The Committee on Taxation was called to order at 1:30 p.m., on Tuesday, March 9, 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. Morse Arberry, Jr.

Mr. Greg Brower

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. John Jay Lee

Mr. Mark Manendo

Mr. John Marvel

Mr. Harry Mortenson

Mr. Bob Price

Ms. Sandra Tiffany

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Goldwater opened the hearing on the above-mentioned bill and asked if there was anyone available to testify there being none the Chair indicated he would close the hearing and take no further action.

The measure was recommended by a study committee authorized by A.B. 204 of the 1997 session which directed the Department of Taxation, the Department of Motor Vehicles (DMV) and other agencies to consider the feasibility of consolidating the collection of fuel taxes into a single agency. A.B. 396 would effect that consolidation by transferring fuel tax responsibility to DMV on July 1, 2001. The bill would result in the transfer of some revenue from the general fund to the highway fund during the next biennium. That would result because the fees assessed by the department of taxation for collecting the gasoline tax would actually exceed the costs of collecting that tax.

Speaking first in support of the measure was Daryl Capurro, Managing Director, Nevada Motor Transport Association (NMTA) who stated there had been a bill passed during the last session which essentially set forth what A.B. 396 would accomplish. At that time the special fuel tax under Nevada Revised Statutes (NRS) Chapter 366 was collected by the DMV which was a highway fund agency. The gasoline tax was collected by the Department of Taxation which was a General Fund agency. A question has come up in the past about the fact that the amount of cost allocation to gasoline tax collection by the Department of Taxation was not even close to what was appropriated for the purpose of making that collection. As Mr. Capurro explained, the state would have what was referred to as a "diversion of highway funds for a non-highway fund purpose." Mr. Capurro stated he had been a part of the committee throughout the interim which had been chaired by Michael Pitlock, formerly Director of the Department of Taxation. At the last meeting held Mr. Pitlock made a motion to recommend to this session of the legislature that the collection of gas tax be entrusted to the DMV; motion passed unanimously and made a lot of sense. In the first place many of the companies selling special fuel or diesel tax, for the most part, also sold gasoline. At that time there had been two sets of auditors one with the DMV going into audit diesel tax revenues, and the gasoline tax being audited primarily by desk audits with a limited amount of field audits by the Department of Taxation. To consolidate that function into the DMV would accomplish several purposes: one, it would consolidate all of the highway fund revenues into a highway fund agency for collection; second, it would simplify the audit procedure so there would be one set of auditors that would be auditing one company rather than a dispirited effort with two different agencies auditing the same business for basically the same purpose. There would be another bill which would be heard during the session as the result of the interim committee recommendation which would recommend movement of the collection of gasoline tax to the terminal rack.

Mr. Capurro continued the combination of those changes was designed to save the highway fund a considerable amount of money and number two to simplify the administration of highway fund activity into one agency. The members of the committee highly recommended A.B. 396 to the committee. He offered to answer any questions.

Mr. Marvel stated it had been his suggestion several sessions ago to look at the feasibility of going to the rack for gasoline. Since the state was collecting diesel fuel tax at the rack it would not be that much more complicated for the auditors to audit the rack collection of the gasoline taxes. He asked for comments from Mr. Capurro on how that would work.

Responding Mr. Capurro explained an additional bill had been recommended by the interim committee chaired by Mr. Neighbors. However, that bill would be more complicated because it also involved county distribution. Mr. Capurro indicated the issue would soon be resolved satisfactorily otherwise it would have been considered at the same time as diesel tax, since it made a lot of sense inasmuch as all other fuel taxes were collected at the terminal rack. All federal taxes were collected at that level; gasoline, diesel, and so on. The state’s diesel tax was collected at the terminal rack which left only the gasoline tax that was not. He concurred with Mr. Marvel, collection at the rack would be much more simple.

