MINUTES OF THE
SENATE COMMITTEE ON TAXATION
Sixty-seventh Session
January 28, 1993
The Senate Committee on Taxation was called to order by Vice Chairman Ann O'Connell, at 2:05 p.m., on January 28, 1993, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda.
COMMITTEE MEMBERS PRESENT:
Senator Ann O'Connell, Vice Chairman
Senator Randolph J. Townsend
Senator Sue Lowden
Senator Bob Coffin
Senator Raymond C. Shaffer
Senator Ernest E. Adler
COMMITTEE MEMBERS ABSENT:
Senator Dean A. Rhoads, Chairman, (Excused)
STAFF MEMBERS PRESENT:
Kevin Welsh, Deputy Fiscal Analyst
Billie Brinkman, Committee Secretary
OTHERS PRESENT:
Janice Wright, Deputy Executive Director, Department of Taxation
Evelyn Mathis, Legislative Counsel Bureau, Fiscal Analysis Division
Vice Chairman O'Connell announced the meetings of February 2 and February 4, 1993, would be joint meetings of the Senate Committee on Taxation and the Assembly Committee on Taxation and would be held in Room 119 of the Legislative Building.
Vice Chairman O'Connell introduced Kevin Welsh, Deputy Fiscal Analyst,
who explained the 1993 Revenue Reference Manual (Exhibit B. Original is on file in the Research Library), personalized binders presented to each committee member. Mr. Welsh outlined the binder contents which, he said, were pertinent materials providing easy reference for committee members. He walked the committee through the Revenue Summaries which had been put together through efforts of members of the Department of Taxation and fiscal division staff members.
Mr. Welsh elaborated on the sales and use tax areas. He said in the Revenue Summaries the major tax sources, which will come before the Senate Committee on Taxation, are broken down into sales tax, gaming taxes, property taxes, excise taxes, fuel and motor vehicle taxes and other taxes. He pointed out the numbers of the sales and use tax are based on a 7.7 percent increase. However, they are soft figures. All the revenue estimates made at this time of the year are soft because the projections are for 30 months. The fiscal analysts wait until toward the end of the legislative session before making another projection at which time the figures will be proven up.
Vice Chairman O'Connell asked Mr. Welsh to explain the slot tax. Mr. Welsh complied, saying the slot tax is administered by the gaming control board, and he recapped the figures and information in that tax category on page 18 of the manual.
Mr. Welsh asked the committee to turn to page 24 of the manual --cigarette tax. He said a decrease is being projected because of the per capita demand for cigarettes and added tax revenues are noticing an impact of the sales at the Indian Smoke Shops. Mr. Welsh said secondarily, the tax on other tobacco products is increasing because cigarettes are taxed per cigarette and the tobacco products are a percentage of the wholesale costs. So that increase is reflecting in costs not increase usage.
Discussion followed on Indian Smoke Shops, the locations of same and the taxation policy.
Mr. Welsh continued, giving an overview of the Revenue Summaries, turning to gasoline tax on page 27. He explained the third allocation of the gasoline tax -- non-road allocations. That sum is realized through gasoline purchased for non-vehicular use such as marine and aviation use. That revenue source is primarily used for Civil Air Patrol and county airports, marina development and a portion goes to the Department of Wildlife.
Mr. Welsh then turned to page 34 -- business license tax. He reviewed the history of the business tax and business license fee from the Sixty-sixth Session of the Nevada State Legislature. He reminded the committee those fees were substantial because it was the first time such a fee had been collected. During the next biennium, the only fee being collected will be from new businesses and will not be as significant as the business license tax.
Mr. Welsh completed the overview of the 1993 Revenue Reference Manual by drawing attention to the history of the major tax changes approved by the legislature since 1979, and a tax glossary. He remarked local government has been included because the committee will be heavily involved in local government issues.
Mr. Welsh remarked that the primary purpose of the manual is for information for the members and also to provide answers to questions from constituents in reference to revenues.
Vice Chairman O'Connell asked Mr. Welsh to provide the committee with the background information on the taxes on services and to explain the annotations. He said he would provide the committee with that information.
Discussion followed on the aforementioned taxes.
Janice Wright, Deputy Executive Director, Department of Taxation, spoke from the audience, saying any food which is prepared and available for immediate consumption is subject to tax. She said for example, an apple is subject to tax from a vending machine, however that same apple is tax exempt when purchased in a grocery store. She pointed out the issue here "is it food you are going to take home or is it food you are going to consume right there." She said it is because of the annotation which talks about the food to be taken home or to be eaten on the premises. Ms. Wright said the same question could be asked about water from vending machines...."are you taking it with you or are you standing at the vending machine and drinking it."
Mr. Welsh continued with the overview of the manual contents. He said although the education funding is not directly in the control of the taxation committee, there is an indirect involvement and is for the committee's information. And lastly, the fiscal notes information, is especially for the new legislators. He said the fiscal note process is confusing to almost all persons so it is detailed here in the manual.
Mr. Welsh reiterated he hoped committee members would find the manual a helpful document and invited suggestions which might improve the reference manual.
