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

Jan Evans, Assembly District 30

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Bill explanation prepared by Ted Zuend, Fiscal Analyst from the Legislative Counsel Bureau (LCB) attached as Exhibit C.

Chairman Goldwater opened the hearing on A.B. 525 and turned the floor over to Jan Evans as primary sponsor of the bill.

Ms. Evans read her prepared testimony into the record and provided a copy identified as Exhibit D. At the conclusion of her testimony, she volunteered to answer any questions on A.B. 525.

Chairman Goldwater asked for questions from the committee. There being none he asked if the division being proposed, which included an office and taskforce, would examine the relationship of the municipal revenues that encompassed all government services or would it simply focus on what the state had to offer.

In response, Ms. Evans explained she thought it would be a huge mistake for the task force to look solely at state budget revenues and expenditures. There had been for the last couple of interim sessions, as the members knew, an ongoing committee dealing with the relationship between state and local financing which she felt had been excellent. She felt the legislature would want to tap into their work and findings.

Chairman Goldwater asked if she foresaw the structure created in A.B. 525 as an apolitical entity and explained the reason for asking was because during budgeting of the revenue projections of the past, politics had entered into it. Chairman Goldwater added he had read the "Hovey Report" and he felt a lot of the antidotes and analysis of what legislatures had done in regard to budgeting, which had fallen victim to the political process, was relative. He questioned how the legislators were to prevent that in her proposed structure. Ms. Evans responded she would hope the office of financial analysis and planning would be similar to other entities within the Legislative Counsel Bureau (LCB). That was to always strive to be empirically based, and look at information in a very hard-nosed, objective fashion. She hoped that in the start-up process, during the 2 years of working with the committee outlined in section 2 of the bill that both members of state government serving on the taskforce as well as appointed members would have that same goal in mind.

Ms. Evans pointed out, when decisions must be made to change practices for budgeting expenditures and revenues, anyone could bet it would be bare-knuckle politics because it had always been and always would be. She stated one of her favorite expressions was "if there is money on the table, there will be blood on the floor." She knew that going in and recognized it would become highly charged and very political because everyone became very protective of his or her territory. People wanted carve-outs of one kind or another, and there was impassioned testimony on why special privileges or some exemption should be granted.

She noted while preparing testimony for today’s hearing she asked her university intern to take a look at the Legislative Commission's study of tax exemptions published in January 1999. Without doing a total study and comprehensive look her intern gave her two charts; one addressing selected sales tax exemptions with eight listed which totaled $303 million worth of exemptions on sales tax. She looked at property tax exemptions and found another eight listed. The total for those came to $206 million.

She pointed out the discussions were about tax exemptions which involved approximately a half billion dollars. Legislators often wanted to tweak tax, either to raise it or to give somebody an exemption, but what it did not do was put it in context with all other types of revenue. The question was how much would then be lost to the state. She added some exemptions might be justified and admitted she had voted for tax exemptions along with everyone else. She hoped the proposed office would be able to provide legislators with the kind of study and analysis to allow them to be informed so when someone came before the legislative body and proposed to increase or decrease a tax, the legislators would have before them the kind of data to make an informed decision. She concluded she felt that was the ultimate goal; being able to make informed decisions.

Chairman Goldwater asked Ms. Evans if she saw the office being adversarial to or working in conjunction with the economic forum. He had seen the possibility of a battle between those two entities, which gave the political beast more fire, rather than less. He felt the economic forum took a lot of gas out of the political engine. If there was an adversarial relationship, that would be negative and maybe there needed to be a check and balance. He asked for her thoughts.

Ms. Evans responded they should compliment each other as each had a different mission while working in concert with each other to do the best job. She could foresee the economic forum would utilize the work and findings of the new office and vice versa.

Mr. Anderson complemented Ms. Evans on her proposed bill and concurred it was a very important piece of legislation and was in agreement with the statements in the "Hovey Report". He pointed out he chaired a committee during the session which had a tendency to cause some economic hardship on the state budget. He stated he recently read an article from the "Wall Street Journal" relative to a new trend and tendency to move the legislative process away from incarceration and move toward treatment programs. That had been one of his long-standing concerns of the programs to cut down recidivism. Mr. Anderson said it seemed to him society focused on raising money and he questioned whether the money was there to spend. Agencies, however, never seemed to spend much time dealing with the question of programs for potential cost savings to the public, because it was so difficult to measure such things.

He felt it was possible to measure how much revenue would be generated and to measure how much a particular program would cost, and if good legislation was enacted it had an offset that would save money. He asked Ms. Evans if she perceived that the legislature may be able to come a little closer to being able to analyze the legislative process, taking into consideration that particular part of the question. Secondly, the high incarceration rate in Nevada and the experts who were brought in did not include members from the committee that often made the policy decision. He asked how she saw it all working together since the 120-day limit reduced, rather than increased, the opportunity to communicate.

Ms. Evans responded Mr. Anderson was correct in his observation that legislators often looked at something in an isolated way irrespective of its impact, such as his example of tougher sentencing in the bills heard in the Committee on Judiciary. The committee members did not give enough thought to the fiscal impact saying, "Well, you’re going to go in for an extended penalty, you’re going to stay for a longer period of time," without thinking what that meant in the way of prison beds. That was part and parcel along with the growth of the state and was why the state was building a new prison every legislative session. Those kinds of things would need to be examined and if the committee members would look at the bill in section 3, subsection (c), where it addressed the data, they could see what the office would be doing in terms of its forecasting.

In subsection 3 the bill provided, "forecast and projections of the needs of state and local agencies that provide human service, services relating to public education, criminal justice, and infrastructure." If the committee asked why those were picked, they could look at the budget and ask where the bulk of our money went. They would see it was in K-12, higher education, human services, and the prison; those were the budget-busting areas of the state budget. The bill did not limit what they reviewed but was the minimal requirements. That was a revolutionary process, in other words, the bill did not spell out every aspect of the work of the new unit, but it was an ongoing process. She was hoping, given the make-up of the taskforce that would be working with the new office, they would come back with recommendations addressing the concerns of the committees.

Mr. Anderson stated the frustration that always came to him when a bill came to the Committee on Judiciary or any of the other committees that was going to cost money and necessitated obtaining a fiscal note for the potential cost of enactment. However, if a piece of legislation came forward there was never a statement from someone in fiscal that reflected the fact there were potential savings to the state and to the state agencies. That frustration really bothered him relative to early treatment programs and other programs that would cut down on later incarceration. It was like, "pay me now or pay me later."

Interjecting, Ms. Evans stated she did not believe the bill and the unit would directly impact or affect what Mr. Anderson had been discussing. However, in the course of the division's work it may very well point out an area as a deficiency and say, "you know these are some things that the task force just looked past and should revisit," and then recommendations would follow. She thought the authority was there, but not in a direct way.

Ms. Freeman pointed out the bill would take effect on September 1999 with the report due in 1 year. There would be about 3 months for them to do their work and submit their report. She questioned how that would be funded. Responding, Ms. Evans called attention to a fiscal note which had not been included, as it had not been determined as a policy matter. If the bill was approved, the fiscal note would be resolved through the budget of the LCB and would be necessary to augment the Fiscal Analysis Division with possibly two positions: the chief of the unit and staff support. The Fiscal Analysis Division stated they felt they could absorb staff support for the chief of the unit for the first 2 years.

In the future, he or she may need staff support which may require more than one position. In many states where they did long-term forecasting they had more than one person, depending on the recommendations from the task force, that would define the scope and magnitude of the work for that office. She admitted she could not tell the committee that one person would be sufficient but, until the workload could be established, one position would be acceptable.

Ms. Freeman stated she saw where the proposal would take effect July 1 and the report was due in early September. She asked Ms. Evans if she was satisfied the duty of the taskforce was clearly defined. She added the reason she asked those questions was because the summary of the bill was long-term financial analysis and planning and that was in the Committee on Taxation but she did not see anything about the state's system of taxation and how it would all fit together.

Ms. Evans stated there were two sides to the issue: from the Committee on Taxation the bill would be going to the Committee on Ways and Means. She thought in terms of taxation being the revenue side and the Committee on Ways and Means the expenditure side, so both sides had an opportunity to look at the bill. In terms of the mission, when talking about analysis and planning they absolutely could not be separated. The committee must look at the expenditure side and what were the policies and practices as well as how the revenue was raised. Both sides had to be laid bare, and she thought the committee members would need to have both sides if they were going to have a complete understanding, otherwise it would always be seen from a single perspective.

Ms. Freeman asked if the bill could be made more clear as the legislature would be studying the system of taxation and tax code as well as how the committee choose to tax Nevada residents.

Chairman Goldwater pointed out the report would be due September 2000 so the office would have over a year to work on it. He cautioned the committee on understanding the legislation and making certain the sponsor agreed it would not be a solution to what the "Hovey Report" indicated as a structural deficit nor was it a study of Nevada's tax system. It was a planning tool. A resource to make better-informed decisions about public policy and to believe it was anything else was to expect more than the bill had to offer. He asked Ms. Evans if she would concur, Ms. Evans did adding she would suggest a review of section 3, subsection 1, (a) through (e), where it outlined their economic and demographic trends, forecast, sources of revenue, and analysis of elements of the revenue structure. She tried to cover both sides but if the committee felt there was additional language needed to clarify the issue she would be happy to entertain a suggestion. Chairman Goldwater emphasized he was simply making certain the committee did not promise too much. He then called upon Mr. Mortenson.

Mr. Mortenson agreed the state had definite problems, and that would be a step in the right direction, but when he looked at the members of the taskforce he was troubled. He noted the taskforce would be made up of representatives from the Nevada League of Cities, Nevada Association of Counties, University of Nevada Las Vegas and University of Nevada Reno, Superintendent of Public Instruction, Department of Taxation and so forth. He kept seeing people who he believed would have a tendency to look for increases in revenue as a solution rather than decreases in expenditures and fixing situations that needed correcting. He wanted to see, for example, the Nevada Taxpayers Association (NTA) be a permanent member, as well as other organizations that were advocates of lower taxes, on the taskforce. That group would be analyzing the information, and those were great people for analyzing. He thought the planning function needed more input from advocates of lower taxes. In his opinion, to quote the Nevada Taxpayers' Association, the revenue part was in good shape, and the expenditure part was out of line. He did not believe the solution was going to be raising taxes; it was going to be to make the system work correctly.

Ms. Evans expressed her thanks to Mr. Mortenson and stated his points were well taken. She added first of all, the committee outlined in section 2, subsection 3, and section 1, was not the permanent committee. They were there for the interim. If the committee would look at the last page the bill, except section 1, "sunsets." Part of their task would be to come back with just what Mr. Mortenson said and that was to make recommendations on not only the duties and tasks but who should be at the table working with the person in the office of financial analysis and planning. She called attention to subsection 2, where there would be two groups of people. In subsection 3, there would be state and local appointees who were designated according to their titles. In subsection 1 of section 2, the bill called for five people, three of whom would be appointed by the governor and two appointed by the legislature. The bill had been built so that the chair of the taskforce would be selected from the first five people, three gubernatorial appointees, the legislative appointee from the Taxpayers' Association, and one person from the private sector. Someone had asked if there should be a person on the board representing gaming, which was a major industry, or another slot for mining; however, she indicated she would not make that decision. There were five appointees, and she wanted to think the governor and the legislative appointees would ensure there would be members from major industries, the business world, financial institutions, and so forth. She emphasized, as she had pointed out earlier, the chairman in the first 2 years would come from that group and then the bill would "sunset." It would come back with a recommendation 2 years from the 1999 session and the legislature would look at the recommendations and go from there in setting up the permanent committee.

Mr. Mortenson added, most importantly, the agency would need not just industries, mining, casinos, and government but input from citizens and senior citizens because the former groups were very often the advocates of higher taxes and the latter were generally for lower taxes, and the committee needed a balance.

Chairman Goldwater expressed appreciation to Ms. Evans for what he considered a very important piece of legislation and indicated if it was the desire of the committee, it could be moved as it was presented. Ms. Evans accepted the complement and added she would encourage the committee to read the "Hovey Report." In the report there were many charts and graphs in which Nevada was either number 1 or number 50 and either way Nevada was one of the worst. She pointed out very seldom did one find a national report in which Nevada was included, and the report should be a "must read" for the committee members. Chairman Goldwater stated he had read the report and had obtained copies in his office for all members of the committee if they were interested. He then asked for anyone wishing to testify or comment on the bill and called upon Ms. Vilardo.

Carol Vilardo, President of the Nevada Taxpayer's Association, indicated she was in support of the bill and felt Ms. Evans had outlined it sufficiently.

Chairman Goldwater closed the hearing on A.B. 525 and indicated a motion was in order.

MOTION SECONDED BY MR. MARVEL.

MOTION PASSED UNANIMOUSLY.

Chairman Goldwater announced the bill would be forwarded to the Committee on Ways and Means as a concurrent referral.

Included as part of the record was a bill explanation prepared by Ted Zuend and identified as Exhibit E.

Chairman Goldwater opened the hearing on A.B. 667 which was the bill validating the tobacco settlement and allowed the legislature the mechanisms to collect the money. He then called upon Anne Cathcart from the Attorney General’s Office.

Ms. Cathcart explained the bill was a result of the negotiated settlement the state entered in November 1998 with the tobacco manufactures and was part of a global settlement with tobacco manufactures. She called the committee's attention to a letter to the committee from the Office of the Attorney General included as Exhibit F. Subsequent to that time, a number of additional national tobacco manufactures had joined the settlement as subsequent, participating manufacturers. At that point in time, the agreement was with approximately 99.7 percent of all the domestic tobacco manufactures in the country. As part of the negotiations process there was a concern that arose regarding the manufacturer's possible loss of their market-share if, under the agreement, they complied with all the advertising and marketing restrictions that were in it. There were a lot of restrictions in there that focused on the tobacco manufacturer's aiming any advertising at youth. Their concern was there would be a nonparticipating manufacturer, or more than one, that might come into the state or nation who would not be bound by the advertising and marketing restrictions and would sell cigarettes at a much cheaper price cutting into the tobacco manufacturer's share.

Ms. Cathcart stated it was determined as part of the settlement agreement that if there came a point in time where nonparticipating manufacturers were selling cigarettes and thereby reducing the participating manufacturer's market share they wanted a mechanism in place to encourage the non-participating manufacturer's to join the master settlement agreement. That not only benefited the ones who participated because they would get their market-share protection, but it also protected the states as that would help ensure the settlement money would come into the state and would not be reduced. If the national market-share of the participating manufactures did drop, there was a potential for the state's share of settlement money to be reduced, and that was what the Attorney General's Office would like to avoid.

The effect of the statute would be that if someone was a nonparticipating manufacturer and sold cigarettes within the State of Nevada, they would have two choices. One, they could join the national settlement agreement and comply with its terms and conditions and make payments to the states that way. Or, if they chose not to enter into the national settlement agreement, they would instead, based on the sales of cigarettes in the particular state, pay money into an escrow account up to the amount they might have paid if they had been participating in the national agreement. That money would be available for the state to access if there came a point in time where the state felt the particular manufacturer's actions had impacted the cost to the state for providing public health care.

That was the intent of the statute. It was to ensure that Nevada received the most money to which they would be entitled under the national settlement agreement. And to encourage all cigarette manufactures to join the agreement which would have the overall effect of not directing advertising and marketing of cigarettes to youth. Ms. Cathcart pointed out Nevada‘s specific drafting requirements. It was felt when she met with the LCB staff that it would be preferable, following the introduction of the bill, to amend and refer the bill to the Committee on Taxation to ensure the language being proposed conformed to the model in the master settlement agreement. That was important because the model to which the Attorney General's Office had agreed had been reviewed by constitutional law experts and antitrust law experts from around the country who believed it was constitutional, and that it would survive legal challenges. Part of the reason they came to that conclusion was because of the very exacting way the model statute was composed. Because of the drafting process a number of changes were made, and her office wanted to ensure that whatever they decided did in fact meet the requirements under the agreements so there were no problems in that regard. She concluded her testimony and volunteered to answer any questions.

Chairman Goldwater explained the words he was dreading to hear from the day the subject began was, "we would hate to see the volume of cigarettes go down" and we are now tied to that. He understood that but expressed his feelings it was sad that was now the position of the state. It was inevitable, but the state was in a spot and needed to make certain those manufacturers who should be participating in the master settlement agreement were.

Ms. Cathcart, wishing to clarify the issue, explained the bill focused somewhat more on ensuring that whatever the volume happened to be, anyone who was a part of that volume had to comply with the requirements. She understood that was the main focus of the bill.

The Chair asked if there was anyone in the audience who wished to speak either in support or opposition to the bill or were there any questions from the committee. There being none, he referred to the letter from the office of the Attorney General (Exhibit F) and asked if it had the proposed changes. Responding, Ms. Cathcart pointed out the changes were very technical in nature. She was attempting to arrange a telephone conference call with herself, Legislative Counsel Bureau staff and an attorney back east who was the main person responsible for evaluating the language in the statute to make certain her office had what was needed.

Chairman Goldwater, after confirming there were no further questions, stated he would entertain a motion to amend and do pass and perhaps have a conference on the floor or a review on second reading if there was something of concern to any committee member. If concerns were expressed, he would have the bill placed on the front desk and have it rereferred at that time. Mr. Marvel indicated he was prepared to make a motion as follows:

MR. MARVEL MOVED TO AMEND AND DO PASS

A.B. 667.

MOTION SECONDED BY MR. ARBERRY.

THE MOTION CARRIED UNANIMOUSLY.

Chairman Goldwater expressed thanks to Ms. Cathcart and asked that she work with the LCB staff. He then opened the hearing on A.B. 668.

Included, as part of the record was Exhibit G, a bill explanation prepared by Ted Zuend.

Mr. Schofield introduced himself as the Clark County Assessor and president of the Assessor‘s Association of Nevada and explained also present were Barbara Byington, Douglas County Assessor and Kit Weaver, Carson City Assessor. He pointed out what the members had before them was the assessors' omnibus bill. Each and every session the assessors had come before the legislature requesting various clean-up of technical language while proposing more user- friendly language as it related to the assessment procedure drafted in the statute. He wanted to hold in abeyance his testimony on sections 3, 4, 5, 6, 13 and 30 until the committee got through the rest of the bill. His reason was that for the most part they had reached a consensus on the remaining portion of the bill. Sections 3, 4, 5, 6, 13 and 30 came, not only with an opportunity for the committee to provide relief to various taxpayers throughout the state but also a rather significant fiscal impact about which local government had an opinion.

Mr. Schofield proceeded through the proposed bill going through each section discussing changes that had been suggested and the purpose for the request.

He began with section 2 of A.B. 668 which provided for an exemption to municipal or county-owned golf courses that were leased out to the private sector to manage. He reminded the committee, they were talking only about golf courses located on government-owned land where improvements, whether they were made by either the lessee or the lessor, would revert to government ownership at the expiration of the lease documents. Currently taxes that had been collected from the lessee reduced the monthly lease amount and in the effect of the exemption would be a wash.

Chairman Goldwater called on Mr. Neighbors for a comment at which time Mr. Neighbors drew the committee's attention to page 1, line 8, where it mentioned NRS 361.157 and its companion NRS 361.159 which both dealt with exemptions on property. Basically the law said whenever property that was otherwise exempt was used in a business, conducted for profit by a corporation it shall be taxable in the same manner as other property. In NRS 361.159 personal property had very few exemptions. NRS 361.157 had a great number of exemptions.

As Nye County Manager, Mr. Neighbors stated he had the privilege of appraising the Bureau of Land Management (BLM) owned Nevada test site, which was managed by the Department of Energy. He filed a claim against them for taxes owed the county and was in and out of court for about 5 years. The county won $5 million that had been upheld by the Supreme Court. Millions of dollars of claims on the same law had benefited schools and many other projects.

He suggested if businessowners wanted to give the golf course to somebody and told everybody it was free to use as a park, he could go along with that. But he felt there was too much money involved, and it was for a huge exemption that he did not think should be awarded.

Chairman Goldwater asked if there were any questions for Mr. Schofield prior to going to the advocates for that particular section.

Several members of the committee indicated they had questions for Mr. Schofield, which were recognized by the Chairman. Thereafter a spirited discussion followed among Messieurs Neighbors, Anderson, and Schofield in which various points of view and comments were brought forth.

After determining there were no further points of dialogue, Chairman Goldwater called upon Mr. Ostrovsky, as an advocate for that particular section.

Bob Ostrovsky, representing OB Sports, explained they were the operators, under a management agreement, of the Angel Park Golf Course. When Angel Park negotiated its arrangement with the city of Las Vegas and opened the course in 1989 it was on the basis of being in a tax-exempt park. They were the only taxpayer affected by the change the legislature made during the 1997 session and were the only taxpayer who would be affected by any change the legislature made in the 1999 session; however, he emphasized they were not asking to escape taxation. He had provided the committee members with a book entitled "A.B. 668, Presentation Regarding Section 2, Assembly Taxation Committee" identified as Exhibit H. He briefly reviewed the information in the book for the committee.

If there were additional circumstances about which Mr. Anderson and Mr. Neighbors were concerned, he offered to address those issues.

There being none, Chairman Goldwater asked Mr. Weaver with the Carson City Assessor's office if he foresaw any particular change that may be troublesome or would he concur with the previous testimony that the change would not affect anyone in his area.

Mr. Weaver, Carson City Assessor, stated he did not know any other golf courses in the state that would fall under that category. The municipality operated most courses themselves or as in Carson City a nonprofit group operated the golf course for the county.

Chairman Goldwater addressed the same question to Ms. Byington, Douglas County Assessor, who stated there were no such golf courses in Douglas County nor any in the smaller counties.

There were no further questions for Mr. Ostrovsky; therefore, the Chairman called upon Mr. Schofield for his remarks on the remainder of the bill.

Mr. Schofield continued through the remaining sections of the bill. He explained subsection 7 was a widower's exemption, which provided for the same thing as a companion Senate bill, with the idea emanating from the S.B. 253 committee studying property taxes. It did two things: it eliminated the orphans' exemptions, of which we had none in the state, and also provided for the "surviving spouse." He pointed out maybe once a month he received a call from a taxpayer that had just been widowed and felt there had been some discrimination involved because widows receive an exemption and why not widowers. He believed the issue, as it surfaced in S.B. 253, was if the committee did not intend to look at all of the exemptions and provide means testing then they needed to level the playing field and level the discrimination.

Continuing, Mr. Schofield pointed out there were approximately 12,000 widows that currently received exemptions in Clark County; that number could change as that figure was about 6 months old. About half of that number would apply for a widower’s exemption. Chairman Goldwater asked what he thought the fiscal impact would be and was advised by Mr. Schofield that if they all used the exemption for their privilege tax, which in Clark County was $50, it would be about $300,000.

There being no questions from the committee, the Chair asked Mr. Schofield to continue with the remaining sections.

At the conclusion of Mr. Schofield's testimony up to that point, Chairman Goldwater explained the committee had a very difficult time during the session offering exemptions, in fact he could not recall passing one. He acknowledged from what he had heard section 3 of the bill appeared to raise a great number of concerns and would probably need more study. He then called upon Mr. Spinello for his comments.

Mr. Spinello, representing Clark county, concurred section 3 did raise concerns for local governmental agencies. The impact to Clark County of the combined sections and issues of the bill was $9 million. That was not just an impact on Clark County as an entity and the various municipalities within Clark County but particularly was an impact to the Clark County School District and because of how the Distributive School Account was formulated, it also became an impact to the state general fund. He felt the issue was immature and should be reviewed very carefully and with great circumspect before decisions were reached. As the franchise manager for Clark County he thought the county franchised seven telephone companies. They recognized the need to strive for fair and equal treatment. They were more than willing to work toward that goal and felt they should be focusing on those sections on intangibles and the exemption of tangible personal property. Clark County must go on the record as opposed to them.

Chairman Goldwater pointed out when he received the news he would be chairing the Committee on Taxation he tried to learn everything he could about the state's taxation system. He read everything he could and talked to the assessor. The most confusing part had to do with personal property tax. Mr. Schofield understood the tax law but felt he had a difficult time collecting and enforcing it. The Chair pointed out he asked himself, is it fair, is it understandable. Could we come up with a substitute sometime in the future and given that the county was doing so well those days, at least in Clark County, is this not the time to look at personal property tax.

Mr. Schofield advised the committee he had spoken with legal counsel and other concerned officers who would be affected by the bill. It was their decision to remain silent on that section of the bill inasmuch as they had another bill, S.B. 411 scheduled for a hearing which accomplished the same thing. He pointed out the Nevada Taxpayers' Association as well as the Las Vegas Chamber of Commerce, the Carson City Chamber of Commerce, and the thousands of business people who would be positively affected supported the bill under consideration by the committee.

It was very difficult to administer property tax because it was predicated on the honor system. He wanted to assure the committee that in the 14 years he was a business personal property auditor, there had not been one time when he walked into a business and the businessowner had the form filled out correctly, and he felt that showed how difficult that particular tax was to administer.

Chairman Goldwater put the committee on notice if S.B. 411 came over to the Assembly, the committee would have jurisdiction, and he anticipated he would have the committee members' support in getting that in the committee. He asked if the legislature should be considering revisions to the personal property tax when there had not been a full report from the S.B. 253 committee. Mr. Schofield advised that particular provision of the bill was not discussed formally with the S.B 253 committee; however, there were sections of A.B. 668 that were very important to the taxpayer. If there were issues the committee had with certain areas of the bill, the assessors' association would respectfully request, rather than kill the whole bill, that they remove those sections on which they could not reach consensus or a majority vote. Mr. Schofield concluded that did not mean the assessors’ association did not feel strongly about all of the issues contained in their omnibus bill. They looked at it as a package that would affect all types of taxpayers in the State of Nevada.

Mr. Neighbors reminded those present there were hundreds of people in Las Vegas who had offices in their homes and asked if they would expect the same exemption. Mr. Schofield concurred anyone that had a business license and conducted business in their home, currently receiving a personal property declaration would be affected. He cautioned there were businesses inside of homes of which they were not aware due to the fact they did not have a business license.

Mr. Thompson, Humboldt County Assessor, while researching the effect of the proposal, determined the amount of money and the number of accounts that would be lost by each entity. For example, for Humboldt County for the first $50,000 they would lose about 639 personal property accounts, $2,716,490 in assessed value or a little over $59,000 in revenue. For the first $100,000 it would be over $90,000 in revenue. That was not a large amount in the overall scheme of things. Their school district would lose about $25,000 total between the three benefits they had which was 75 cents on the dollar and a "pay-as-you-go" and a bond. They would lose about $43,700 in that first $100,000 exemption.

Mr. Thompson gave additional statistics and recommendations covering several other counties within the state. He concluded by stating he agreed that personal property declarations were a nightmare to administer and felt it would be helpful if the concerned officials would come up with a better plan. In his opinion he did not feel businesses that were having trouble paying their personal property taxes would be better off.

Speaking next was Mr. Marvin Leavitt, representing the city of Las Vegas who submitted an exhibit on Clark County exemptions, entitled Exhibit I and wanted to address those provisions from several different points of view. He heartily agreed the administration of the personal property tax system, had been one his principle concerns about the entire property system for many years. In fact, if it was possible to completely eliminate personal property tax and everyone still survive financially that would be the ideal thing to do. He wanted, however, to discuss the effect of the implementation and how impracticably it would effect the different levels of government. He felt everyone was aware a person's property tax bill was made up by levies from governments on a number of different levels. Those involved the state, schools, the county, the various cities, and special districts. Most of the governmental agencies had levies for either the repayment of debt or for operating purposes. For instance the way their operating levies were computed was by several different methods and the effects would be very different.

He asked to talk about the operating levies for cities, counties, and special districts. That group and their operating levies were guaranteed an amount of money – not a tax rate. There was a formula they applied that guaranteed them an amount of money. That would not be true if a county was right at the $3.64 cap but most of the entities in the state were not. Since they were guaranteed an amount of money, if they lost assessed evaluation by the reduction as it related to the assessed valuation of personal property by the $50,000 or $100,000 amount, the effect was that they would slightly increase the overall rate. When they computed the formula, they would not actually lose money when it came to operating purposes. All that would happen was the rate would go up very slightly. When they looked at the amounts to be raised for the repayment of debt, it was a fixed amount. It did not vary depending on what was done with assessed valuation. If there was $1 million due for the repayment of bonds, it would be necessary to levy a tax equal to $1 million to repay those bonds. If they were to decrease the assessed valuation by whatever amount related to the personal property, the rate would have to correspondingly increase so the amount of money would be generated for the repayment of that debt.

Mr. Leavitt continued if the committee was going to discuss the circumstances of the school district, for instance, they were guaranteed for operating purposes, a rate of 75 cents. It was a rate guarantee not an amount guarantee so if they reduced the rate, there would be a direct offset in the amount of money that would be received for operating purposes by a school district. Since 25 cents of the 75 cent rate levied for operating purposes was a direct offset against the contribution that came from the State of Nevada through the State Distributive School Fund. One-third of that loss would go directly to the state general fund and would have an offset in the amount of the contribution the state made to schools. If they kept that at 15 cents, they would have a slight loss in revenue into the state general fund as a result of the implementation. If they were to keep the same amount of revenue they would require an increase in the rate going to the state to achieve exactly the same amount of money.

If the overlapping rate within a local government or within a county was at the $3.64, there might be a guarantee of an amount of money; they would be unable to increase the rate because of the cap. Hypothetically speaking, suppose they had a debt rate, which had been a guaranteed amount of money and they took up a larger portion of the total tax rate available. The schools were still guaranteed a pre-determined debt rate so they would receive their rate, and the state had a 15 cent rate. The entire amount of any effect would be felt in the operating rate of the cities, counties and special districts within those counties, where the rate of the tax cap was $3.64. The effect was very different when you looked at it among the various governments. So in effect when they said a local government would lose money, he did not think that was accurate. If they applied the formula they would end up having the same amount of money they previously had for cities, counties, and special districts as long as they were not at the $3.64 cap. The difference essentially could be made up by a higher rate which the taxpayer would eventually pay. If they were looking at where the difference was going to come for those that normally paid personal property taxes, they would have a slight decrease in taxes. They would have an increase in the real property tax rate as long as the real property tax rate was paid by everyone throughout the entire county.

Chairman Goldwater asked if he thought in the bigger counties and smaller counties the proportions would be different, or did he think they would be a little more diffused. Mr. Leavitt responded if Chairman Goldwater was talking about a 1 percent change, that 1 percent of the rate would be a fairly small change in the rate. Chairman Goldwater interjected that was a 1 percent reduction in personal property and asked if Mr. Leavitt thought that would translate into a 1 percent net.

Mr. Leavitt responded by explaining what it paid would be a little different because what was going to happen was they were reducing the taxes of those businesses while slightly increasing the taxes of all business, all residences, and all personally-owned residential type property too.

Mr. Lee explained he was very pleased with the bill and from a businessowner’s standpoint it was wonderful. Businessowners were so far out of compliance with the statutes it was terrible and anyone that had to pay the tax would realize that.

Mr. Leavitt stated he could not argue with the fairness. The state had a very unfair system as it related to personal property. Almost all the forms were filled out incorrectly; there were big problems in the administration. He concurred it was an unfair situation. Carol Vilardo and he had talked about that many times over the years trying to work out something to eliminate in total the personal property tax. He did not believe it was possible particularly with huge personal property the state had in some counties that related to mining actives which made up a sizeable portion of the total assessed evaluation. The only argument that could be made in that particular case was a loss of revenue argument. In most cases there was not going to be a loss of revenue argument but revenue loss was going to fall essentially to the schools, the state, and to governments that were at $3.64.

Ms. Walker representing Carson City, Douglas County, and Lyon County wanted to go on record as being in opposition to A.B. 668 particularly in regard to the personal property and the intangible, primarily because of the revenue problems it could pose. They concurred with Mr. Leavitt’s analysis as to how it would all work in regard to taxation which did pose a problem because they would be shifting the tax burden from business to private citizens. That would be something to consider because they would be increasing the rate to recoup the money, so it was shifting of the tax burden among the state. They had concerns as well in regard to the intangible properties in which there was a great deal of discussion on the Senate side and also on the S.B. 253 committee. They would concur that those discussions should go to the S.B. 253 committee because, as Mr. Leavitt stated they had been discussing it for years in regard to personal property that had not been brought up before the S.B. 253 committee. That was a perfect subject for us to really examine along with the impact it would have on the state and to the taxpayer. All those things needed to be considered before they made a final decision.

Chairman Goldwater acknowledged a question from Mr. Marvel who stated he felt Mr. Leavitt made a good point in that there were several counties at or close to the $3.64 cap. He felt it would have a definite impact on those counties. Ms. Walker agreed, adding there was a tremendous impact on those counties and on the redevelopment because those were at a set tax rate and would have a definite problem as they were bonded to a very large capacity. It would effect their bond ratings and their bond capacities. It was so complex it really did need to be discussed in a forum.

Mr. Marvel emphasized he felt the state needed to redefine what personal property really was. That was the reason in 1979 the state exempted inventories particularly those that did not turn over annually. In a jewelry store, for example, there might be a diamond that would sit there for 3 years in inventory. The administration was horrendous and was why they exempted inventories and household personal property. How would a person go in and make a determination of the valuation of what they had unless for only insurance purposes. He felt that was an area on which the state had to do a lot of research.

Lisa Genolly, representing Washoe County, wanted to go on record as being in opposition to the bill, also.

Chairman Goldwater asked if she meant the provision regarding the personal property exemption up to $50 only, was she all right with and the rest of the bill. Ms. Genolly responded intangibles, also.

Ms. Vilardo explained her association was in support of the bill and she wanted to address the two sections for which the committee heard all the opposition because they normally opposed exemptions. She was intimately involved with the repeal of the inventory tax and the language that allowed livestock to be removed and the language that allowed home furnishings to be removed. The personal property tax system was a completely inequitable system. What the committee had heard from the opponents was a revenue issue, and she appreciated that because she had been to those committee meetings. She had not served on the committee but was supporting measures that would allow them to keep or get some additional revenue or exceed the caps. She felt what the committee had to examine was an issue of equity. They had heard the opposition speak to the fact it was a very difficult tax but not for equity; it was a difficult tax for them to lose. It was a difficult tax for businesses. She would suggest the committee defer the start of the exemption on the personal property tax for 2 years.

Ms. Walker suggested the S.B. 253 committee look at it, but they could not ignore the fact that it was an honor system tax. There were some 50,000 to 70,000 businesses in Clark County. The assessor’s office was not staffed to do the audits that needed to be done to make certain they were getting what was needed. She thought they would find it would not only benefit the smaller businesses, particularly in rural areas where they were trying to give them a leg up, but they would also find that by deferring it out the natural growth the state had in property taxes would take up the slack.

The Committee on Taxation had removed consumables because it was one of the most ridiculous areas with which to try to comply even if they understood it. So the legislature removed consumables in 1995, but it was not effective until 1997 because they wanted to give everybody notice as to what was being done and allow some natural growth in assessed value to counter any loss of revenue. She felt relative to the issue of intangibles, Mr. Schofield made the case, and it was discussed before the S.B. 253 committee and the S.B. 253 committee had not chosen to do anything with it at that point. But the assessors, for multiple reasons, were called relative to the issue and put in the middle of the intangibles issue when in fact they had been told they were not supposed be using that provision, and they supported the bill totally.

Chairman Goldwater acknowledged it was difficult to understand an entity's opposition to a tax when they got less money. If loss of revenue was the only reason for opposition, and the fairness question was not there, the issue would be tough. He asked Mr. Schofield to summarize what had been discussed through the meeting, and the committee would not be voting on it but would bring it back at a work session.

Mr. Schofield thanked the Chair and stated they appreciated consideration of those sections, and that they could not reach consensus on those issues of controversy in A.B. 668. He again proposed to the members that it was indeed unfortunate that some of Nevada’s sister counties were in rather perilous fiscal condition. But that was something he thought was an issue of equity, and the primary thrust of their business as assessors throughout the state was equity. He understood there was a revenue generation problem, and he hoped the committee might entertain, if not expand the timeline, that it would be implemented or even perhaps put a cap on population and having it only effect those entities where it would not harm them fiscally. He expressed thanks to the committee stating they appreciated the time and the attention of the committee in hearing the bill.

Chairman Goldwater explained there would be a work session on the bill and called upon Mr. Lee for an additional statement.

Mr. Lee suggested as they went through the bill he would hope they would not throw out section 4, but if they had to lower the threshold to help those counties out and also help small businesses he would be all for that.

Chairman Goldwater closed the hearing on A.B. 668 and notified the committee there was no work session at that time. He cautioned the committee if they did not get to a work session soon, he would have to post an evening meeting.

There being no further business to come before the committee, the meeting was adjourned at 3:35 p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

__________________________________

Assemblyman David Goldwater, Chairman

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