Mr. Marvel commented the state had made a considerable amount of money on the diesel tax collections. He asked if anyone had made an estimate of what amount would be received from gasoline by going to the rack. Responding was Mr. Capurro who indicated estimates for diesel would be somewhere between $10 and $15 million, but he understood the amount came in at $12 million after refunds and credits over and above the normal inflationary cycle, so there would be about a 25 percent evasion factor on the diesel tax. Mr. Capurro did not believe that sort of evasion existed in gasoline but figuring gasoline tax brought in between 3 and 4 times what diesel did, even a 5 percent evasion factor would amount to $8 to $10 million.

Mr. Marvel asked if the Department of Taxation had any problem with relinquishing the tax collection performance and was advised by Mr. Capurro he could not predict what testimony would be heard, but he knew the chairman of the study committee was also the Director of the Department of Taxation at the time of the study and was the individual who made the motion with respect to the A.B. 204 of the 69^th session committee to make that change. And, in response to a question from Ms. Freeman, Mr. Capurro indicated his association would be very comfortable with the function being moved into the DMV. He added primarily because, in the collection of diesel tax there were certain responsibilities under the International Fuel Tax Agreement (IFTA) in which the DMV must perform a certain percentage of field audits and the staff performed those field audits. Mr. Capurro felt that was the only way to eliminate evasion with respect to any fuel. He did not believe the Department of Taxation did much in the way of field audits, therefore, he felt more comfortable with an agency that did.

Mr. Anderson asked Mr. Capurro how frequently the field audits in the Department of Taxation were done or was he aware of any. Mr. Capurro responded that during the deliberations of the study committee which included the DMV, the Department of Taxation, and other similar parties information had been provided which indicated audits were done very infrequently. The audits done with respect to gasoline audits were desk audits and that was essentially what the information provided.

In response to a question from Chairman Goldwater regarding an international agreement, Mr. Capurro explained he had indicated the International Fuel Tax Agreement (IFTA) was a compact in which all states were "party and mandated by the Federal Government to be a party." IFTA covered special fuel, diesel fuel primarily, because of the heavy interstate nature of its use.

Mr. Krueger, State Executive of the Nevada Petroleum Marketers Association, spoke next indicating his association was fully in support of the consolidation of fuel taxes in DMV. The subcommittee on A.B. 204 of the 69^th session had looked at all the options and whether it would make more sense to move the diesel tax to the Department of Taxation which had some advantages with the Nevada Tax Commission for appeal purposes or move gasoline to DMV. After deliberations it was felt, even though there was a tax department, the best move for the immediate consolidation would be to move gasoline to DMV. The real driving force was the heavy reliance on the motor transport industry of the statewide and interstate reporting. His group was very supportive of the measure.

Chairman Goldwater asked Mr. Krueger why he had stressed the immediacy of the bill, yet the effective date was not until July 1, 2001. Mr. Krueger pointed out the attempt was to eliminate pressure in preparing the current biennium budget in consideration of a new governor. There was a substantial amount of money going from the highway fund to the Department of Taxation to fund their operation. When budgets were compiled the transfer would be taken into consideration.

Addressing the committee at that time were Ray Sparks, Deputy Director of Public Safety for the DMV and Clay Thomas, Assistant Chief of the Registration Division who also managed the Motor Carrier Bureau within that division. Mr. Sparks explained Mr. Thomas was very familiar with the operation of the department by way of administration of the special fuel tax and would be addressing the committee. Mr. Thomas advised after reviewing the bill, hearing the prior testimony given, and the study of A.B. 204 it was the position of his department to support transfer of the gas tax to DMV. He noted the Motor Carrier Bureau recently received a request for a fiscal impact report; however, the staff was still studying the request and did not have the information available. He estimated the information should be available by the end of the week.

Discussion followed on various aspects of the bill and the proposed transfer all of which was favorable. In conclusion, Mr. Thomas indicated his department would like the opportunity to study the bill and take the necessary steps to insure that on the effective date they would be in a position to make it the most effective and efficient program they could.

Mr. Marvel asked if it would be part of Project Genesis and was advised it was outside the program; however, there were provisions in which the motor carrier bureau would be involved; one of which would have to do with administrative tracking of funds. Mr. Thomas indicated staff would be interacting with the Administrative Services Division of which Project Genesis would be a part. As to the tracking of the fuels the agency would be operating under a computer system by Lockheed-Martin called the Vista system.

Mr. Anderson pointed out one of the problems in the past, relative to the fuel taxes, had been the frequency of field audits versus desk audits he asked how frequently they audited diesel taxes. Responding Mr. Thomas stated his division was required, through the federal programs, to do an audit of 3 percent of the suppliers once every 3 years. They were currently over and above what was required with their field audits and had gone beyond the minimum requirement for the Motor Carrier Bureau in the diesel specifications.

Pursuing his line of questioning, Mr. Anderson asked if the remainder of the audits would be desk audits of the ledgers and would that be done annually. He was advised by Mr. Thomas they reconciled monthly and quarterly to find any discrepancies in that phase and work and with the industry to reconcile any delinquent or missed accounts. If his division was unsuccessful at that stage, they turned the account over to the revenue section for collection.

Ms. Tiffany asked if his division had done any preliminary planning to bring the tax people over that already had the auditing experience, and did the division have the space to provide for additional staffing. She asked Mr. Thomas if he knew how many more people they would need to add and also what computer changes they would have to make. She explained she thought the plan might be part of Project Genesis but inquired if the division leased time on the Lockheed-Martin system. Her point was to determine whether the bureau had looked into a plan that literally took all of that into consideration for the transition and whether his estimate would be that it was going to be either comparable or less for the Taxation Department to do. She added she would hate to take the revenue from the Department of Taxation and then have to add another fiscal note on top of that. She wondered whether they had gone that far.

Mr. Thomas explained his bureau was in the process of obtaining information on which avenue to take and had prepared a very preliminary organizational chart. The chart identified potential positions needed and the number of positions between auditors and the motor fuel section. Also being considered was the cost of combining forms as the office forms were different and they could see no need to redo those. Although those changes would be an up-front cost, they would eventually result in a cost reduction. He conceded, however, he did not have any figures available at that time.

There were no further questions for Mr. Thomas, therefore the Chairman requested Ms. Vilardo to present her testimony.

Carole Vilardo, President of the Nevada Taxpayers Association spoke next in support of A.B. 396 with one amendment for the committee’s consideration and a suggestion based on previous testimony. She proceeded through a report (Exhibit C) resulting from the A.B. 204 Study Committee providing details of those individuals involved in the study committee and deliberations leading up to the drafting of the measure before the committee (A.B. 396).

Ms. Vilardo called the committee’s attention to one section in the report addressing "consolidation ideas." After studying the pros and cons of consolidation it was determined the most efficient way to change collection of gasoline taxes was moving it from the Department of Taxation to the Department of Motor Vehicles. She explained there were a number of reasons for that; for example, DMV had the equipment necessary for the state to comply with the International Fuel Tax Plan (IFTA) and with International Registration Plan (IRP). The agencies could not move the equipment be necessary for moving the collection on diesel over to the Department of Taxation as they would still have the need for registration at DMV.

That was the type of dialogue the study committee heard in trying to determine what would be best for all concerned. It was felt by combining those efforts not only would the state be creating a more user-friendly environment, but it would create an easier environment in which to audit because you had the same type of supplier. Additionally, that method would consolidate a major revenue issue into the department, and within the next millennium would eventually bring the DMV under an umbrella as a separate part of the Department of Taxation or a Department of Revenue.

(Chairman Goldwater left the room and turned the floor over to Vice Chairman Neighbors)

Ms. Vilardo stated in conclusion, if the committee were to process the bill she would request an amendment for a deletion from the bill on page 20, section 64, beginning with line 19 going through line 25. Within the collection of gas tax there had been a situation where the Tax Commission, the Department of Taxation, and working groups from industry had created a series of regulations which served very well for administering gas tax. The study group did not feel those should be repealed but should literally be "lifted out" of the language and put into the Department of Motor Vehicles.

Ms. Vilardo agreed with the previous statements by Mr. Thomas that if the bill were passed in order to collect the tax, there would have to be some preliminary dollars spent. There had also been some very deliberate discussions about the effective date of the bill. It was not the intent of the study committee to impact the current biennium’s budget; however, if the executive branch had some modifications to the proposed changes they wanted they would be able to do it within the framework by allowing the transition to take place.

According to Ms. Vilardo the study committee had suggested the effective date remain as proposed for purposes of allowing the Department of Motor Vehicles to prepare whatever they needed and to identify what the fiscal impact would be. The executive branch could then address those factors in the budget for the next biennium if they were on notice for the starting point for the collection. The collection would begin 6 months later on January 1, 2002, and hopefully 6 months would be enough time to avoid any impact on the current biennium’s budget. The study committee felt in the long run the state would have a much more efficient mechanism and a mechanism that once the changes were fully operational and in place, would allow the legislature to look for further refinements. She offered to answer any questions.

Acting Chairman Neighbors invited Mike Spell and Steve Wood both from the Legislative Audit Division of the Legislative Counsel Bureau to present their testimony.

Speaking first was Steve Wood who introduced himself and Mr. Spell. He explained their division was taking no position on the bill but wanted to bring one matter to the attention of the committee. Their interest involved the language relating to the imposition and collection of the special fuel tax itself. As Mr. Marvel, Mr. Arberry, and Mr. Price were aware being on the audit subcommittee, his division had recently issued an audit report on the management and collection of the state’s accounts receivable. In that report they noted the special fuel tax collected by suppliers did not have statutory language requiring taxes be held in a separate account in trust for the state. Similar language was contained in the statutes for the motor fuel tax collected and was put in the statutes several sessions ago. Basically that would protect the state’s interest in the event of a bankruptcy by the taxpayer.

Mr. Wood pointed out his bureau believed similar language governing the imposition of special fuel tax would provide similar protection for the state’s assets in cases involving bankruptcy. Therefore, they suggested the committee consider an amendment to A.B. 396 that would require special fuel taxes collected by suppliers be held in a separate account in trust for the state. They felt that would be an easy amendment as it had been in 1995 to the Motor Vehicle Tax. It would be basically just one sentence that said, "those taxes were in trust and would be held in a separate account."

Mr. Spell interjected explaining the language had been spelled out in Nevada Revised Statutes (NRS) 365.180 which had been amended in 1995 for the motor fuel taxes. His bureau was requesting similar language in NRS 366 for the special fuel.

Ted Zuend, Fiscal Analyst for LCB explained the bill under consideration would create a new chapter for DMV to manage their taxes. Mr. Spell’s suggestion should go into the new chapter which would cover both motor fuel tax and special fuel tax not into Chapter 366. That was the reason there were some deleted provisions in Chapter 366, inasmuch as they had been moved to a new chapter in the NRS.

In response to Vice Chairman Neighbor’s request for additional testimony from the audience, Mr. Dave Pursell, Director of the Department of Taxation came forward and introduced himself. He explained previous testimony had been very detailed on what had prompted the proposed legislation relative to his predecessor recommending the committee’s unanimous approval of moving the collection to DMV. He felt it was important to note the study committee also indicated there needed to be consideration of both budgets, both the DMV and the Department of Taxation. For that reason the July 1, 2001 effective date was suggested.

Mr. Pursell indicated his department had received a fiscal note on which they were working but as Mr. Krueger had stated, would show the revenues collected versus the cost of collecting those revenues. He felt that would be important for the committee to have available.

(Chairman Goldwater assumed the Chair at that point)

Mr. Marvel pointed out there were several assessors present at the hearing and asked if there would be any effect on them as a result of passage of the bill. Responding was Mr. Capurro who apologized for not addressing that during his testimony but did indicate there would be no effect to the assessors.

Recognizing there was no further testimony in support, nor in opposition, the Chair closed the hearing and announced the bill would be brought to a work session with suggested amendments while awaiting a fiscal note and costs to the department.

Chairman Goldwater, once again, asked if there was anyone present to discuss the previously called for A.B. 351; there was no response. Chairman Goldwater announced he would accept a motion.

ASSEMBLYMAN ANDERSON MOVED TO INDEFINITELY

POSTPONE A.B. 351.

ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

There being no further business, the meeting was adjourned at 3:15 p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: