MINUTES OF THE
SENATE COMMITTEE ON TAXATION
Sixty-seventh Session
May 4, 1993
The Senate Committee on Taxation was called to order by Chairman Dean A. Rhoads, at 2:05 p.m., on Tuesday, May 4, 1993, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator Dean A. Rhoads, Chairman
Senator Ann O'Connell, Vice Chairman
Senator Randolph J. Townsend
Senator Sue Lowden
Senator Raymond C. Shaffer
Senator Ernest E. Adler
COMMITTEE MEMBERS ABSENT:
Senator Bob Coffin (Excused)
STAFF MEMBERS PRESENT:
Kevin Welsh, Deputy Fiscal Analyst
Billie Brinkman, Committee Secretary
OTHERS PRESENT:
John Pappageorge, Lobbyist, Nevada Beer Wholesalers Association
J. Duane Hoover, President, Nevada Beer Wholesalers Association
Denny Weddle, Lobbyist, United Gaming, Inc.
Keith Lynam, representing Tom Wiesner, owner, Big Dog's Hospitality Group
Tom Young, President, Great Basin Brewing Co.
Kirk Ellern, President, Reno Brewing Co.
Jerome Maretto, Beer Wholesaler, Fallon
Mark Brown, Lobbyist, MGM Grand Hotel, Inc.
Chairman Rhoads opened the hearing on Senate Bill (S.B.) 365.
SENATE BILL 365: Authorizes operation of brew pubs in permanent theme parks.
Chairman Rhoads announced testimony had been heard from proponents of S.B. 365 at an earlier meeting, so that those opposed to the measure would have the opportunity to present testimony today.
John Pappageorge, Lobbyist, Nevada Beer Wholesalers Association, and J. Duane Hoover, President, Nevada Beer Wholesalers Association, came forward to oppose S.B. 365. Mr. Pappageorge presented written testimony (Exhibit C) to substantiate their position.
Mr. Hoover stated the brewing system is presently working very well under the current Nevada laws. He said they have no particular opposition to a new brewery in Nevada as long as that business is operated within the current system. He pointed out that S.B. 365, as a modification, creates a monster.
Mr. Hoover gave a brief history of brew pubs, saying they have generally been located in a small restaurant as a sideline to the food business. Some type of special brew, usually an ale, is manufactured, on-site, because ales are simpler to manufacture as a beer. He stated brew pubs would produce, on an average, between 300 and 800 barrels of ale annually. To put the proposal in S.B. 365 in prospective, Mr. Hoover referred to a chart (Exhibit D) of the production capacity of all the brewers in the United States in 1992. He referred to the production numbers in comparison with the number of barrels provided for in S.B. 365, pointing out a production of 12,500 barrels annually would place any brewery at about 28th in size in the United States. He said the 5,000 barrel limit, which is currently in effect and applies to historical and redevelopment areas, is still a substantial size.
Mr. Hoover testified the Nevada Beer Wholesalers Association believe that if S.B. 365 is enacted, it would have a significant impact on the brewing industry. He pointed out the Nevada beer wholesalers, in aggregate, employ over 700 people and pay over $4.l million in taxes each year.
Mr. Hoover added one of the functions performed for Nevada by the beer wholesalers, is their action as a type of tax control mechanism. They receive monthly shipments from various brewing companies of which they keep records and then submit the taxes to Nevada.
Mr. Hoover suggested one of the concerns he has is the lack of knowledge the general public has concerning the mass batch producing operation. He noted a truly efficient brewery operates almost 24 hours a day as a continuous batch processing system. Mr. Hoover said the monitoring, the collection of taxes, and production control could all be an issue if S.B. 365 is enacted. He said there is a possibility that a direct line could be run from a production facility into a tapping system, which would be difficult to control, and he said product control also could be an issue. Mr. Hoover suggested that if a proliferation of brew pubs were to be opened, then the Nevada Department of Taxation would have to put on regulators, inspectors and employees to monitor, regulate and inspect this additional industry within the state.
Mr. Hoover said, in summary, the original brew pub bill, as proposed to be modified through S.B. 365, creates a monster that would have a significant impact on the wholesalers industry and on the way the system is functioning presently, which he said is working fine and does not need changing.
