The Committee on Taxation was called to order at 1:30 p.m., on Thursday, March 25, 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

Ms. Sandra Tiffany

COMMITTEE MEMBERS EXCUSED:

Mr. Bob Price

GUEST LEGISLATORS PRESENT:

Mr. Bob Beers, Assembly District 4

Mrs. Marcia de Braga, Assembly District 35

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Goldwater opened testimony on A.B. 556, explaining the committee did not have a quorum at that time and would be meeting as a subcommittee until the remaining members were present. He called upon Mrs. de Braga as primary sponsor of the measure.

Included herein was Exhibit C a bill explanation prepared by Ted Zuend, fiscal analyst with Legislative Counsel Bureau (LCB)

Mrs. de Braga, Assembly District 35, introduced herself and thanked the committee for allowing her to appear first on the agenda and introduced Mr. Brent Hutchings, City Clerk, administrator for the city of Ely. She explained he brought the need for the bill, A.B. 556, to her attention adding when the state demographer made an error in the population count, there was no ability in the statutes to adjust it without going through a very complicated and time-consuming appeals process. What the bill attempted to do was allow a change to be made if there was an error in the population count by a faster process of appeals that would allow the population count to be decertified. Then re-certified after the governor had certified it. That would speed up the process and was how it occurred in Ely. When the count was wrong, under the provisions of the bill that consolidated the revenue if the count was lower than the actual population. At that time, of course, the revenue to the county decreased.

Continuing with her testimony, Mrs. de Braga explained in counties having severe financial problems due to a low and diminishing population, that was a very serious matter. She then announced she was going to turn the floor over to Mr. Hutchings and he would answer the committee questions.

Mr. Hutchings proceeded by explaining one of the problems the city of Ely faced as their population count was determined, they were unaware of a change mid-year in 1998 that affected their population. At that time their population was decreasing rather than increasing and affecting their revenue. In an attempt to correct that, the city officials met with the state demographer and Mr. DiCianno, Deputy Executive Director, Department of Taxation, in an attempt to rectify that. It appeared to them that a lot of the effort they went through could have been alleviated and they felt, even with the changes, they would still need to go through the same justification process they went through for their population numbers. They felt, however, that many of the problems they had could have been alleviated if they had a process available of correcting those errors. That was the intent of the discussion he had with Marcia de Braga, which resulted in the bill before the committee at that time.

Mr. Goldwater, in response to a request for questions from the committee, recognized Mr. Marvel who asked what kind of change they found once the problem had been corrected. He was advised by Mr. Hutchings the city of Ely went from a figure of $236,000 to $303,000. That was about a 20 percent gain for them and realizing that rural cities in Nevada did not have the income of a lot of other areas did but for their city, the effect that it had was significant.

Mr. Marvel asked if they had been able to determine the change in population and was advised by Mr. Hutchings they went from 4,850 to 5,310 which was the number they finally negotiated. Pursuing his line of questioning, Mr. Marvel pointed out he understood the city of Henderson had the same problem. Mr. Hutchings stated the only city of which he was aware that was similar was West Wendover however, he heard there had been some discussion about Henderson, and he believed Mesquite as well.

Chairman Goldwater asked Mr. Hutchings if he could briefly go over exactly how they currently amended population figures if something such as that was to happen again. Mr. Hutchings pointed out he had spoken with Mr. DiCianno earlier and understood he was going to testify on the process. Inasmuch as he was their hearing officer it would be more appropriate for him to provide that testimony.

Mr. DiCianno advised as part of the functions he performed at the department, he served as a hearings officer, hearing population appeals based upon what the demographer had established. However, the entities had the opportunity to appeal those estimates. He then proceeded through the process explaining each year the demographer established population estimates for cities, counties and unincorporated towns for the prior year with the last period being July 1, 1998. Those estimates were remitted to the entities by November of each year. The entities, by regulation, had the right to appeal by December 14, and the individuals could work their problems out with the demographer prior to going to a hearing. If that did not happen, the appeal went to a full hearing scheduled 10 days in advance, to determine the facts and circumstances of the case, and have a decision rendered. Those entities still had the opportunity, if they did not agree with his determination, to appeal it to the Nevada Tax Commission. That would also be a scheduled hearing and had to have a certain timeframe associated with it because of the procedures to be followed. When the commission made a final determination, those numbers were then submitted to the Governor’s Office for certification.

Continuing on, Mr. DiCianno pointed out there was currently no mechanism in statute allowing an amendment to the governor’s certified population estimate. What the bill would do, even after the tax commission had made a determination, was allow an entity to come forward to initiate an additional appeal process. In other words, the matter would come in front of a hearings officer again. That hearings officer would make a determination, and if the entity again disagreed with the determination they could resubmit the appeal to the tax commission well after the governor had certified the value. The concern was the committee would be adding another appeal layer to this after the commission had made a final decision.

Chairman Goldwater asked if he had discussed that with Mr. Hutchings and, if so, what was his reaction to that assessment.

Responding to the Chair's question, Mr. Hutchings indicated he felt one of the problems with the current time constraints was getting the information in a timely manner. His city's officials had been looking at opening the window of time a little wider, so they would be able to accumulate their numbers and complete the process more easily. They did not feel going through a second appeal process was necessary, but opening that window up a little bit wider would be helpful to them.

Chairman Goldwater asked if Mr. DiCianno understood what Mr. Hutchings was trying to point out, Mr. DiCianno responded in the affirmative, adding the department did not have a position one way or another. He believed the intent in asking for the bills was honorable. However, he wanted to emphasize there was a due process and procedures in place for adjudicated cases that had to be followed; any of the entities could not just come to the department and say, "here are the facts and you render a decision." The department could not do that and had to follow the procedures that were in place. He would suggest, and had mentioned it to Mr. Hutchings, a change on line 11 of page 1, and also on line 7 on page 2, change the date to July 1. The department would consider that the absolute date prior to the monthly distributions coming out of the Consolidated Tax Distribution Fund. That would afford them enough time to hold the hearing and go in front of the tax commission to re-review its decision. He emphasized, with no disrespect to the intent of the bill, there needed to be some finality.

The Chairman asked if there was some way the committee could take care of Mr. Hutchings' concerns relative to timeliness in a different manner rather than as proposed in the bill and was advised by Mr. DiCianno he was not aware of one.

Mr. Marvel at that point asked Mr. DiCianno if he could estimate what the cost would be for a second appeal and was advised by Mr. DiCianno they had requested a fiscal note on the bill, and he believed it was due by the end of next week; the cost associated would be only administrative cost. For example, if he had to go to Clark County to hold a hearing or, if the commission had to meet somewhere, there would be a cost associated with that. That type expenditure would be the only costs.

Mr. Marvel interjected they would have to include time involved and that was very important. He asked if anyone had ever gone to court over that. Mr. DiCianno responded not of which he was aware but concurred with a comment from Mr. Marvel that there was a judicial remedy in place if they had to go through all the procedures. Mr. Marvel then asked if it had ever been challenged and was advised if it had been, Mr. DiCianno was not aware of it.

Mr. Marvel addressing Mr. Hutchings asked how those dates struck him as being equitable and learned from Mr. Hutchings their intent was to be able to open the window of time a little further. He added, they had very limited air traffic going out of Ely so it was often difficult and time consuming for them to be involved. They felt it was much more difficult for rural Nevada than for the assessors and the cities close by. The intent was to open up a bit more of a timeframe in order that they could handle the schedules easier. Mr. Marvel asked what success they might have with using the mail service in and out of Ely and was advised by Mr. Hutchings their mail service was not that fast right now.

(It should be noted at this time there was a full complement of members present)

Mr. DiCianno addressing the Chairman suggested he would like to add to the dialogue by explaining they had tried to encourage the entities and the demographer to keep as open a dialogue as possible in trying to resolve the issues before they came to a hearing.

Chairman Goldwater counted on the officers from Ely understanding the problem changing that to accommodate their community would make it difficult, not only for the rest of the counties but the entire budget, if the dates were changed it would affect other people and other budgets. He asked if there was anything legislatively that could be done on the front end, with their work and the demographer to make certain the committee had better population estimates.

In reply Mr. Hutchings pointed out, with their particular issue they were able to work with the demographer and finally came to an agreement. They requested, through Mr. DiCianno, that their hearing be moved back several weeks to give them more time to work through the procedures, and with that extension, they were able to come to an agreement before it went to a hearing. In his opinion, one of the things that would be beneficial in their case, and in the case of West Wendover, there was an interim in a prior year that the demographer took some numbers and sent them out to the assessors asking if there was a change. Their assessor sent in a change, but it was not included and was the reason they came up with the difference in 1999. It was his understanding that everything occurred due to an error initiated by a prior error, and the amount of time it took to track down the problem and accumulate the utility bills and records from their assessor’s office. It had taken a great deal of time, and if they just had that window opened a little bit, he felt it would have accommodated them being able to take care of the problem. He added he was speaking for a number of entities in rural Nevada.

Chairman Goldwater cautioned the matter was a tough issue and then called upon Mr. Anderson for his question.

Mr. Anderson stated he was curious as to why they excluded townships from the demographer. While it was not a taxing entity, it did have some rather hard projections drawn from the population threshold and from time to time and could impact services rendered at the expense of the county. He admitted he was thinking in particular about the justice of the peace courts.

Mr. Hutchings agreed with Mr. Anderson's statement, calling attention to the section they proposed be added to the language calling for, "the town, city or county may . . ."

Mr. Anderson asked if that was because they were trying to exclude the ability of the justice court from having their population threshold questions addressed, because theirs were triggered by different numeric values also. Responding Mr. Hutchings admitted they had talked a little about that subject with their assessor, but their appeal process in 1998 was more for the city. It was his understanding the city’s numbers were what changed, but the counties’ numbers did not change, so there was not an effect to the justice of the peace.

Chairman Goldwater thanked those who testified but explained he did not anticipate taking any action on the bill right away as the committee needed to hear a little more about why it was necessary for the entire state. If there were other suggestions that would help them, specifically, whether it was a different date for certifying the population or increasing communication with the state demographer, the committee would be happy to accommodate them in that regard.

Mr. Hutchings pointed out better communication with the state demographer would be a good first step. The White Pine County assessor had records the city of Ely did not have, so there was a discrepancy there. Being able to have the same information would have solved a lot of problems.

Finding there was no further testimony on the bill, Chairman Goldwater thanked those who testified and closed the hearing on A.B. 556 with no action being taken.

The Chair then welcomed Mr. Beers, as primary sponsor of A.B.557, to the Committee on Taxation and asked that he take his place at the witness table.

A bill explanation was provided by Fiscal Analyst Ted Zuend and made part of the minutes and included as Exhibit C-1.

Mr. Beers began his testimony and thanked the members of the Committee on Taxation for scheduling his bill. He stated he had walked most of Sun City, which was a master planned senior retirement community in Las Vegas and made up half or more of the active voters in his district over the course of his campaign. There was a recurring theme he heard while knocking at doors that the residents felt they were being doubled taxed, and they were not happy. He had distributed a one-page chart that attempted to highlight the relatively complex situation. Essentially, the "per square foot" property values in homes in Sun City were higher than the "per square foot" property values of homes in Summerlin, which was where he lived and was about a mile and a half away. Sun City had been designed to attract large numbers of active retirees and had within its borders five absolutely gorgeous community centers, much more than your typical shuffleboard field. There were swimming pools, gymnasium rooms, multi-purpose rooms, stages, performing arts centers, and restaurants as well as several golf courses. The Sun City homeowners’ association owned those facilities. It was mandatory to become a member if an individual bought a home in Sun City.

Mr. Beers pointed out the chart he had distributed (Exhibit D) used theoretical values, rather than valid numeric values, to illustrate his point and proceeded through the numbers. Sun City homeowners represented their one twelve hundredth of value of the common area property was already represented in their higher square foot valuation, therefore to tax them at the higher value represented taxation of both their homes and their share of the common property. The homeowners’ association was then assessed and paid property tax on the value of the commonly owned property. That was the essence of their double taxation issue. He had presented the problem to the Legislative Counsel Bureau, which resulted in A. B. 557 as the suggested bill. He felt, perhaps, the ultimate solution lay in a constitutional amendment.

In conclusion, Mr. Beers pointed out there was currently a state law exempting homeowners' associations from paying property tax; however, it had been ruled unconstitutional by the supreme court recognizing there was no constitutional exemption for that type of property. He had assumed his job as a freshman legislator, was to present the problem to the more experienced legislators who set the state’s taxation policy with the hope of finding a solution.

In response to a request from Chairman Goldwater for questions or comments, Mr. Marvel asked if there were differences in common-interest properties or communities. He indicated Mr. Beers was putting everything under the bill yet some of those common-interest communities were somewhat unique.

In response, Mr. Beers agreed they were very unique inasmuch as they were typically master-planned, although to some extent there would be the same issues. In theory, in a condominium as in commonly owned property or a commonly-maintained area, not owned by an individual condominium owner, the homeowners enjoyed the use of and were responsible for, through their condominium association, the maintenance and upkeep of the common area. The problems had been greatly exacerbated by the development of Green Valley in Las Vegas and subsequently Sun City and Summerlin. It was probably further exacerbated in Sun City by the significant extent of their common-area facilities, the fact those senior citizens saved their money during their working years and usually were not heavy users of government services. They felt they were being doubly taxed and were using far less than the average amount of government services.

Mr. Marvel asked if all common-interest communities in Nevada had a common-interest area. He advised by Mr. Beers he could not answer, but he knew Duane McPherson who was the manager of a ranch-style common-interest community in Mr. Marvel’s district had signed in favor of the bill.

Mr. Mortenson asked Mr. Beers if he was saying when the assessor placed a value on the homes, he looked around and said, "what a wonderful community, it has all these assets," and then assessed it higher than normal. In addition, there was also an assessment on those wonderful facilities, which had to be paid through fees of the people, so that was the alleged double taxation. It seemed to him that was not a problem for law, but a situation where the assessor should understand, he should not be double assessing; it was almost a common sense problem.

Considerable discussion followed among Mr. Beers and several members of the committee at the conclusion of which, Chairman Goldwater asked Mark Schofield to come to the witness table.

Mr. Schofield introduced himself as the Clark County Assessor also president of the Assessors Association for the State of Nevada. He wanted to begin by addressing Mr. Mortenson’s concern about common sense and pointed out one would need to know a little history about the Sun City debacle. For approximately 4 years, the issue had continued to resurface in the county boards of equalization and respective state boards of equalization. Each time it had been before those boards of equalization, which heard tax appeals, the assessors’ office had been upheld for assessing the common elements in the common-interest community of Sun City. In essence, what had been said was, there was no double assessment that occurred any more than value that would be increased on homes because of a privately owned golf course being located next to them. The same effect had occurred because the association owned the golf course. Additionally, the Supreme Court also deemed there had been no double assessment. In fact, what the court did was remand the case back to district court. The court wanted, for the record, some indication that the assessor considered restrictions on the use of the property, and the assessors did consider restrictions on the use of the property and were why they valued it as a golf course.

Mr. Schofield next wanted to address the assessment of homes; however, he could not speak to Mr. Beers’ chart as he did not know what data he assimilated into the chart. There were some areas of the Summerlin community that would be appraised lower than the Sun City community, which was by virtue of sales and the market itself. While looking at homes in Sun City, they looked at the selling prices of the units. He stated they had used sales ratio analyses, which was a statistical measurement used to ensure they did not exceed full cash value. When that became a serious issue 2 years ago, the homes in Sun City were on the "mean" and appraised at 80 percent of the market value. That was 2 years ago; however, he did not know what the ratio was right now as they did not have the level of protest in 1998 from Sun City. What that meant was, at 86 percent, most of the homes were 14 percent below market. By using that same analysis and same statistic, the surrounding areas averaged 92 percent which meant those homes were 8 percent below market; however, his office was continuing to monitor the issue. The Supreme Court remanded the case back to the district court who would subsequently remand it back to the state court who would subsequently remand it back to the county board. Then the record would be set and would go through the process again. He could not emphasize enough, regardless of the rhetorical issues that were before the committee, he did have to follow the law and the Supreme Court had upheld the fact that he did not double assess that property.

Continuing with his testimony, Mr. Schofield, acknowledged amenities within a community tend to go towards a higher value of the homes, which was why people chose to live in planned and gated communities. He pointed out the Sun City community had a large number of wonderful people living there and was one of the most spectacular, planned communities he had have ever seen. When he had asked the question, "would you sell your home to me for what I valued it for," the answer most of the time, was, "no, absolutely not. Are you crazy, Mr. Schofield."

Mr. Goldwater confirmed the committee understood Mr. Schofield's point adding Mr. Schofield was enforcing the law, the courts interpreting the law, and what the legislature was trying to do was either change or clarify the law. The Chair stated that was his understanding of Mr. Beers’ intent. If it was a bill he felt could add some clarification to the complex issue, he did not believe Mr. Beers wanted to argue or debate the question. If the committee could offer the bill one way or the other the Chair felt it would help.

Mr. Schofield assured the committee he did not intend to come off too aggressively but he had been dealing with the issue and did not perceive it as a legal problem. If it was the intent of the committee, who sets policy for property taxes, to exempt common elements in a common-interest community, then he believed the only way to accomplish that was via constitutional amendment as that was real property. The assessors were not opposed to that nor did they take positions on policy. What they did was provide all the needed data so they could adequately make an intelligent decision as to the impact.

Mr. Marvel asked if they were using the ratio study on their appraisals. Mr. Schofield stated they used a sales ratio analysis which showed them whether they were in compliance with Nevada Revised Statute (NRS) 361.227 which provided for a taxable value not exceeding full cash value. They used that as a test.

Mr. Beers acknowledged, in his constituents’ view, their substantially higher per square foot cash value was because their home value included a mandatory inseparable membership and ownership in the common area. Mr. Goldwater in addressing Mr. Beers' statement declared that was a debatable item. Mr. Beers explained he was representing his constituents' views.

Mr. Mortenson stated, hypothetically speaking, if house "A" was built on a lot with nothing around it and was moved into a gorgeous community, it would be re-valued and assessed at a higher value. If the increments of additional value on the house and the increment of value on all the other houses were as high as the valuation of the common structures then, obviously, it was being double taxed; not by law but by reason. Under those circumstances, it might be a good idea for a constitutional amendment that would stop the injustice and would not allow common facilities to be double taxed.

Mr. Beers concurred emphatically; adding the situation was that society had evolved the living mechanism that the framers of our constitutional taxation system simply did not anticipate. Chairman Goldwater added that statement was again, debatable.

Mr. Schofield pointed out in addition to the aspects of the Supreme Court ruling, they also deemed NRS 116 already stipulated that certain common elements would be exempt as being unconstitutional. The reason he would request that the legislature do a constitutional amendment if they wished to provide an exemption was when they looked at the population in Clark County the majority of the residents living and enjoying the services provided by the property taxes, did not live in a planned community. And when the issue was put before them, should the Spanish Trails, the Desert Shores, and all of the Sun City golf courses and all of the common elements inherent within the planned communities be granted an exemption from taxes, what did the legislators think the answer would be.

Mr. Mortenson agreed that was a very good point, adding he thought the most logical thing would be to not tax a house higher because of the adjacent facilities (and he knew that was a wonderful and easy way for them to do it). All they had to do was look at the cost the house and then take a percentage of that. If there was value added onto the house, he believed the assessors would have to subtract the value added on the house and then tax those facilities.

Mark Schofield made the following statement with his testimony included verbatim:

Mr. Mortenson assured Mr. Schofield he felt he was doing everything he was supposed to be doing and was doing a good job, but he felt the situation was bad, and he agreed with Mr. Beers that it was double taxation. He reemphasized he felt Mr. Schofield was doing everything right and was not criticizing him in any way.

Mr. Anderson acknowledged Mr. Schofield, in his last remarks, answered his questions. If the committee processed the bill, Mr. Schofield would be left with no other alternative than to take the aggregate value, divide it among the property owners and pay for the increased value of the additional properties in order to come up with a stable tax rate. Without that you would have no other way of going, and if they rejected that as an alternative, he could see no other choice. He asked Mr. Schofield if he was correct in that statement; would he take the golf course and the other amenities and divide them among the number of people in that development.

Mr. Schofield indicated that would be the net affect of a bill that was going to be heard shortly in Senate Taxation Committee. Assemblyman Beers’ bill provided for the total exemption or, it was his understanding that was the attempt to provide for the total exemption of common elements. He neither supported nor opposed the concept, but you could not do that with A.B. 557 The provision here was going to require a constitutional amendment and if the people and the state legislature wished to do that, the assessors would certainly be pleased to uphold that section of the statute.

Mr. Goldwater asked if there were any further questions for the assessor or Mr. Beers. There being none, he asked Mr. Beers, what his wish was on legislation questioning whether further work was needed to be done, or did he think the bill could stand on its merits in front of the committee.

Responding, Mr. Beers stated it would depend on whether a person was well schooled in the state constitution. His constituents would respond to the valuation explanation given by Mr. Schofield and say, "yes, you are following the law, but the law is flawed and here is why." The committee heard him say they would take the value of the large piece of land add to it the cost of development and using the cash sale value, and that was the key point here, to come up with the assessed value and then add the value of the building. The problem was that the cash value of homes in Sun City was much higher than the cash value of homes elsewhere inasmuch as it included an inseparable membership and ownership in the common area association. He believed it was a situation not anticipated by the constitution and probably did require a constitutional amendment. He suggested perhaps he should have been sent to Mr. Price's Committee on Constitutional Amendments.

Chairman Goldwater pointed out he was confident the constitution addressed the question. If land was privately held, it needed to be taxed somewhere unless you provided an exemption for it. If common-interest land was to be exempted, then the legislature needed to exempt common-interest land. If the legislature was going to say that its value was shifted some place else so it was not really exempt, but the taxpayers were paying for it some place else, he did not know if could be done. If the committee started there, that was an incredibly slippery slope that the taxpayers would go down.

Mr. Beers explained if the value of the membership in the homeowner’s association was a separately stated part of the sale price, the sale price of the property would be considerably lower than it was now.

Mr. Goldwater added people still had a choice of whether or not they wanted to live there and they bought there knowingly and willingly.

Mr. Anderson concurred in the Chairman's statement. When people chose to live in an exclusive area, pay the amenities that went with living in such an exclusive area, including those things that entitled them to use the facilities of the area, that was something they entered into knowing full well. In fact, that was one of the advantages to moving to such a community and one the reasons why they liked it was because of how it operated in terms of the amenities that were available. People made choices all the time relative to that issue, and he did not think most people looked at the tax question as the primary factor in trying to make a home selection. He felt it was the amenities available that helped make the decision and the type of home and its construction rather than how much tax assessment was going to be there. He concluded by stating that was his observation about real estate.

Mr. Beers acknowledged the constituents to whom he spoke were all very surprised at the situation.

Mr. Mortenson stated he thought Mr. Schofield had a great point but indicated he would not suggest sending the bill to Bob Price’s committee as there was no way taxpayers were going to say they would exempt all their wonderful facilities. In his mind there was still an injustice there. It seemed to him the solution was to have a bill drafted, an assessors bill which would say imagine an opaque box around a house contiguous with the outlines of the property and value the house that way without looking in any direction of the property.

Chairman Goldwater advised Mr. Mortenson the assessors currently did that. Mr. Mortenson questioned that statement indicating Mr. Schofield just said he did not do that. At that point, Chairman Goldwater explained the assessors took the replacement value of the improvements and figured out the land price. But if the market dictated the amenities around there increased the market price of the house, then it followed the market price, which was a "subtracter" there, was going to be higher.

Mr. Schofield wished to make a clarification explaining they did, in fact, put a box around the home not looking at the surrounding amenities when they valued the structure itself. They fixed a value based on replacement costs as stipulated by Marshall and Swift minus depreciation. Where the value came in was the land. If the home was placed in another area less desirable in Clark County, the structure itself would be valued the same. The land would be valued less. Continuing, he explained there were three things that dictated the valuation of land and they were the three rules of appraisal: location, location, and location. And, by the virtue of where those homes were located and the prices they were commanding for the individual units, that was why the land value was so high. Particularly for those parcels that resided on the fairway of one of the beautiful golf courses available for the residents’ use.

Continuing his testimony, Mr. Schofield pointed out another interesting fact was that by the very virtue that any person owning a unit in Sun City, became a member of the association. However, they did not become a member of the golf association. That gave the home owner no exclusive rights unless they paid an additional fee to golf. He wanted to make that very clear.

Mr. Beers concluded it did include an automatic membership in the more than $5 million community recreational facilities.

Chairman Goldwater concurred with Mr. Beers that was correct adding the state may not be ready for A.B. 557. He suggested the legislature may need to do some preliminary constitutional work before the committee could work this out if that was acceptable by the sponsor. He then asked if there were any others to testify.

Speaking next was Duane McPherson, President of Spring Creek Association, Spring Creek, Nevada, who indicated his association was interested in the concept of the bill. He stated he could not get into the legal end on whether the bill was constitutional or not but he wanted to present how the residents of Spring Creek felt about the taxation issue. They were a rural association covering 30 square miles and had about 10,000 people living within their association for which the association provided essentially everything an incorporated city would provide in services to their residents.

As part of his presentation, Mr. McPherson had distributed a considerable amount of literature on the development at Spring Creek with a cover letter stating their position, all of which was included herein as Exhibit E.

Chairman Goldwater asked if there were any questions for the speaker and recognizing there were none, he thanked him for his testimony and for appreciating a difficult issue. There being no further testimony for or against the bill, the Chair closed the hearing on A.B. 557 and opened the hearing on A.B. 495.

The bill required that taxes due for property on the unsecured roll must exceed $100 before the county assessor could seize, seal, or lock enough personal property to satisfy the unpaid taxes of a person who neglected or refused to pay the taxes. Additionally, it increased the fee from $3 to $20 allowed to the county assessor from a delinquent taxpayer for posting a notice of sale and selling at auction after 5 days property seized for the payment of taxes and expenses incurred.

The Chairman asked Mr. Beers, as primary sponsor of the measure to take a place at the witness table for his testimony.

Mr. Beers had distributed copies of the John Smith column from the Las Vegas Review Journal, dated April 5 (Exhibit F). He began by explaining the bill should be far easier to process as, rather than forcing the committee to interpret the constitution, they could rely on the press, referring to the exhibit which was a reprint of the Review-Journal’s website from an April 5, 1998, John Smith column. He pointed out he had added the boldface and underscoring. He drew attention to the middle of the first page, the bold statement, "while society is riddled with far more costly concerns, this $11.24 gives insight into what some people find so bewildering about the machinery in county government." Mr. Beers felt the country had a large enough problem with citizen bewilderment at all forms of our government perhaps even citizen cynicism.

Essentially the issue here, according to Mr. Beers, was that a piece of property fell behind in property tax payment and, over an $11.24 back tax debt, current state law and regulation forced the assessor into a "no holds barred" seizure and auction of that piece of property. The owners were out of state and not aware they had the delinquent tax until they returned to find someone else owning their property; to add insult to injury the new owners paid $11.24 for it. He acknowledged he had presented the problem to the Legislative Counsel Bureau and they came up with the bill which would attempt to fix the problem by raising the amount of money owed before the assessor’s office under statutory authority turned to collections efforts.

Mr. Mortenson asked Mr. Beers when he said, "the purchaser got it for $11," did he mean the house was actually auctioned off for its value and the rest of the money was returned. He was advised by Mr. Beers the source they had indicated at the bottom of page 1 that the property sold to the only bidder for $125, the approximate amount owed the county for taxes; $11.24 in penalties, travel expense, advertising and sales fee which added to $123.76.

Chairman Goldwater suggested Mr. Schofield address the bill and, in doing so, Mr. Schofield spoke of an interesting, humorous sidebar. The issue under discussion was n the newspaper from Clark County in a column written about the subject. The assessor's office had contacted the mother of the author of the column, who acted as a justice of the peace in her community, in an attempt to locate the individuals that owned that particular manufactured home. They exercised extraordinarily due diligence in trying to locate the individual, get someone to comply, and pay the property taxes due on that particular manufactured home. Prior to the beginning of session he suggested to Mr. Beers there already existed, in statute, a provision that the Nevada Tax Commission could determine at what level of value they would actually send the bill, as it sometimes costs more to collect than it was worth. Currently, that amount was $10. If the amount had been $15, it would have rendered the issue moot because his office would not have sent the bill. Currently, they had approximately 400 manufactured homes that they did not send property tax bills on due to the tax commission’s regulation of $10 being the limit before you send a bill.

Mr. Goldwater inquired as to whether Mr. Beers wanted to draw a line in statute at the $100 level and was advised by Mr. Beers he concurred the efforts the assessor’s office put in to resolve the dilemma were commendable but expensive. He emphasized he was not seeking to have the assessors not send out tax bills of under $100; in fact, if the property owner willingly paid the tax, he felt $10 was too high. The cost was approximately $2 or $3 for the stamp and labor to process the payment if the property owner properly remitted it.

He was looking at the place to draw the line not at the amount of the tax, but perhaps at the amount of cumulative and back taxes owed, prior to triggering the more expensive collection effort.

Chairman Goldwater invited the opinion of Mr. DiCianno as to whether the bill affected his department in any way and indicated the committee had received a fiscal note from Mr. DiCianno included herein as Exhibit G. He was advised the bill would affect his department, however, the department did not have a position concerning the bill. Based upon the request for the fiscal note, there had been some concern as to the intent of the bill. As indicated by the testimony provided by Mr. Schofield, versus the testimony submitted by Mr. Beers, the fiscal note would change. The change would be dependant upon what point the committee was talking about as far as excluding penalties, taxes, and interest on an accumulative basis. If that was the case, there would be a fiscal impact, and it would be at the local level. If the intent was the commission had established a minimum threshold, he did not believe that was the intent of the particular piece of legislation.

Mr. Schofield pointed out, if the committee was to take the bill and use the $100 as a benchmark, there would be approximately 24,762 manufactured homes, 394 aircraft, and 20,260 businesses that could essentially say, "well, I am not going to pay my taxes this year. I am going to wait until next year when it becomes $200." A friendly amendment such as he had suggested to Mr. Beers was, if the committee wished to pursue the concept, the bill should read, "if the cumulative taxes including all costs for collection exceed $100". But if the language was used, it would not change the outcome of the case.

Mr. Beers stated he would like to see the committee put off the aggressive collection effort until the tax debt became significant. In that case the taxpayer was not there to receive the notice of late taxes; the property owners came back 6 months later and the property had been sold. He was seeking to protect the citizens from that type of aggressive effort on such a minor net tax revenue, as well as, not make our assessor go through the drill over such a trivial matter. He suggested if the amendment was to precede the statement, "taxes do exceed $100 and the" precede "taxes with cumulative" and between "taxes and due" rather than "and penalties and cost of collection", just say "and penalties". That would avoid the situation and still allow the county to get the taxes it needed to provide services.

In response to a question from Chairman Goldwater to Mr. Schofield as to whether that was something the assessors could do, Mr. Schofield explained, if he understood what Mr. Beers was proposing, it would affect the taxes and penalties that had accrued with those taxes, including the interest but minus the collection, advertising fees and travel expenses. Travel expense was something that would not occur until the assessors actually had to sell the property. Approximately 5,000 delinquent notices per year were placed on manufactured homes in Clark County, of those, 1,000 seizure notices were posted. Very few times were manufactured homes sold, but typically when they were sold it was because they were actually functioning as a storage unit or someone had abandoned them.

Continuing, Mr. Schofield explained they had a policy in their office, that if there was a family living in the house in question, they went to extraordinary measures to ensure they did not sell the home, manufactured or otherwise, out from underneath them. There could be a situation, for example, if they just took it literally and dealt with the $11, where an individual could extend the payment period and could essentially escape having to pay property taxes for 9 years. That was the reason they wanted to add the penalties and interest. He did not see that would be a problem, but he assured those present there would be a fiscal impact involved, and it would be at that juncture to determine what it was.

Chairman Goldwater asked if it was conceivable for Mr. Schofield to work with Mr. Beers; was that a concept fairly clear as stated by Mr. Beers and was it a concept the committee could achieve. Was the desire of Mr. Beers something the committee could make happen here.

Mr. Schofield felt the supporters could pursue dialogue on that issue; however, he felt they needed to get the Department of Taxation involved and all the parties which would be affected. He felt more discussion was needed and, although he realized there was a timeline of April 9 he thought the committee could probably get to "yes" on something.

Mr. Beers indicated there was one part of the bill which needed to be discussed on page 2, line 4, partially because he did not want to condone not paying taxes. Additionally, because the fee the assessor charged to the delinquent person for the service of seizing and selling their property was statutorily set at $3.00 and probably had been for a few score years, it struck him it might need to be updated, so the arbitrary figure of $20 was substituted.

Chairman Goldwater asked Mr.Scofield if that might offset his negative fiscal impact and asked if he wanted to comment. Replying to the Chair's question, Mr. Schofield indicated he had a notation in that A.B. 668, which was the assessor’s omnibus bill, provided for a $3.00 per month penalty, currently in statute for manufactured homes that were delinquent. He was suggesting the penalty be removed because it was so difficult to administer. He appreciated Mr. Beers’ efforts to compensate the assessors for their efforts in the seizure process, but he felt the committee could safely eliminate that if a viable compromise could be reached.

Chairman Goldwater accepted his recommendation and asked Mr. Schofield to work with Mr. Beers to compile something that would be workable for them. He suggested they may want to keep in mind some sort of population threshold for the bill might be in order because there were some counties that had a large number of manufactured homes. The Chair then asked if anyone else wished to testify on A.B. 495. There being no one, the hearing was closed and the hearing on A.B. 584 was declared open.

Included as part of the record was a bill explanation prepared by Mr. Zuend, fiscal analyst, and identified as Exhibit H that contained detailed information on the contents of the bill.

The Chair invited the sponsor, Mr. Neighbors, to be seated at the witness table. Mr. Neighbors, representing Assembly District 36 consisting of Nye, Mineral, Esmeralda and Lincoln Counties introduced himself and pointed out he was appearing today in his capacity as Chairman of the Legislative Commission's Committee to study the construction and maintenance of highways and roads established by S.C.R. 53. He then introduced Russ Law, Chief Operations Officer of Department of Transportation, and indicated Mr. Law was an expert on the bill. He explained they had other experts that would be testifying regarding the bill as well. Mr. Neighbors read his prepared testimony into the record (Exhibit I). He indicated he and several others had been looking at the bill on and off for the past two sessions. At that time he was appearing before the committee in his capacity as Chairman of the Legislative Commission’s Committee to Study the Construction and Maintenance of Highways and Roads, which was established by Senate Concurrent Resolution 53 of the 1997 session. Mr. Price and Mr. Neighbors also represented the Assembly Committee of Taxation on the interim panel.

Mr. Neighbors read through his prepared testimony in the exhibit and concluded by pointing out the estimates on that range of escaping taxation were anywhere from $4 million to $8 million or $9 million per year. Looking at page 39, section 111 of the regulations adopted by the Department of Taxation was void and the Legislative Counsel Bureau would remove those regulations. He added the Department of Motor Vehicles (DMV) would adopt the regulations at that point. Next item was the effective date; as noted in sections 112 and 113, the effective date would be July 1, 1999, and he expected some arguments on why that effective date may be a problem. He then turned the floor over to Ms. Vilardo, president of the Nevada Taxpayers Association.

Ms. Vilardo indicated she was speaking in support of what the bill did, adding she had attended almost all of Assemblyman Neighbors’ interim committee meetings. As the committee was probably aware, the issue of moving special fuel tax to the terminal rack proved to be a very wise policy decision on the part of the legislature. Her board also thought the move was a good decision; however, as Mr. Neighbors indicated, because of the bill the committee heard last week to move the collection of gas tax to the DMV, they wanted to recommend the provisions in the bill, for effective dates, parallel the provisions in the bill to move the collection point to the Department of Taxation. That would allow the agencies involved to have a cohesive, well thought out, and planned method of attack for making those changes. As recognized they did become relatively substantive. One of the items the committee may want to consider was in the area of regulations going from July 1, 2001, and then having the actual collection of the tax at the terminal rack parallel the date recommended for moving the gas tax over to the department for the actual collection beginning January 1, 2002. It was also suggested the language indicated that the regulations by the Department of Taxation in dealing with gas tax were in effect and assumed they had been adopted by the DMV. She added as the department had time, it could subsequently modify those in whatever manner it saw fit to work in with their forms. That would make those two changes consistent, that being the two bills and the timeframes. The committee would be allowing forms to be developed for reporting. The department would also be able to have one form to use for both the reporting of gasoline and special fuels, as everyone would be at the same point in the chain for collecting the tax instead of all the different levels. She concluded while the committee was ultimately being asked delay it, the delay would work to everybody’s benefit. She concluded by urging the passage of the measure.

Mr. Neighbors, although agreeing with Ms. Vilardo in theory, admitted it bothered him that the state would be willing to wait that long and maybe lose $10 to $15 million. He suggested that was a judgement call for the committee.

Mr. Marvel inquired as to whether the bill could be implemented prior to 2001 as he agreed with Mr. Neighbors the state would be losing a great deal of money. When the state moved collection of special fuel tax to the racks, the state made something like $10 million the first year. Ms. Vilardo stated the figure was $11 million for the first year but was uncertain where Mr. Neighbors’ numbers were obtained as that was a totally different issue than the special fuels tax. The testimony originally presented when the committee first began exploring that in an interim committee prior to the committee on which Mr. Neighbors served was that possibly $2 million to $3 million would be a more accurate figure. Unless there had been a major change, she could not understand how that figure became so accelerated. The concern was, even if the figure was $2 million or $11 million, there would be an impact on the budget for the biennium being discussed at that time. Ms. Vilardo added that was the way the collection allowance currently worked for the gasoline tax. She understood there had been approximately $224,000 expended by the Department of Taxation in collecting the tax; however, because of the percentage that was kept for the collection allowance of the tax before the distribution, a little over $1 million was being generated and would result in shorting the Department of Taxation’s budget each year of the biennium.

Ms. Vilardo added one of the reasons was to make certain the current biennium’s budget would not be impacted. One of the evasion problems with the special fuels tax was because part of it was "purchase on report," whereas gasoline tax was always purchased at the pump, so there was less chance for evasion at that level. It was a policy decision but she did not see how it could be implemented any earlier that a year from now; prior to implementing the change there would be forms to be changed and personnel that would need to be moved. She emphasized she would be hard-pressed to see how the Department of Taxation or DMV could possibly be ready on July 1 to affect the collection of the tax in an orderly and sane manner. Mr. Marvel reminded the members DMV had the problem of getting the Genesis Program up and running also.

Ms. Vilardo agreed there would be a problem with Genesis although it should not be a major problem as from that point on, the department should be able to take care of it and as Genesis came on line the issue should be resolved.

Russ Law, representing the Nevada Department of Transportation wanted to add a couple of points with regard to reducing evasion. One thing the staff at DMV would like to do would be to implement a motor fuel tracking system similar to one used successfully in Montana and to utilize it to the fullest extent. He stressed the need to get the various fuels together which could then be turned over to Lockheed-Martin who would be doing the work and beginning the fuel tracking exchanges. The most effective way to reduce evasion, was making certain when fuel was exchanged that its use, whether taxable or not, was tracked.

Mr. Law pointed out with regard to special fuel, from 1995 to 1996 there had been a true increase of 25 percent when the special fuel was moved to the supplier level. He did not anticipate gasoline would rise to that level because there were fewer players involved than with special fuels. Gasoline was already taxed at the wholesale level and would be moved up the chain a little further eliminating a few more players but not nearly as many as special fuel which was taxed at the dealer's level. There was, however, four times as much gasoline sold as special fuel and, the tax rate was actually higher in that there was a local tax on gasoline. It was about 33 cents a gallon throughout the rest of the state versus diesel at 27 cents. Between the increased volume of sales in gasoline and the higher tax rate, some significant return could be expected. In conclusion, Mr. Law introduced the subject of taxpayer compliance. The bill simplified taxpayer compliance by allowing the people paying the tax to do it only once. The same people supplying most of the gasoline also supplied most of the special fuel. Both fuels worked under different statutes with different due dates for the fuel tax and different auditors to audit their books, so it would be a nice treat for the taxpayers.

Chairman Goldwater asked if there were any questions for Mr. Law, there being none he recognized Mr. Neighbors for a statement. Mr. Neighbors pointed out for the committee's information, the gasoline tax for the counties and the state road fund generated over $300 million and was only surpassed by sales and gaming tax. That fact alone was why he felt A.B. 584 would be the most significant legislation coming before the tax committee in 1999.

Chairman Goldwater extended commendations to Mr. Neighbors for his work with the interim committee. He indicated the comments and recommendations would be the trend in those brief legislative sessions with that type of legislation to be developed, worked, negotiated, and basically drafted in the interim. The legislative body would need to move it right along. He once again expressed appreciation on behalf of the members of the committee to Mr. Neighbors for all the time and effort.

Mr. Krueger, state executive, Nevada Petroleum Marketers/Convenience Store Association, emphasized the bill was absolutely one of the most important things the committee and legislature would do in 1999. One of the issues the committee may hear was there were some questions about whether the counties would get what was due them and was a concern of his as well. When his association first opposed legislation to move special fuel to the rack, they were not dealing with the county option. The transporters, who moved the fuel from the racks, were members of his association who for the large part moved the fuel. He wanted to point out his association had an absolute sure way of keeping track when the fuel was picked up at the terminal rack and deposited in any one of 17 counties with the ultimate user. In addition, the bill required that the retailer, which was at the end of the chain before it was purchased by the consumer, and the wholesaler, and the rack kept very specific records which were available to DMV or any county that wanted to question the appropriate tax being applied. With that he turned the floor over to Mr. Capurro who would walk the committee through the parts of the bill deemed appropriate.

The Chair at that time emphasized the committee would be relying on Mr. Neighbors in his capacity as chairman of the interim committee and would rely on his expertise to have done what was formerly done in committee.

Mr. Capurro, Managing Director, Nevada Motor Transport Association, echoed the remarks by Mr. Krueger, adding it was very important to note that if A.B. 584 was passed, it would not be necessary to deal with A.B. 396 because both elements of the issue were currently included in the bill. The committee had a recommendation from the A.B. 204 and the S.C.R. 53 committees both of which dealt with the same issues regarding moving the collection of gas taxes from the Department of Taxation to DMV. He had no idea how much additional revenue the bill would produce, but he would hope for the collection to start July 1. He reminded some of the members who were here previously when the terminal rack bill was passed he was the one who estimated the return, over and above refunds and credits, at $12 million to $15 million, and it came out pretty close to what had been estimated. He cautioned the committee he was not present to tell them that would happen again because there had been a 25 percent evasion factor. He added, even if there was only a 5 percent factor on gasoline, at $300 million, the state would be talking about a significant amount of money. The problem the committee had was they would be dealing with the budgets of two different agencies and the lead time necessary to implement that kind of change in an efficient fashion.

Continuing with his testimony, Mr. Capurro pointed out the committee had the effective date on the bill for July 1, but in his estimation that would not work. One thing of which the committee should be aware was the program under consideration in which the fuel was collected and registration fees were collected had nothing to do with the Genesis system. They were under the Lockheed-Martin system, which was a public-private partnership under the Vista program. In the budget of the 1999 session, an appropriation had been included for a tracking system previously mentioned. The system could track every load of fuel which was important as before taxes were raised the legislature must make certain the state was collecting everything it should off what was available.

Continuing, Mr. Capurro pointed out the bill essentially created the statutory language necessary to make the conversion from Department of Taxation to DMV and to clean up some language currently in the statutes. He added an analysis of A.B. 584 had been provided as well as an amendment to the bill provided by DMV. They were friendly amendments on which everyone had agreed and which would, essentially, change the reporting times so they would be the same for gasoline and diesel. At that point he offered to answer questions.

The Chair called for questions for Mr. Capurro. There being none the Chairman pointed out to the committee members that a very detail-oriented member of the staff had thoroughly reviewed the bill, exclusive of the amendments that had been mentioned, and did not see any problems. He then asked for further testimony from the audience.

Speaking next was Clay Thomas, Assistant Chief, Motor Carrier Division, DMV, who indicated DMV supported the bill. His division believed it was advantageous to the state, the agencies, and individuals to have one point of collection and point of distribution. They had some amendments to the bill which were in their opinion clean-up language that basically dovetailed into the special fuels statutes they used. They had used common language between both special fuels statutes and if the bill passed they would be using one terminology. In addition, it was their understanding the bill's effective date would be July 1; however, the DMV would not be in a position to do what was necessary for the program. His staff preferred the effective date be pushed out a bit to give them additional time to make the necessary changes to their system. There were training issues, and computer and form changes all of which had to be arranged and which needed lead-time to make certain they could be appropriately prepared and be effective on the implementation date. His division supported the bill and believed it would be advantageous to everyone within the state.

Chairman Goldwater asked Mr. Thomas if he had the proposed amendments and was advised in the affirmative, adding they had been made available to the committee and included as part of the record as Exhibit J entitled "Amendments Needed for A.B. 584" and accompanied by an analysis of the bill and amendment included under Exhibit J as well.

Mr. Neighbors expressed his desire to thank Mr. Krueger and Mr. Capurro and had asked them if they would take a look at the bill and suggest any amendments so the bill could be moved as soon as possible, and he wanted to thank them both for their help.

Cheryl Blomstrom, Director, State Governmental Affairs, Nevada Chapter of Associated General Contractors, spoke next indicating her association had followed Mr. Neighbors around the state, attending the meetings of interim committee and congratulated him on the wonderful job he had done. She added there was no appetite to raise taxes until the state collected the taxes already enabled.

Chairman Goldwater after learning there was no further testimony asked Mr. DiCianno, Deputy Executive Director, Department of Taxation, if his department had concerns or questions of which the committee should be aware other than the implementation dates and the amendments. Mr. DiCianno stated he had provided a fiscal note included as part of the minutes as Exhibit K; however, he had just been provided with the suggested amendments which would make the fiscal moot but would allow the department enough time to review the impact to the budget and the staff which was currently associated with it. He cautioned as far as eliminating regulations; however, if that was the pleasure of the committee that was fine. His department did not have a position one way or another.

Chairman Goldwater asked if there was any further testimony for or against the bill, there being none he closed the hearing. It was his understanding the only amendments had already been submitted, those being the suggestions submitted by DMV, which addressed the timing and date issues as well as the audit and tracking system previously discussed. He asked for further amendments for consideration; seeing none he indicated he would accept a motion if that was the desire of the committee.

MR. NEIGHBORS MADE A MOTION TO "AMEND AND DO

PASS" A.B. 584.

MR. MARVEL SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

The Chair indicated passage of A.B. 584 made A.B. 396 a moot point whereupon the following action was taken:

MR. ARBERRY MADE A MOTION TO INDEFINITELY

POSTPONE A.B. 396.

MR. NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

There being no further business to come before the committee, the meeting was adjourned at 3:30 p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: