to The Nature Conservancy.

 

Chairman Price asked if there would be a limitation on the back taxes which would have to be paid on transfer.  John Sande said the current limit was seven years on deferred taxes.

 

Doug Busselman, Executive Vice President, Nevada Farm Bureau, stated they had been involved in the dialogue on the assessors omnibus bill and had suggested an amendment to it which did what was being proposed in the instant bill.  Since that time, they had joined in meetings with The Nature Conservancy in preparation of AB 640 and supported passage of the bill with the amendments offered which were based upon requirements of the assessors.  He said this eliminated any tax incentive which existed if the land was to be transferred to the federal government, which already owned most of the state.

 

Graham Chisholm, Nevada Special Projects Director for The Nature Conservancy, saw this bill as a fair compromise.  He read from a position paper which is attached as EXHIBIT H.

 

In answer to an inquiry from Mr. Neighbors, Mr. Chisholm said it was the Conservancy's national policy not to make money on land sales.  However, he had only been in Nevada for about six months and was not totally familiar with all the Nevada policies, as yet.  All transaction records were public record, he added.

 

In response to a question from Mr. Marvel, Mr. Sande said the Conservancy was a Nevada tax exempt entity under the provisions of NRS 361.111.  Mr. Marvel said what bothered him was Senator Callister had appeared before this committee only a few days previous to ask the major tax burden be returned to the property tax base.  This bill would allow for even more property to be removed from the existing tax rolls.

 

Mr. Busselman stated this bill would actually take away some of the ability of The Nature Conservancy to remove those lands from taxable status.  Mr. Chisholm added, this compromise allowed for agricultural taxes to be paid so long as the property was held by the Conservancy.

 

Chairman Price read from NRS 361.111 which exempted The Nature Conservancy.  Mr. Neighbors said the bothersome issue for him stemmed from a land transfer in southern Nevada about twelve years ago wherein The Nature Conservancy acted as a conduit through which hundreds of acres were removed from the tax rolls.  Such transaction resulted in a large loss of tax revenue.  The project referred to was Ash Meadows which included about 80,000 acres of land which went from private to public ownership.

 

Mr. Chisholm added the Conservancy was currently working with the Churchill County Commission to make sure the pending land exchange there was not detrimental to Churchill County, so the amount of public land held in the county was not increased.

 

Mr. Spitler asked why The Nature Conservancy was treated differently from other private, nonprofit organizations.  He asked if other similar organizations would incur tax liabilities in those types of activities.  Mr. Chisholm stated he did not believe they were treated any differently than other nonprofit organizations.  However, they were trying to address the tax issue because the Conservancy was often involved in land transactions.

 

Mr. Sande cited other statutory provisions which similarly and totally exempted other nonprofit organizations.  He explained under current law only The Nature Conservancy was liable for taxes if the property was sold to a nongovernmental entity.  Under this proposal they would additionally be liable for tax if the property was sold to the federal government.

 

Mr. Marvel stated the Department of Wildlife, when purchasing land to be held as hunting preserves, was required to pay the in-lieu-of taxes so the tax base in the pertinent county was not eroded.  Mr. Busselman remarked such was the reason the provisions relative to state government agency transfers of property was not changed in the bill.  Mr. Chisholm added the Conservancy currently owned only 40 acres in southern Nevada.  Mr. Marvel asked if they had had large holdings in the Ruby Valley area.  Mr. Chisholm responded they had handled the transfer of the 3,200-acre Seven-H Ranch in Ruby Valley to the Department of Wildlife.

 

Mr. Neighbors added the property near Ash Meadows which had been transferred was in a transaction between Paul Laxalt, The Nature Conservancy and Preferred Equity.  The transaction had encompassed some 13,000 acres which were to be subdivided and which were subsequently taken from the tax rolls.  He said the county authorities had never been notified the transaction was on-going and the only way the county found out was because the roads had all been deeded to the county.  Mr. Neighbors asked if the Conservancy made a profit on the sale or transfer of those properties.  Mr. Chisholm reiterated it was done at cost.

 

Mr. Sande said he had had experience with other conservation efforts which did try to make a profit on land transactions.  His experience with the Conservancy was, however, they worked on strictly a cost recovery basis.  He had seen them in action, for instance, during the Conservancy's efforts on Harrah's Middle Fork property in Idaho.

 

Mr. Chisholm said he appreciated very much the concerns of those in the state who were worried about the integrity of the public lands in Nevada.  He stated he did not feel, necessarily, the federal government was the best steward of the lands.  He said they believed generally, private landowners should stay on to be stewards of the land.

 

Mr. Regan asked Mr. Franklin if the assessors were comfortable with the bill and the amendment.  Mr. Franklin replied so far as the language was concerned, they were satisfied.  The policy decision was up to the committee.

 

Mr. McMullen, representing The Nature Conservancy, made four final points:  it was the Conservancy's practice whenever possible to pay the appropriate taxes; it only recovered its costs incurred in each transaction; in the Ash Meadows transaction it was not the initiator or the transferor of it, it was only the facilitating intermediary; and, they worked to focus on the preservation of endangered species.  He added the operating expenses for the Conservancy's existence was provided for through donations from the public.

 

Joe Dahl, member, Elko Board of County Commissioners, said they did not believe the Nature Conservancy was a not-for-profit corporation.  He said the commission believed the profit for the Conservancy came directly from real estate transactions.  He said the reason the Conservancy bought properties was there already existed an avenue to dispose of the property, usually to a government agency.  He added the Conservancy was taking the lands in the state out of private hands and putting them into public domain.  He said they might be solving problems, but it was to meet their own agenda not necessary to benefit the citizens of Nevada.  He was not sure what the language in the amendment referring to conservation meant: whose definition was being used?  Who decided what a conservatory purpose was?  If land was being taxed at the agricultural rate, it should be used as agricultural land, not sit idle.  Chairman Price indicated the Tax commission established the definition of conservatory purpose and made those decisions.

 

Chairman Price stated it was his intention not to take action on any bills at this time.  He did, however, ask for a motion to approve the minutes to date.

 

      * * * * * * * * * *

 

      ASSEMBLYMAN REGAN MOVED APPROVAL OF PREVIOUS MINUTES.

 

      ASSEMBLYMAN SPITLER SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY BY VOTE OF THOSE PRESENT.

 

There being no further business to come before committee, the meeting was adjourned at 3:35 p.m.

 

      RESPECTFULLY SUBMITTED:

 

 

                             

      LINDA CHANDLER LAW

      Committee Secretary

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Assembly Committee on Taxation

June 10, 1993

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