The Committee on Taxation was called to order at 1:35 p.m., on Thursday, February 18, 1999. Chairman David Goldwater presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. David Goldwater, Chairman

Mr. Roy Neighbors, Vice Chairman

Mr. Bernie Anderson

Mr. Greg Brower

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. John Jay Lee

Mr. Mark Manendo

Mr. Harry Mortenson

Mr. Bob Price

Ms. Sandra Tiffany

COMMITTEE MEMBERS EXCUSED:

Mr. Morse Arberry

Mr. John Marvel

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

The measure provided beginning with fiscal year (FY) 1999-2000, the Department of Taxation would deposit a portion of proceeds from state sales and use tax for the sale of new and used motor vehicles into the state highway fund. The amount deposited would be 10 percent of the proceeds during the first fiscal year with the percentage increasing by 10 percentage points each fiscal year thereafter. For FY 2008-09 and each subsequent fiscal year, all such proceeds would have been deposited in the highway fund. The bill also provided for sales tax revenues to be deposited in the highway fund that may be used for refunds upon the order of the controller.

Chairman Goldwater asked Mr. Neighbors, as a member of the interim committee appointed to study the issue, to make his presentation.

Mr. Neighbors read his written testimony which was made part of the record (included herein as Exhibit C), and explained the measure resulted from an interim study directed by S.C.R. 53 of the 69^th Session. He pointed out the main thrust of the measure had been spelled out in section 1. Section 2 contained "housekeeping" language allowing tax refunds to continue to be administered as they were.

Mr. Neighbors volunteered to answer any questions from committee members at which time Ms. Freeman pointed out he had referred several times to "improved collections" and asked to what that referred. Responding, he explained "improved collections" was included in an additional bill just heard in the Committee on Transportation and involved special fuel tax or the "pink fuel" as it was commonly known. There had been some concern trucks may be using "pink fuel" which, in the mind of some committee members, would lead to abuse.

Members of the interim study committee suggested designating the highway patrol staff to make the necessary inspections and report back to either the legislature or the transportation officials.

Speaking next was Ms. Carole Vilardo, representing the Nevada Taxpayers Association, who provided background information on the measure. She explained when the interim study was approved during the 1997 session the legislature did not have a reauthorization of the Intermodel Surface Transportation Efficiency Act (ISTEA) which caused a great deal of concern. As a result, a number of individuals including users, payers, and some of the governmental entities began meeting to look at how Nevada funded highways, roads, potholes, and general maintenance. Being able to move people was as important to the residents and taxpayers of the state as was education and health care.

Within those discussions and concerns with how ISTEA might be authorized, there had been a great deal of pressure by the eastern states to change the funding formula. In most cases, with most of the tax dollars going to the Federal Government, Nevada did not receive back what was put in on a dollar-for-dollar basis, receiving about 78 to 80 cents back. On returned fuel tax at the time the study committee was meeting, the state had received $1.36 from the Federal Government for each dollar Nevada put forth. Committee members were extremely concerned the eastern states, if they succeeded in changing the formula, would change the formula so it was population-based. That formula would go against what Nevada needed considering we were such a large state and had such a large road network to maintain.

Ms. Vilardo reminded the committee that gas tax was politically very unpopular; nobody wanted to raise gas tax. Additionally, the study committee did not want to support a gas tax increase because Nevada’s gas tax was currently high, in part because of dedicated revenue sources to a dedicated trust fund. The committee began looking at a "passive revenue generation." It questioned how they could take existing revenue sources and redirect them into an area where there had been have an excess. That made sense and was the reason the Committee on Transportation heard another bill from the Committee on Taxation to transfer car rental tax into the highway trust fund, inasmuch as car rental tax went into the general fund. The study committee considered putting those monies into the highway trust fund to ensure the state maintained necessary funding to be able to provide the necessary federal matches and keep up with what was a huge backlog. Under current funding Nevada was not going to get ahead of the curve and the state was trying to keep up with the backlog so it would not grow any larger. If the state had a mechanism such as the proposed bill, it might be possible to get ahead of the curve.

Summarizing, Ms. Vilardo stated that was the genesis of how the bill came about. She reminded those present ISTEA was reauthorized as Transportation Equity Act for the 21^st Century (T21) so Nevada received additional money but not enough to take care of all the projects everyone needed, either for the state system or the local governments.

The bill would raise a huge amount of money estimated to be between $70 and 80 million dollars and was a short-valued bill identical to the car rental tax. That bill (A.B. 34) was heard in Committee on Transportation and was the fourth time the bill had been heard. She encouraged committee members to pass some version of the bill, however, she did not envision the bill as it appeared now had a prayer of passage due to the dollar amounts involved.