The committee complimented Mr. Welsh on the binder and its contents.
Janice Wright, Department of Taxation, came forward to give an overview of the 1992-93 Supplemental City-County Relief Tax Distribution (Exhibit C). She talked on generalities so the committee could get a "feel" for what is happening.
Ms. Wright went back to the response to the state of California's Proposition 13 and the state of Nevada's Question 6 and that period of time when things were changing. The first action taken by the Nevada legislature dealt with expenditure limitations (Question 6) in 1979 which were found to be unworkable. In 1981, the legislature imposed revenue limitations on local governments and those limitations controlled two sources: property tax and that portion of the sales tax that was increased, referred to as Supplemental City-County Relief Tax Distribution (SCCRT), which represents 1.75 percent of the total amount of sales tax collected. The two were "unhooked a couple of sessions ago" because when the two tax sources were tied together, if one source increased the other was held down. The term "maximum allowed combined revenue" in the past referred to the two taxes being hooked together and meant there was a limitation on the amount of revenue a local government could generate from the two sources. The basic limitation rested on property tax because that was the greatest concern of the people. The 6 percent limitation was an increase from 4.5 percent limitation in property tax and the binding mechanism for the sales tax was released so the local governments could always have the 6 percent in property tax regardless what happens to sales tax. Ms. Wright pointed out that "when good years were happening and the economy was looking really strong, that SCCRT could grow and the sales tax which came in would get distributed back to the local governments." There is no longer any such phrase as "maximum allowed combined revenue", according to Ms. Wright. She said now the only restriction is the property tax end and that is the 6 percent limitation.
Ms. Wright continued stating,
"Then last session, there was a change to the SCCRT distribution formula. You can still get as much money as comes in and it will still go back to the local governments, but in a slightly different form. The way you receive the SCCRT now makes a distinction between two kinds of counties: one type is called a rural guarantee county, the other type of is called a point-of-origin county. The reason that distinction is made is only to say if we are going to change the SCCRT distribution, we know that some counties in the state of Nevada have a real strong economy, generate lots of money -- Washoe County, Clark County, Carson City, etc. But what about the little counties,..............how do we want to treat them. So last session the `Fair Share Bill' said let's treat them differently. Of the total amount of money that comes into the statewide pot for SCCRT every month, let's take part of it out and give it to the rural guarantee counties first. Let them have their money. Those calculations for the rural guarantee were based on a couple of things."
Ms. Wright called attention to Exhibit C and pointed out it is a guideline which merely tracks what happens with the rural guarantee and shows how the actual calculation is accomplished.
Vice Chairman O'Connell asked if the rural counties (the small pot) are guaranteed to receive as much as last year. If it has been a prosperous year then will the small counties get more with some fine tuning adjustments. There was no qualification as to what the adjustments would be and where they would be made. Ms. Wright answered that the economy of a county makes the difference.
Ms. Wright walked the committee through the second page of Exhibit C. She said the "language of the law" says there are three little tests run on the formulas, however, she did not elaborate.
Vice Chairman O'Connell inquired why Douglas County was placed in the rural guarantee county category. Ms. Wright replied that decision was made and is written in law which county belongs to which category. She said she believed there will be some discussion this legislative session concerning some of the counties who feel they were placed in a category in which they did not belong.
Ms. Wright informed the committee she had not provided them with the full formula, but it is available upon request.
Ms. Wright closed by commenting,
"The way the formula works now, the restriction on property tax is 6 percent. The restriction on SCCRT is only with respect to what kind of county category (rural guarantee distribution or point-of-origin) and then how the revenue is earned within the formula."
Vice Chairman O'Connell thanked Ms. Wright for her presentation.
Vice Chairman O'Connell introduced Evelyn Mathis, Legislative Counsel Bureau, Local Government Budget Analyst, Fiscal Analysis Division. Ms. Mathis gave a brief overview of Local Financial Reporting Statewide Total Summary Report (Exhibit D. Original on file in the Research Library). The data base report included counties, cities, towns, special districts and school districts, revenues and expenditures.
Vice Chairman O'Connell thanked Ms. Mathis for the comprehensive report.
Vice Chairman O'Connell asked Mr. Welsh for his comments on the
insurance premium tax. She asked how the $30 million up front, one-time payment would be reached and how that figure was arrived at and will it be an estimated tax? Mr. Welsh said to his understanding the payments would be accelerated but he was not sure how the $30 million figure had been reached.
Ms. Wright came forward to comment on the proceeds of minerals. She said a mechanism had been adopted that is relatively easy. Estimates are obtained from the major mining companies on their production and then tax is paid on that estimate. At the end of the year the tax commission trues that figure up to make sure it is actual. Sometimes there are credit situations. She said she was not sure what mechanism would be used for the insurance companies as the commission had not yet seen the language on that.
Vice Chairman O'Connell adjourned the meeting at 3:10 p.m.
RESPECTFULLY SUBMITTED:
Billie Brinkman
Committee Secretary
APPROVED BY:
Senator Ann O'Connell, Vice Chairman
DATE:
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Senate Committee on Taxation
January 28, 1993
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