The Committee on Taxation was called to order at 1:30p.m., on Tuesday, March 23, 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

GUEST LEGISLATORS PRESENT:

Ms. Marcia de Braga, Assembly District 35

Ms. Genie Ohrenschall, Assembly District 12

Mr. John Lee, Assembly District 3

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Joe Johnson, representing the Sierra Club

Ray Bacon, representing Nevada Manufacturing Association

Dino DiCianno, Deputy Executive Director, Department of Taxation

Prior to opening the agenda, Chairman Goldwater announced that all members had received a memo advising the committee had until April 9 to get all taxation bills out of committee. He asked the sponsors of the bills and committee members to be aware of the timeframe and the pressure it put on each of them. On committee meeting days with no floor session, meetings would begin at 1:00 p.m. Additionally the speaker and leadership officers had indicated bills not having wide support should not be heard. Those decisions should not be taken personally but was simply the way bills must be handled due to the limited session.

The Chair opened the hearing on A.B. 419 asking the sponsor to begin her presentation.

The bill provided a $1 credit for each equivalent full-time employee against the business tax when a business established a qualified program for the recycling of materials used in the business. To qualify for the exemption the business must prepare the materials to be recycled at the time and in the manner prescribed by the county where the business was located. The governing body of the county or the person who collected materials for recycling was to report quarterly to the Department of Taxation identifying each business that had complied with the recycling program and that had requested the report be made.

Ms. Ohrenschall, as primary sponsor of the bill, pointed out her bill attempted to provide an economic incentive for businesses to establish voluntary recycling programs which was an idea suggested by a constituent of hers living near businesses who did not recycle. She felt there would be no point in asking individuals to recycle if businesses who actually generated the greater amount of waste did not. She submitted the bill draft before the Economic Forum was reported which, unfortunately, indicated the state was not in as good condition as the legislators thought it was. The bill did have some fiscal impact therefore she doubted the bill had a chance of passing; however, she felt the idea of encouraging businesses to recycle was a meritorious one.

She introduced Joe Johnson, representing the Toiyabe Chapter of the Sierra Club, who had discussed the issue with representatives of Carson and Washoe Counties and recycling businesses. As a result of those discussions they wanted to submit an amendment which would in effect couch the verbiage to provide for permissive language allowing the people or businesses who recycled to establish volunteer programs encouraging recycling.

Mr. Johnson explained the Sierra Club strongly supported recycling programs and during his previous tenure in the legislature he was personally involved in drafting language on recycling. He felt it would be beneficial to have language within the statute allowing regulation of voluntary programs so they could set minimal standards. He asked if the committee would consider an amendment, assuring them they would not be dealing with a tax impact. Consideration could be given to adopting an amendment and sending the bill back to the floor or a rereferral to the Committee on Natural Resources.

The Chair asked Mr. Johnson if he felt recycling was prohibited at the current time and was advised in the negative. Mr. Johnson added some counties had programs for remote recycling at that time, but it was his concern to see there was permissive language in the statutes. He conceded the time limits within the limited session would make it almost impossible for his group to get suggested language drafted and back to the committee prior to the next meeting.

Mr. Anderson explained he had some concerns, given the dates on the calendar, and the necessity to rerefer a piece of legislation to another committee. In all fairness both to the sponsor of the bill and the legislation itself, he hated to hold out false hopes due to the timeliness of the question, not for the legitimacy of it, but whether within the 120 day session the committee would be able to adequately process the legislation.

Ms. Ohrenschall explained she understood the dilemma and pointed out, in the circumstances, it would be her intent to ask for either an amendment, or in the alternative if the chair felt the amendment was impractical at that time, to ask the committee to withdraw the bill.

The Chair agreed getting an acceptable amendment would be a gamble as the amendments usually do not come out in the manner the sponsor anticipated on the first rewrite, so it would be difficult in the time remaining.

Ms. Freeman wished to complement the sponsor of the bill pointing out she had initiated a similar bill several years ago, one on which she had worked with Mr. Johnson extensively. She suggested if Ms. Ohrenschall decided to withdraw the bill and bring it back again she would support the measure as she liked the intent of the legislation.

Chairman Goldwater suggested Ms. Ohrenschall contact the staff on the Committee on Human Resources and see if there was a bill addressing the same subject matter or involved with the same chapters of NRS to determine if she might amend her idea into one of those bills as he concurred she had an excellent idea.

In response to a request for further testimony, Dino DiCianno, deputy executive director for the Department of Taxation stated he distributed a completed fiscal note on the measure (Exhibit C) and simply wanted to point out the Department of Taxation did not have a position on it one way or the other. The fiscal note was calculated on the maximum amount to be recycled as the bill did not set a minimum level, so any business in the state could qualify.

Ray Bacon, representing the Nevada Manufacturing Association, explained his association viewed the measure more of a hassle than it would be worth even as written.

Chairman Goldwater closed the hearing and asked if the committee wanted to take action.

ASSEMBLYMAN ANDERSON MOVED TO INDEFINITELY

POSTPONE A.B. 419.

ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

Mr. Anderson pointed out, given the request of the primary sponsor and the timing of the session, there was no way the committee could accomplish what Ms. Ohrenschall wanted. He felt it would be a help to her to know what action would be taken on her bill.

Chairman Goldwater opened the hearing on A.B. 428.

The proposed bill changed the basis of the business tax from the total number to the taxable number of equivalent full-time employees and made the taxable number five fewer than the total number of equivalent full-time employees. Additionally, it applied a $25 tax to the taxable number of equivalent full-time employees while exempting a business with not more than five equivalent full-time employees during a quarter from the provisions of the business tax for that quarter.

Testifying in support of the legislation was Assemblyman John Lee, primary sponsor. He explained the bill would help small as well as large businesses and encouraged the committee to give favorable consideration. He added there were 17,811 businesses in Nevada that employed five or fewer people. He understood while taxes were important there were times when the state became over-regulated and over-taxed and he found that to be true in the business community at least in the southern part of Nevada. He felt the bill addressed a necessity to what was needed in Nevada. Mr. Lee proceeded through a comprehensive discourse on the ideals and circumstances of residents and businesses in the state. As part of his testimony, Lee included written comments from Keith Schwer from the University of Las Vegas Department of CBER. (Exhibit D)

Mr. Lee admitted he had learned of the high fiscal impact of the proposed bill and in an attempt to make it more palatable he submitted an amendment and a memo explaining the proposed amendment (Exhibit E).

At the conclusion of testimony, Chairman Goldwater asked Dino DiCianno, deputy executive director for the Department of Taxation to address the committee and asked if the procedure should be phased in as proposed by the sponsor. For example, was it directly proportional to the way a fiscal note was done. Mr. DiCianno submitted a fiscal note (Exhibit F) and apologized to the committee stating the fiscal note was incorrect as the impact would be significantly higher than stated. If the original bill, based on section 2, without the amendments was taken at its face value the first year's fiscal impact would be approximately $11 million; the second year would be approximately that and greater based upon the results of Economic Forum. He stated the Department of Taxation would be happy to look at the amendments and resubmit a fiscal note based upon the new figures in the amendment if the committee so desired.

Mr. Manendo asked if the exemptions would be "across the board" with the employees going from the first employee through the fifth or would there be anyone exempted. He wanted to see breaks given to the "mom and pop" businesses, the small businesses under 50 or under 100 employees. He questioned whether the exemptions would be across the board for everyone and was advised by Mr. Lee in the affirmative. The exemptions would include every business in Nevada that qualified. Mr. Manendo reminded those present when the business tax was first enacted it exempted out employers having 5200 employees or more so the smaller businesses were hit initially and the larger guys did not have to pay. Then, over time, the larger businesses were phased in. Mr. Manendo stated he would be interested in doing the "flip side" and give the smaller businesses the break where they really need it. He thought about the small businesses in his district as they were the ones that needed the help and those businesses with generally 5 or 10 employees or less that the bill might help as a start and would not be quite such a heavy hit on the fiscal note as well.

Speaking next was Ms. Gibbons who complimented Mr. Lee for bringing the bill forward as she saw it as a pro-female bill inasmuch as most successful small businesses were run by women. She would like to see some way for the bill to work for small entrepreneurs and asked what the cost would be if the bill were made "revenue neutral" for the state and raised slightly for the sixth employee and above.

Responding, Mr. DiCianno pointed out if it was the committee's decision to restructure the bill to a "revenue neutral" position that action would raise the burden on all other businesses not exempt. In other words if the decision was to exempt all employers with five employees or less, the burden would be shifted to the other employers who would not qualify under the "revenue neutral" status. That would be a definite impact to the other taxpayers.

At that time, Chairman Goldwater pointed out Mr. Lee provided the committee with a spread sheet (Exhibit G) entitled, Fiscal Impact From Exempting Certain Levels of Employees that showed the amount of exemptions and loss of revenues and should be helpful in answering any questions.

Coming forward to testify was Carole Vilardo, president of Nevada Taxpayers Association who spoke in opposition to the bill presented by Mr. Lee. She recognized the fact he had submitted an amendment, but she had several points she wished to make. Her association would consistently oppose those exemptions because of erosion of the revenue base to the state. She wished to remind the committee of one thing, and that was when the state started out with the business tax they did try to accommodate the very small business; "the mom and pop" or one person of a partnership by eliminating the first person and she believed Assemblyman Price would remember that very well. The legislature did not eliminate the first person of a corporation so the committee may want to revisit that issue. Ms. Vilardo's concern was the tax base, the revenue, and budget had been predicated upon receiving "X" amount of revenue and would be affected by any and all exemptions. The idea was not well-received by a lot of small businesses because, like everything else, it required a lot more paperwork which they had to do for government. The committee had a policy question that was, if the committee chose to process the bill there would be a more logical way to go than exempting five employees, but the legislators would need to look at the revenue impacts on that as it would be considerable by the time you hit the fifth employee.

Chairman Goldwater concurred adding he felt the concern was more the paperwork to which objected rather than the amount of the tax. He then recognized Ray Bacon.

Ray Bacon, Nevada Manufacturer's Association (NMA) wanted to go on record as being opposed to the bill. The real issue was the administrative burden rather than the amount of the tax. The NMA recognized the fact that every time you start creating an exemption you have to raise the revenue some place else so you would be creating a new paperwork burden to eliminate that paperwork burden.

Supporting the bill was Warren Hardy, representing the National Federation of Independent Businesses and their approximately 4,000 member businesses. They were the small "mom and pop" businesses and wanted to go on record as being in strong support of the legislation. As an Association they did a ballot question each year polling their members on issues that were most important legislatively at the state and national level. That issue was consistently at the top with the largest number of their members supporting the legislation. Chairman Goldwater asked if it was the amount or the administration that the members most supported, Mr. Hardy advised they had never done a ballot question on that, but the members he had spoken with had learned the administration was the most difficult aspects of the legislation.

The Chair called on Mr. Marvel who asked what was the magic trigger of "five" and was advised by Mr. Hardy he did not know where the number originated, but he knew that had been discussed as the exemption on a number of sessions. He had no idea where it came from originally although that would be an effective number for a number of members. Mr. Marvel explained some members of the committee had wrestled with it before when the business license tax was initiated, and they granted some exemptions. The members finally came to realize that they were really creating some serious inequities so they eventually went across the board where everybody paid the same tax. He believed that was the fair way to go; therefore he would be voting against the bill.

Jan Gilbert spoke next, representing the Progressive Leadership Alliance in Nevada (PLAN) who indicating as she was listening she recalled the legislators had discussed child care providers previously in relation to the business tax. As the members knew those small childcare businesses did not make a tremendous amount of money; many childcare providers were paid a minimum wage and they would benefit by the bill. She admitted she looked at Mr. Arberry and recognizing she could not ask this committee to cut $10 million out of the budget as she was always going to Ways and Means for budget items. She wanted to echo Mr. Manendo and suggest perhaps the committee could raise the limit and put the burden on the larger employers of the state. With welfare reform you would see more childcare providers having to come to the table as the effort would be to get more people off welfare into working jobs causing more of a demand for childcare.

Mr. Mortenson directed his question to Ray Bacon in regard to his statement about the big burden being placed on the businessman due to the increased paperwork. He was attempting to figure out why that would be, inasmuch as the paperwork was almost identical to the paperwork when every employee was included and it would be a one-time effort to subtract five people. There would be no additional burden over and above having everyone included. He asked him to explain he previous comments so he could understand.

Mr. Bacon stated his understanding of the way the process worked was the business would still have to file paperwork to show they had less than five employees so the paperwork burden would not have been lessened at all on those small employers. They would, if the bill were passed, have to do the paperwork and not send a check with it, which was almost as much of a hassle as writing the check to go along with it.

The Chair recognized Mr. Lee and Mr. DiCianno and asked both gentlemen to come to the witness table explaining he and Mr. Zuend had been kicking around an idea. Since it did not appear to be the amount people were unhappy about but more what the administrative burden was, specifically for five employees or less, would it be feasible to consider signing up for the business tax. Or would it be more desirable, rather than filing quarterly, if you had five employees or less to pay the equivalent fee up front on an annual basis. Responding was Mr. DiCianno who indicated that would not be a problem.

At the request of Mr. Lee, Chairman Goldwater went over the suggestions under consideration. He explained what the legislation would be doing was, rather than making somebody file a quarterly return, if they had five employees or less they would sign up but pay an up-front fee, that would be $100 per employee up front. What the state would be doing was exempting the first five employees from the administrative filing. Mr. Lee hesitated stating that would be a pretty large hit but perhaps some businesses could do that. Mr. DiCianno pointed out the filing fee was $25 for the first time which was not based on the number of employees, but the first time filing for the tax and was where the revenue would be shown.

Assemblywoman Marcia de Braga advised the committee members she had introduced the same bill two sessions ago, and at that time the impact to the state budget was considerably less than what she had been hearing now. She added what would happen was it would be valuable to small businesses to exempt the first five employees. She knew in rural areas where there had been a lot of very small businesses the tax made a difference in whether additional part time employees were hired or not. While it may seem like a small amount when comparing people who had seasonal labor and part-time labor and small businesses, it did have a significant impact. In addressing the paperwork involved in reporting, she explained she did those reports and found it to be a minor issue if you had nothing to report. She stated that once a quarter the businessperson will "zero" out, sign, date, and mail the paperwork. She did not hear the testimony so she was not aware of the figures discussed but she knew 2 years ago the amount was insignificant and she urged the committee's favorable consideration.

Speaking in support of the bill was Teresa Maloney introducing herself as representing Maloney’s Market and Lucky Lane Mobile Park in Reno. She stated she had three employees at the convenience store and two at the mobile home park and felt they were truly the "mom and pop" businesses about which the committee had been talking. She pointed out the fiscal note was $11 million; hers was $200 in one case and $300 in another, but she felt it was an important amount to her. She admitted she had been thinking for example, last week in the newspaper reports gasoline prices had gone up 8 cents per gallon. Reality was, for a small, independent, unbranded store her costs went up 14 cents per gallon, but she could not go up that high on the retail prices because the negative publicity had been so enormous. Her store then absorbed the extra penny or two and the $200 or $300 really helped offset that a little. She pointed out the state should be encouraging growth in small businesses, and reducing the tax load was a good way to start. She wanted to be on the record of being in support.

Mr. Anderson asked if she had heard Chairman Goldwater's suggestion as to whether she could pay the fees in advance. He asked if that would create an undo burden on her business to come up with a full annual payment at one time, given the number of employees she had. Ms. Maloney responded it would be easier to pay it quarterly than it would be to pay in advance at the beginning of the year.

Mr. Manendo asked how many spaces she had in the mobile home park and was advised it was 187 with two employees and herself. Pursuing that line of questioning Mr. Manendo asked if, 6 years ago, when the business tax went in did she own that park. She stated her father owned the business at that time but she was not involved. Mr. Manendo asked if they had raised the rents due to the business tax and was advised they had only had two rent increases in the last 7 years.

There being no further testimony in support or opposition, the hearing was closed. The Chair asked Mr. Lee if he could make his proposed amendments available to the committee members they would be included in the work session documents. There was no action taken on the bill.

Next item on the agenda was A.B. 497.

The bill deleted all statutory references to the business tax, to chapter 364A of the Nevada Revised Statutes (NRS) or to sections of that chapter and repealed all sections of Chapter 364A of the NRS, the chapter that provided for the business tax. The act would be effective on July 1, 2001. A fiscal note was distributed from the Department of Taxation (Exhibit H) indicating a revenue loss of $78,723,000 plus the increase projected for the following biennium; FY02-03.

As sponsor of the bill, Bob Price began his testimony by recalling many of the legislators were not very enthusiastic about the business tax when it was first introduced. His main purpose for having the bill drafted was having the subject matter back on the table so the committee could discuss the bill today. Mr. Price felt the committee should look at the subject matter as he had always felt the tax was a little bit tougher on the small businesses and likewise for employees. There might be occasions when a small employer would want to give someone a job but would be reluctant because of the increased tax. He thanked the Chairman for getting his bill scheduled.

Commenting was Mr. Marvel who stated he and Mr. Price had been through the subject before and he recalled a quotation from the former chairman of taxation on the Business Activity Tax (BAT) and the chairman's comments were "DOA" (Dead on Arrival). Mr. Price indicated he would have no problem if the bill were not processed until the committee had a chance to look at other alternatives.

ASSEMBLYMAN NEIGHBORS MOVED TO INDEFINITELY

POSTPONE A.B. 497.

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

MOTION CARRIED UNANIMOUSLY.

Chairman Goldwater asked the committee members to look at the work session document (Exhibit I), which had been prepared by Ted Zuend, fiscal analyst from the Legislative Counsel Bureau and assigned to Taxation. Mr. Zuend had made an excellent suggestion, which the Chair had adopted which was the preparation of a summary of bills with suggested amendments that could be brought to the committee at any time and moved on. If there were issues any member of the committee had with the bills please call them to the attention of the Chair, Mr. Zuend or the committee secretary, Nykki Kinsley and they would be included in the document so members could review them, understand them, and be versed on them when they were brought before the committee.

He added there were no specific bills that would be discussed at the meeting but the Chair wanted to introduce the concept to the members. He asked the members to communicate with the staff if they had any questions.

There being no further business to come before the committee, the meeting was adjourned at 2:35 p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

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