Ms. Vilardo had several suggestions she felt the committee might want to consider and cautioned members if the bill did not make it through the system in some form, the proposal would be back next session.

She called the committee’s attention to the following section of the bill: Line 12 of section 1, subsection 3(a), the effective date should have been July 1, 2001, as there had been absolutely no intent to impact the current biennium budget. That would be the first item in any case, whether the bill was processed like it was or another version. Another reason for considering the bill, and some alternate suggestions she had made, was during the interim study committee General Motors had announced that 5,000 electric test cars had gone into California and had evidently been working well on short runs. General Motors planned on marketing electric cars beginning with limited distribution in the year 2000, which would further erode the gas tax base.

Additionally, members of the interim study committee had numbers put together for other vehicle-related issues in 1992 and at that time, gas mileage in 1974 had been 8 to 9 miles per gallon. She asked Daryl Capurro, Managing Director of the Nevada Motor Transport Association what the current average gas mileage was and found it was 24 miles per gallon indicating that, with the gas tax based on "per gallon" and more fuel-efficient cars there was a consistent eroding of the revenue received from that base, some years greater than the rate of inflation. She pointed out roads and highways had the highest inflationary value in cost of construction.

Those were some of the reasons the interim study committee was trying to look at "passive revenue generation" because hey honestly did not believe anyone in the legislature wanted to vote for a gas tax increase when, Nevada was already among the highest of the states.

Ms. Vilardo pointed out the bill would put the state in a position of keeping up in the future; it was an attempt to take a pro-active measure not knowing how the next version of T21, would be reauthorized. Maybe it was a case of where one ultimately would want to give a full 1 percent to the highway fund and leave 1 percent of the 2 percent with the state. Those would be policy decisions for the committee, but the issue of roads and being able to accommodate the increases in growth to provide the infrastructure for roads, which would be needed for economic development, would not be going away.

Ms. Vilardo continued, indicating there would be a point beyond gas tax which, even if the committee were willing to raise it to the degree needed, was not going to keep pace. For example, if there became a very large market for electric cars the legislators would have to figure out what to do to increase revenue; would they be willing to tax batteries or electricity. The revenue from the dedicated highway trust fund should have a nexus. The sales tax from new and used vehicles gave the state a nexus and if electric cars should become something major, the state would be getting some share of that tax. She felt the legislature should take the first step and whether it was one-half or1 percent it would be needed in 2 years. She offered to answer questions.

Ms. Freeman asked Ms. Vilardo if she knew the amount received from car rental tax in a year’s time. Ms. Vilardo replied it would be approximately $10-million annually. When the original bill was introduced funding was to go to the highway trust fund, then the distribution was changed with the revenue to go from the highway trust fund to the general fund. At that time the estimated revenue was about $3 million each year of the biennium, maybe increasing to $4 or $5 million. Ms. Freeman asked for an estimate on how much the fund had raised and was advised it was about $7 million per year or more with a constant increase.

In response to Ms. Freeman’s question as to what would be realized, Ms. Vilardo responded the revenue would have been projected on the Economic Forum for the biennium and suggested Mr. Zuend, Fiscal Analyst, Legislative Counsel Bureau (LCB), might be in a better position to respond. Mr. Neighbors interjected he had read somewhere it had been around $8 million, however, it was a complicated tax because part of that money was returned to the car rental agency. Ms. Vilardo added the portion was two-thirds of the amount, but the money was not given back. When the money was remitted, two-thirds was kept by the rental company to the point that it off-set the vehicle fees. If the amount was more than an off-set to the vehicle fees, one-third plus any excess would then be remitted and had been set up as an annual remission. Discussion followed between Ms. Freeman and Ms. Vilardo on the accounting methods and the "death" of prior bills in past sessions.

Chairman Goldwater advised those present of an article in the Wall Street Journal on car rental fees for anyone wishing more information on how other states handled that issue.

Mr. Anderson explained, in trying to determine the nuance of the bill, asked if there had been a question of funds from a derivable source back to a source that would not usually be a part of Nevada’s tax policies that the state was approaching. There was an unstated part of the question which was: since those were "dollar" taxes derived from some source, the funds needed to go back to a specific area rather than into general tax revenue. He questioned whether the legislature would be setting up a dangerous scenario where the tax committee had earlier not been willing to venture. Ms. Vilardo, responded in the affirmative. She elaborated on various tax measures, explaining Nevada did not have a tax policy per se, but that was one of the things state officers had been working toward.

