MINUTES OF THE

      ASSEMBLY COMMITTEE ON TAXATION

 

      Sixty-seventh Session

      June 15, 1993

 

 

 

The Assembly Committee on Taxation was called to order by Chairman Robert E. Price, at 2:23 p.m., on Tuesday, June 15, 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                             Absent/Excused

      Mr. Peter G. Ernaut

      Mr. Ken L. Haller                         Absent/Excused

      Ms. Joan A. Lambert

      Mr. John W. Marvel

      Mr. Roy Neighbors

      Mr. John B. Regan

      Mr. Michael A. Schneider

      Mr. Larry L. Spitler

 

STAFF MEMBERS PRESENT:

 

      Ted Zuend, Fiscal Analyst

 

OTHERS PRESENT:

 

      Les Bradshaw, Nye County District Attorney's Office

      Dave Purcell, Chief of the Div. of Assessment Standards,

        Department of Taxation

      Joan Wright, Attorney, Allison, McKenzie, Hartman,                    Soumbeniotis and Russell

      Marlene Bunch, Mineral County Treasurer

      Bill Bartlett, Churchill County Treasurer and

        President of the Assessors' Association

      Ed Presley, Home Rule Coalition

 

Following roll call, Chairman Price opened the hearing on AB 735.

 

ASSEMBLY BILL 735 -     Provides manner of assessing value of certain possessory interests and beneficial uses for imposition of property taxes.

 

Assemblyman Roy Neighbors, Assembly District 36, opened the testimony with an introduction of Les Bradshaw, Assistant District Attorney for Nye County.  Mr. Neighbors explained the bill was prompted by situations which had arisen at the Nevada Test Site in the 1960's.  He submitted Exhibit C, a section by section explanation of the bill, and Exhibit D, a transmittal from the Nye County Assessor dated January 26, 1993.  Mr. Neighbors discussed the figures shown on Exhibit D and explained the relevance between page 1 and page 2 of that exhibit.  He pointed out any of the sub-accounts under a major heading enjoyed money from the assessed valuation of the Nevada Test Site. 

 

Three of the four counties he represented were involved in taxing exempt property at the Nevada Test Site, Mr. Neighbors said, and this bill was particularly important to Mineral County.  He mentioned a study conducted by the federal Department of Taxation which listed approximately 13 different states which taxed government operated, exempt property used in the business of making a profit.

 

In California, Mr. Neighbors continued, the tax was aimed generally at the possessory or leasehold interest.  In Nevada the bill would statutorily require this property to be assessed in the same manner as other property, which would represent a great deal of money to the county.  Mineral County, he remarked, was valuing the lease, whereas Nye County was valuing the fee value of the property. 

 

Following Mr. Neighbors full explanation of the bill, Les Bradshaw, Nye County District Attorney's Office, came forward to point out the legal chain of events which had prompted Nye County to come before the Taxation Committee to obtain modification of the language.  The legal basis for this kind of a tax was grounded on a line of cases from Michigan in the early 1960's.  These cases had gone to the United States Supreme Court which had ruled this kind of taxation was acceptable.

 

Mr. Bradshaw stated the underlying legal principle was the principle of sovereign immunity, i.e., a state or county could not tax the government.  However, the Supreme Court cases in Michigan had set forth that a state or county had the ability to tax an entity, a private business for instance, which used property in the conduct of its business which would otherwise be exempt -- for example, the Nevada Test Site.  Most of the work at the Nevada Test Site was done by contractors who used a great deal of government property in the conduct of their profitable business.  The line of cases which the Supreme Court had ratified now allowed a taxing entity to come in and tax the private business for the use of that property which would otherwise be exempt.

 

Continuing, Mr. Bradshaw said concurrently the justice department of the federal government had a "program" challenging these statutes in the various states such as Tennessee, New Mexico and the Carolinas, and some of these cases were lost and some were won. 

 

In the mid-1980's the federal government chose a contractor at the Nevada Test Site, ARCADA, as a test situation to challenge the imposition and collection of the tax under Nevada Revised Statutes 361.157 and 361.159, Mr. Bradshaw related.  This had gone through the federal courts in Las Vegas, but Nye County had lost the case.  Subsequently, Nye County appealed the case to the Ninth Circuit Court of Appeals where it was also unsuccessful.  When this ruling came down, the federal government quit paying the tax.  Mr. Bradshaw said they were now coming before the Legislature to modify the language of NRS 361.157 and 361.159 in order to permit them to continue to apply the tax.

 

Mr. Bradshaw explained the language changes they suggested were based on the language of the Ninth Circuit Court of Appeals opinion in the case entitled United States of America v. Nye County, commonly referred to as the "ARCADA" case.  That opinion, Mr. Bradshaw pointed out, set forth in written form several reasons why the court felt the tax, as applied under the facts of the ARCADA situation, were unconstitutional. 

 

Mr. Bradshaw continued with an explanation of the legal opinions set forth by the Ninth Circuit Court of Appeals.  The tax, in order to be constitutional and stand constitutional scrutiny, had to clearly be a tax on the contractor's possessory or beneficial use of the property -- it could not be a tax on the property itself or the principle of sovereign immunity was violated.  He said they believed the language being submitted would allow the county assessor, throughout the many counties of Nevada which had a federal installation within their borders, to apply the tax in a way which would address the concerns of the Ninth Circuit opinion. 

 

In discussing the court case which was lost, Mr. Bradshaw and Mr. Neighbors explained the adjudication had been handed down by a panel of three judges.  One of the judges had ruled in Nye County's favor while the other two had ruled against the county.

 

Mr. Marvel noted he was on the Tax Commission when Nye County challenged the federal government for the private contractors using government property.  He asked how the bill would impact the Yucca Mountain project.  Were the private contractors using government property there? Mr. Marvel asked.  Mr. Neighbors answered, "Yes," but the mountain itself would be covered under a separate agreement. 

 

In answer to Mr. Marvel's question concerning Yucca Mountain and the effect AB 735 would have on that project, Dave Purcell, Chief of the Division of Assessments with the Department of Taxation, indicated the Department of Taxation did not think this would affect it.  Yucca Mountain was unique in that there was a "grant equal to taxes" type of payment which the federal government would make to Nevada if they did, in fact, build the site at Yucca Mountain.  This grant was stated as "in lieu of payment."

 

Mr. Neighbors noted there was a drilling machine on the Yucca Mountain project which was drilling a large tunnel.  Would this also be covered under the "grant equal to taxes" provision? he asked.  Mr. Purcell answered presently Nye County had contracted with Foreman and Associates (California) to do an independent appraisal on Yucca Mountain as if it was being operated as a private business.  Thus, any equipment the Department of Energy used on the site would be valued and fall under the "grant in lieu of payment" provisions.  If other contractors came in and owned the equipment, it would be up to the assessor to value the independently owned piece of equipment.

 

In regards to AB 735, Mr. Purcell said the Department of Taxation was involved in meetings with the Assessors' Association, Legislative Counsel Bureau and Nye County in an effort to arrive at some wording which would address the current statutory problems.  He stressed the importance of addressing the problems with the current statutes.  Mr. Purcell went on to explain the intricacies, problems and complications involved with the current language and the manner in which AB 735 would address those problems.

 

In response to a question from Mr. Marvel, Mr. Purcell agreed the Department of Taxation could administer the tax under the provisions granted in AB 735 since the bill would define what a possessory interest was.

 

Mr. Regan asked if the bill would apply to the land under easement to the local cable companies.  Mr. Purcell said NRS 361.157 and NRS 361.159 applied only to property which would otherwise be exempt but was currently being used by a private contractor.  In the case of the cable company (or profit-making utility), Mr. Purcell believed this would be picked up through the central assessment of the utility.  The cable company (in this case) had to report to the Department all the operating property being used in its business, and this would show in the financial reports used to value the utility companies.

 

Concurrence for AB 735 was also expressed by the following:

 

-     Marlene Bunch, Mineral County Treasurer.

 

-     Bill Bartlett, Churchill County Treasurer and President of the Assessors' Association.

 

-     Ed Presley, Home Rule Coalition.  Mr. Presley pointed out the cornerstone case which discussed the issue presented in AB 735, was Fort Leavenworth Railroad Company v. Lowe, a 1884 court case.  Subsequently, there had been a number of Supreme Court decisions which had developed a precedent.  Mr. Presley went on to describe the case.

 

Joan Wright, attorney with the law firm of Allison, McKenzie, Hartman, Soumbeniotis and Russell, and also representing The Ridge Tahoe.  Ms. Wright indicated The Ridge Tahoe was interested in AB 735 because it appeared to have an applicability of personal property owned by time-share owners.  She questioned whether the assessors realized it would have an applicability, or whether they had considered the unfortunate consequences if the bill did, in fact, apply to time-share owners.  Ms. Wright offered the numbers of people who would be affected, and stressed the expensive and complicated nature of trying to tax those owners for the one or two days the unit was used.

 

Additionally, Ms. Wright did not believe time-share owners should be taxed, even if it was feasible for the counties, because this was a revenue source for Nevada.  Ultimately, Ms. Wright did not believe it was clear whether this was the intent of the bill.

 

Mr. Purcell came forward to answer Ms. Wright's concerns.  He said the Department did not believe the statutes, NRS 361.157 and 361.159, had anything to do with time-shares.  Those statutes pertained solely to property which was exempt, for whatever reason, but then was owned or leased.

 

Ms. Wright countered under NRS 361.069 there was a court ruling in a time-share case which stated this was exempt property even though the units were in excess of five units.

 

Mr. Purcell and Ms. Wright discussed the legal implications involved.

 

      ASSEMBLYMAN MARVEL MOVED TO DO PASS AB 735

 

      ASSEMBLYMAN WILLIAMS SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

ASSEMBLY BILL 545 -     Provides manner of determining value of certain possessory interests for imposition of property taxes.

 

Dave Purcell again came forward to explain the intent of AB 545.  He explained the bill was the Department's attempt to define what "possessory" interest was before Nye County had become involved.  In AB 545 the method proposed was to value the lease rather than valuing the portion used. 

 

The bill explanation is attached hereto as Exhibit E. 

 

Mr Price suggested they take no action on the bill in case it appeared AB 735 would not be approved by the Senate.

 

The committee discussed housekeeping matters. 

 

There being no further business, the meeting was adjourned at 3:28 p.m.

 

 

                                          RESPECTFULLY SUBMITTED:

 

 

 

                                                                 

                                          Iris Bellinger

                                          Committee Secretary

??

 

 

 

 

 

 

 

Assembly Committee on Taxation

Date:  June 15, 1993

Page:  1