Chairman Rhoads asked Mr. Hoover his definition of a brew pub. Mr. Hoover replied he defined a brew pub as a restaurant-type facility which has a production capacity as a part of the restaurant operation. And, he explained, he believed a brewery is a full-scale operation dedicated to batch processing of beer on a much larger scale.
Senator O'Connell questioned Mr. Hoover about his business history and the limitations placed on the ownership of beer wholesalers. Senator O'Connell stated she could not understand why anyone who is in business would want to prevent anyone else from going into business. She pointed out Nevada is a free enterprise state that is trying to attract as many businesses as possible so that the tax base could be broadened.
Senator O'Connell stressed she would do everything she could to convince the committee that the present law needs to be repealed.
Senator Lowden asked if the real problem of S.B. 365 was the 12,500 barrel limit on production. Mr. Hoover said that was definitely one of the issues being discussed.
Mr. Pappageorge said it seemed that every session another brew pub bill is passed creating more brew pubs and more of a threat to the industry.
Senator Lowden asked if brew pubs are regulated in other states similar to the way Nevada attempts to regulate the brew pub industry. Mr. Hoover answered the brew pubs are relatively new and that some states do prohibit them. He said that California essentially does not regulate the brew pubs, but in other states there are limits to location and size.
To Senator Adler's question, Mr. Hoover replied that if a brew pub wanted to distribute beer, that under the current law, they would have to go through a local distributor.
Discussion ensued.
Senator Lowden inquired why Mr. Hoover believed more brew pubs in Nevada would affect the wholesaler's business, long term. Mr. Hoover replied as each facility is opened, a larger percentage of the total market share is allocated to the brew pub facility, therefore, less available market share is allocated to the current system.
Senator Adler asked what impact the brew pubs had on beer distributors in California. Mr. Hoover said he understood, during conversations with California wholesalers, that there had been an impact on the distributing business.
Chairman Rhoads asked Mr. Hoover to inquire of his distributors if they would be more comfortable with a smaller barrel limit than the 12,500 proposed in S.B. 365, and to discuss any other compromises that could be made so the measure would be more palatable.
Denny Weddle, Lobbyist, United Gaming, Inc., and representing Big Dog's Hospitality Group, owners of Holy Cow, a restaurant, bar and brew pub, came forward to present written testimony (Exhibit E) in opposition to S.B. 365.
Chairman Rhoads asked Keith Lynam to represent Tom Wiesner, owner, Wiesner Investment Company, and read into the record a letter from Mr. Wiesner (Exhibit F) in opposition to S.B. 365.
Mr. Lynam further stated that Mr. Wiesner had three areas of concern: 1) that brew pubs should be restricted to theme park patrons only; 2) the three-tiered system; and 3) the incentive of the redevelopment area.
Tom Young, President, Great Basin Brewing Company, testified that company is presently constructing a traditional brew pub as has been described during testimony during this meeting. He said he is for the MGM Grand Hotel, Inc., having a brew pub if they operate under the same regulations that brew pubs are currently under. He pointed out, however, the Great Basin Brewing Company is against some of the criteria of S.B. 365. He said their interest in the measure is two-fold: 1) They appreciate the opportunity to encourage Nevada manufacturing and since there are no real beer manufactures in Nevada, that is one sector they would encourage. And 2) They want to uphold the intent and integrity of the Sixty-sixth Session, 1991, enacted in Senate Bill 250 of the Sixty-sixth Session.
SENATE BILL 250 Authorizes operation of breweries under certain
of the Sixty-sixth circumstances.
Session:
The intent of S.B. 250 of the Sixty-sixth Session was to give the opportunity for redevelopment districts to get a "shot in the arm." He said he believed that intent should be honored for a period of time and allow the people who have invested great sums of time and money in these redevelopment districts, to realize the fruitions of their investments. He cited several examples of how this particular intent of redevelopment districts has worked in surrounding states.
Mr. Young said he encouraged the committee to consider the effects on the redevelopment districts if they are thinking of lifting regulations, and it is a little convoluted to talk about the laws and restrictions in the alcoholic industry in Nevada. He told the committee he would encourage them to consider a moratorium on any lifting of bans until the redevelopment districts do realize a benefit from the legislation as it was enacted in 1991, so the intent of the legislation does have a chance to work.
Mr. Young, continued, saying specifically on S.B. 365, he does support the MGM Grand Hotel and its efforts. However, he thinks the testimony given by the personnel of the MGM Grand Hotel during the committee hearing on April 15, was somewhat different than the way S.B. 365 was written. Mr. Young suggested that the MGM Grand Hotel could get a wholesalers license in order to sell their own beer.
Mr. Young reiterated his main point is seeing the term "theme park" with a better definition. And he would like to see all breweries of Nevada operating under the same guidelines.
Discussion ensued.
Senator Lowden asked Mr. Young if the measure would be more acceptable if S.B. 365 could be amended to allow the developers of brew pubs in redevelopment districts, to sell the beer at celebrations or holidays with a special permit. Mr. Young replied such a leverage would be an asset and could be used as an advertising mechanism.
Further discussion followed.
Kirk Ellern, President, Reno Brewing Co., stated he had spent the last 1 1/2 years looking for appropriate property in the Reno area that abided by all the regulations set down for a brew pub and had finally been successful in finding a location. He said the equipment he will be using weighs about 34,000 pounds per kettle, which takes special requirements, especially in old buildings. He addressed the testimony by the wholesalers, in defense of breweries and brew pubs. Mr. Ellern pointed out he did not believe there is a threat to that particular industry, as all off-site sales would have to go through a wholesaler. He said in defense of the brew pubs, he believed S.B. 365 is clearly a special interest measure. He remarked, for the record, he is against all regulations of every type. He said he would prefer his competition in the industry, be based on who makes the better beer, rather than on legal aspects.
Jerome Maretto, Beer Wholesaler, Fallon, came forward in opposition to S.B. 365. He told the committee the quantity (12,500 barrels) outlined in S.B. 365, is almost the amount of his total annual sales in five counties. He said a brew pub gets a tax break from the federal government which is not afforded the wholesalers.
Chairman Rhoads appointed a subcommittee to continue working on S.B. 365. He appointed Senator Lowden, Chairman, and Senators O'Connell and Adler to serve with her. Chairman Rhoads indicated he would like for the subcommittee to get information from other states concerning their brew pub laws and regulations; and also, to investigate the federal tax exemption referred to in testimony. Chairman Rhoads said following recommendations from the subcommittee to the full committee, action would be taken on S.B. 365.
Mark Brown, Lobbyist, MGM Grand Hotel, Inc., requested special permission to read a letter into the record from Ray Norvell, Executive Vice President, Coors of Las Vegas (Exhibit G). He was granted that permission.
Senator Adler stated he did not find a statute which defines a brewery and/or the barrelage of a brewery. Chairman Rhoads indicated he would like "theme park" defined also. Chairman Rhoads asked Mr. Welsh to research those subjects.
Chairman Rhoads closed the hearing on S.B. 365.
Chairman Rhoads called for a committee introduction of Bill Draft Request (BDR) 32-1912.
BDR 32-1912: Reduces rate of interest on delinquent taxes.
SENATOR TOWNSEND MOVED FOR COMMITTEE INTRODUCTION OF BDR 32- 1912.
SENATOR ADLER SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.)
*****
Chairman Rhoads asked for a bill draft request to encompass suggested language (Exhibit H) as prepared for the committee's approval.
SENATOR TOWNSEND MOVED FOR A BILL DRAFT REQUEST TO CONTAIN THE LANGUAGE IN EXHIBIT H.
SENATOR SHAFFER SECONDED THE MOTION.
THE MOTION CARRIED. (SENATE COFFIN WAS ABSENT FOR THE VOTE.)
There being no further business to come before the committee, the meeting was adjourned at 3:10 p.m.
RESPECTFULLY SUBMITTED:
Billie Brinkman,
Committee Secretary
APPROVED BY:
Senator Dean A. Rhoads, Chairman
DATE:
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Senate Committee on Taxation
May 4, 1993
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