Ms. Vilardo went on to explain the standing committee created by S.B.253 of the 69th Session had established some parameters on exemptions, and justification for why it was needed. In looking at the bill, one thing that would generally be accepted was if one had a user-benefit relationship between a tax and a fee one generally had something that could be justified or could be considered equitable under policy. The reason for being so defined in the measure was to create that nexus, particularly because the legislature required it due to the way the state provided funding to the highway fund. New and used vehicles drove on roads, funding for which was general fund revenue; they put the wear and tear on the roads and highways, so the tax officials figured there was a nexus.

Addressing the question of setting a precedent Ms. Vilardo pointed out last session the committee had allowed local options on sales taxes to be used for things sales taxes would not normally be used for. It was used for water; historically water infrastructure was a weight and connection charge fee. There were reasons why it was justifiable in the minds of people that voted for it and the association Ms. Vilardo represented supported it. The question was, had a precedent been set; she felt as though it had already been done through local options.

Mr. Anderson stated he found it intriguing to hear the possibility of electric automobiles in California had been somewhat successful. Due to Ms. Vilardo’s concern relative to the success of that program, Nevada could conceivably be impacted by the loss of revenue in the terms of fuel tax. He added since that tax would be on the sale of new and used vehicles, would there not be a new added incentive for the purchase of electrical vehicles. By generating a new source of propulsion would that really generate additional sales, rather than the legislature enhancing the fund for that category.

Responding to the question Ms. Vilardo explained that assuming the legislature did something to restructure the funds, maybe it would generate more money than they were willing to let go from the general fund. She added the legislature could always "cap" it. She assumed Mr. Anderson had referred to the situation where one could say, "here was a car dealer selling electric vehicles and we were going to have sales tax on that vehicle." Currently, if they did not do something to replace what would be lost in fuel taxes by that vehicle, and something was not done with sales tax or some other revenue source it would be a "flat out" loss to the fund.

Pursuing his line of questioning, Mr. Anderson asked, assuming that to be correct would there have been a potential loss in sales tax revenue to local governmental entities that might come about as a result of that by Nevada’s allocation in the new fashion. Ms. Vilardo responded the allocation, because it dealt strictly with the state, would not impact local governments. But local governments, because of the portion they received back on distribution from part of the state levy gas tax, if they had levied the maximum they could, which was $.10 (broken down that was with 1 cent going to the county of sale and 9-cents to the Regional Transportation Commission) that amount would definitely have an impact. What the study committee had been looking at doing was identifying a potential problem. Even if electric cars did not sell, there would be no question that every year cars became more fuel efficient which eroded the fuel tax. If the state generated enough dollars by doing what was required by the bill, the legislature could always look at modifying the distribution formula that went back to the local governments to help offset their loss.

Chairman Goldwater interjected at that time explaining the State of Nevada, contrary to a previously made statement, did have a tax policy in which the state had tried to keep the tax burden off ordinary Nevada citizens by any means possible. Sometimes it may be difficult to understand, but that had been the policy. Further, he pointed out the state did receive more in highway fund money than the state contributed. He asked Ms. Vilardo if she felt that was due to Nevada having an office in Washington which was established to lobby on the state’s behalf. Nevada paid several hundred thousand dollars each year for an office in Washington D.C. with funding from the highway fund. He asked Ms. Vilardo if she felt that was worthwhile. Her response was, when it came to the reauthorization of highway money, it probably was. The office in Washington needed to be funded at the same level every year; and she assumed it would require increased funding each year, particularly with the eastern states. She felt the highway department could probably answer that better than she.

Mr. Neighbors explained one of the reasons Nevada had such a high gas tax was due to the large number of roads throughout the state for the amount of money the state was getting back. He pointed out his district alone was larger than the entire state of Indiana.

In response to Chairman Goldwater’s request for further testimony, Mr. Peter Krueger, representing the Nevada Petroleum Marketers Association, stated he felt it was a good bill, but urged the committee to be aware that each year there appeared to be a larger erosion of the highway fund for what could be construed as "non-highway fund" programs. Currently, he understood, the amount would be approximately $40 million which would be going to finance other programs. He pointed out the legislature must be aware of keeping up with a moving target, meaning the cost of putting a mile of asphalt down became more and more expensive each year. He cautioned the committee also needed to be aware of declining gallonage which affected how much revenue was accrued.

Mr. Krueger reminded committee members there had been raids on the highway fund even while recognizing the fact the Nevada State Constitution was very clear on how that money was to be used, and sometimes he felt they stretched the point with some of their expenditures. He pointed out his association felt the bill was the correct thing to do and had never asked that the general fund, be used to fund the highway fund, as many states did. It was his belief Nevada was never going to get ahead with the type of road construction and maintenance needed unless the legislature looked at some additional forms of revenue propping up what the state already had.

Speaking next was Mr. Mortenson who asked Mr. Krueger to comment on the $40 million that was being diverted from the highway fund; he asked where that money was going. Mr. Krueger responded he was not prepared to answer, but that was the figure being discussed and he volunteered to get the answer for the committee. He added, for example, there was a sizeable number of dollars taken by the Department of Taxation to administer the gas tax and a large percentage of money for administration. He concluded by reiterating his promise to provide figures for Mr. Mortenson as he had requested.

Ms. Freeman stated her interest had been piqued by the comment from Mr. Krueger when he stated, "the constitution was very clear about where the money was to go but there appeared to be a stretch." She asked if there had ever been a legal opinion requested from the Legislative attorneys as to whether the practice of spending money from the highway fund was constitutional or not. Mr. Krueger responded he did not know the answer to that. In recent times, there had been no lawsuits, but there had always been talk among different organizations about the way money had been taken from the fund. His understanding was, when you looked at the Nevada Revised Statutes (NRS) in that section, there were attorney general opinions on the question. He offered to do some research and provide his findings to Ms. Freeman.

Ms. Cheryl Blomstrom, Director of State Governmental Affairs for the Associated General Contractors of America, Inc., addressed the committee indicating she wanted to go on record thanking Mr. Neighbors for the hard work performed by his study committee. He had pointed out very clearly the dearth of money available to keep the roads in the present condition. Nevada’s roads and highways were the skeletons of everything else Nevada did and it was necessary for state officials to take a focus on the backbone of what was done. Tourists were encouraged to travel to Nevada, the entire economy, whether it was mining, construction, tourism, or anything else was directly related and tied to the roads and highways of the state.

Speaking next was Mr. Dino DiCianno, Deputy Executive Director for the Department of Taxation, who stated his department had no position regarding the bill, but they were requested to provide a fiscal note. The department believed there would be a fiscal impact to the state, in particular, to the general fund which would result in a change to the final number as far as the amount of transfer from the general fund to the highway fund.

He had distributed a two page preliminary estimate associated with the fiscal impact with reference to A.B. 32 (Exhibit D) entitled "Nevada Department of Taxation Estimated Fiscal Impact" and excerpts from the "General Fund Revenues – Economic Forum". He called attention to the first sheet of his exhibit (entitled "Actuals FY 95 Thru FY 98 – Estimated FY 99 Thru FY 01" which contained a spreadsheet providing the total taxable sales for the past known 12 months.

Mr. DiCianno went through the exhibit pointing out the figures on the second sheet of the exhibits which were provided by the Fiscal Division of LCB to the Economic Forum. Those figures showed the total sales and use tax on all categories projected out to the year 2001. His department was aware of the fact the sale of new and used vehicles made up better than 10 percent of all taxable sales in the state in any given fiscal year. He pointed out that amount appeared to be small but was the third largest of the entire category collected, and second only to eating and drinking establishments; number one was the retail establishments.

He called attention to the highlighted line on the exhibit for FY 99, FY 00, and FY 01 adding if those figures held true and the taxation department took 10 percent of those figures, the total would be $56 million. If the legislature kept the scenario the way the bill was written it would be about $5.6 million for FY 99, going from the general fund to the highway fund. For FY 00 the amount of the fund would be $5.6-million plus an additional $5.9-million; those amounts would grow. Without having all the particulars, the legislators would have to understand there would be growth in taxable sales and those numbers would increase in time. He concluded his testimony and offered to answer questions.

Mr. Anderson expressed his appreciation to Mr. DiCianno and asked if in light of the proposed recommendations he would be giving the committee an addendum to that. He felt the projected figures going into the general and highway funds through the year 2009 would be very helpful; Mr. DiCianno agreed to furnish those figures for Mr. Anderson and the committee members.

There being no further testimony to be heard nor questions from those present, Chairman Goldwater closed the hearing on A.B. 32 and indicated a work session would be scheduled for further action.

Chairman Goldwater advised the members of the committee he had received a request for a Bill Draft Request (BDR) (included as Exhibit E) from Ms. Freeman for use of a committee bill request as follows:

• BDR – Requires certain cities and counties to continue to levy and collect certain license taxes which are pledged for the payment of certain obligations, increases the license tax on revenues from the rental of transient lodging in certain counties and authorizes the pledge of certain license taxes to the payment of revenue bonds.

ASSEMBLYWOMAN FREEMAN MOVED FOR A COMMITTEE

REQUEST AND THE INTRODUCTION OF THE ABOVE-MENTIONED

BDR.

ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

Chairman Goldwater informed the members they had received, through the auspices of Mr. Ted Zuend, LCB Fiscal Analyst, a copy of the Revenue Reference Manual which he strongly urged everyone to read as it was very definitely an informative report.

There being no further business, the meeting adjourned at 3:00 p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: