The Committee on Taxation was called to order at 1:30 p.m., on Thursday, April 29, 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

COMMITTEE MEMBERS ABSENT:

Ms. Sandra Tiffany

GUEST LEGISLATORS PRESENT:

Speaker Joe Dini, Assembly District 38

Senator Joe Neal, Senate District 4

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Harvey Whittemore, Representative, Mirage Resorts, Inc.

Dino DiCianno, Deputy Director, Nevada Department of Taxation

Bob Fulkerson, Director, Progressive Leadership Alliance of Nevada

Andrew Barbano, Reporter, Sparks Tribune

Lucille Lusk, Representative, Nevada Concerned Citizens

Ellen Nelson, private citizen

Chris Jensen, representative, Nevada Concerned Citizens

Carole Vilardo, representative, Nevada Taxpayers Association

Following roll call, Chairman Goldwater opened the hearing on S.B. 521.

Harvey Whittemore, representative, Mirage Resorts, Inc. introduced S.B. 521. Mr. Whittemore gave a slide presentation (Exhibit C) of certain works of art included in the collection of Steve Wynn, owner of Mirage Resorts, Inc.

Mr. Whittemore then explained how S.B. 521 would change the manner in which the art collection was exhibited. Mr. Whittemore made the following points:

Before Passage of S.B. 521:

• No Nevada resident discount

• Admission fee dispute
• Education program not fully developed
• Net revenue retained by taxpayer
• Inventory not taxed
• Art for public display exempt

• 50 percent Nevada resident discount during certain hours
• No admission fee dispute
• Minimum standards legislated
• Net revenue returned to charitable organization, or tax paid
• Inventory not taxed
• Art for public display exempt

Assemblyman Marvel asked if the inventory was not taxed, must not the displayer of the art be an art dealer. Mr. Whittemore said that was the case. Any individual in Nevada who retained inventory for purposes of resale would be entitled to an exemption for inventory, that was both constitutional and statutory. The argument that the paintings would be subject to tax missed the mark substantially.

Assemblywoman Gibbons said if the art was offered free to school children but parents could not attend until the evening to get a 50 percent discount, she did not see how that encouraged the parent to take the child to see the artwork. Mr. Whittemore said there were two separate provisions in the bill. The minimum educational standards were designed for school tours. The other program was for all Nevada residents.

Assemblywoman Gibbons asked how the children in northern Nevada would benefit from a program in the south of the state. Mr. Whittemore replied the owner was willing to develop an educational program for all school districts, in that certain material would be provided to schools throughout the state so that the art itself would be made available through posters and other material.

Assemblyman Manendo asked what would happen if Mr. Wynn made his collection into an art gallery. Mr. Whittemore said that was already the case. The art was for sale therefore the place where the art was housed was a gallery.

Assemblyman Joe Dini, Speaker of the Assembly, Assembly District 38, testified in support of S.B. 521. Speaker Dini said in 1997, when A.B. 536 was passed, a public/private partnership was formed between business, the arts community, and the residents of Nevada. S.B. 521 was a result of two years of debate over public policy issues as well as an extraordinary attempt to make current law better for all Nevadans. Speaker Dini suggested the committee might consider expanding the concept into historic preservation.

Speaker Dini said S.B. 521 did not create a tax exemption. The exemption was already in statute. According to the Nevada Department of Taxation, prior to the enactment of the exemption the amount of tax collected on the type of art specified in the law was practically none. He urged passage of S.B. 521.

Assemblywoman Tiffany asked if there was merit in the idea of putting the net revenue from the art into the general fund so the state could use it as was appropriate to individual needs. Speaker Dini replied he personally felt the money should go to the Nevada Arts Council or to historic preservation.

Assemblyman Marvel asked how many people knew of the existence of the art collection prior to 1997. Speaker Dini responded no one was aware of it.

Assemblywoman Tiffany asked if passing S.B. 521 would open the door to other companies to ask for a tax benefit for various cultural programs or possessions. She wanted to know if anyone else had approached Mr. Whittemore in that vein. Mr. Whittemore replied other types of exemptions might be addressed in another vehicle, but S.B. 521 was to encourage the display of fine art. S.B. 521 could certainly encourage other kinds of cultural investments. He did not know of anyone else at the present time who was seeking exemptions contained in S.B. 521.

Assemblyman Mortenson commented S.B. 521 was a wonderful leverage situation. If Nevada wished to have a gallery the quality of the Wynn collection, it would cost $300 million. The gallery in question, thanks to S.B. 521, would cost the state about $12 million in lost taxes. Testimony that the Tax Commission had never collected that kind of tax anyway indicated the cost would not even be the $12 million.

Mr. Whittemore then explained specific sections of S.B. 521. Section 2 allowed collection of fees for exhibiting works of art without violation of property tax exemptions codified in Nevada Revised Statute 361.068. Section 2 required payment of property tax to the extent of net revenue. Net revenues would go directly to the general fund. Only if the taxpayer made a charitable contribution would the revenue be earmarked for a special purpose.

Mr. Whittemore continued section 3 of S.B. 521 provided that S.B. 521 covered leased art, and art that was sold. If a piece of art was displayed and then purchased, it would still qualify for the exemption. Even though the work would have been displayed 100 percent of the time it was in the possession of the gallery, it would be considered inventory because it was held for purposes other than display. S.B. 521 mandated that new art must be displayed within 2 years of purchase.

Assemblyman Manendo said there was no tax revenue if the art was displayed in a museum. If the art gallery were designated as a museum, there would be no benefit to the state at all.

Mr. Whittemore replied museums were generally owned by nonprofit corporations which could build a facility, display the art, and be totally tax-exempt. To encourage retention of fine art in Nevada, S.B. 521 would allow an individual to own the art, display it, and be exempt from taxes.

Assemblyman Manendo then stated he would prefer to see a discount for residents at all times instead of just from the hours of 6:00 p.m. to midnight. Mr. Whittemore replied that was a public policy issue for the committee to decide.

Assemblywoman Gibbons said the benefits to the southern part of the state were obvious, but she saw no benefit to the people in the north. She understood there was an educational program being offered, but it was not in legislation. Mr. Whittemore said again that would be something the committee could advance for consideration. He repeated the investment would be of benefit for all Nevadans by having the art available for display in the state. It would also increase gaming revenues because of the attraction to visitors.

Assemblywoman Tiffany asked when sections of the bill expired. Mr. Whittemore responded under Nevada Revised Statute 361.068, the exemption for computers and related equipment donated to schools expired in 2003.

Senator Joe Neal, Senate District 4, testified in opposition to S.B. 521. Senator Neal said he had opposed S.B. 536, which had created the art tax exemption. Since then, he had reviewed the regulation proposed by the Nevada Tax Commission, and had attended and participated in those tax commission hearings. On October 6, 1998, the Tax Commission adopted temporary regulations which provided an art collection would not be exempt if admission fees were charged. Steve Wynn had objected to that provision and went to court to have the regulation declared void. Finally, on March 25, 1999, the courts agreed to stay the case until the present legislative session. The principal reason for S.B. 521 was to bolster Mr. Wynn’s legal position.

Senator Neal continued S.B. 521 specifically authorized the owner of a gallery to charge an admission fee, making the pending litigation moot. Next, the bill preserved the exemption from both personal property tax and sales tax through the mechanism of the amount of net receipts from fees charged to view the artwork. To arrive at a net receipt figure, the owner could deduct pretty significant items such as rent, security, insurance, lighting, and any contributions made to art programs for juvenile delinquents or charitable organizations. Those last items would also be deducted from the owner’s federal income tax. The owner could deduct the cost of educational programs associated with the exhibit. Deductions could be taken for books, brochures, and advertising. The owner could deduct for personal property taxes on furniture, equipment, and vehicles used by the casino. Ultimately, the loss of tax revenue to Clark County would be about $2,900,000 per year. About half that amount would be lost by the school district. Proponents would say that massive revenue loss did not matter, since if the art was not purchased and brought to Nevada, there would be no taxes anyway. Senator Neal disagreed. He said in 1997 Congress repealed the capital gains exemption on the art. That meant the $300 million collection was now responsible for 24 percent capital gains tax. S.B. 521 would allow that portion to be recuperated.

Assemblyman Marvel asked how long the art gallery had been in existence. Senator Neal replied the owner obtained a dealer’s license in 1998. He thought the art acquisition had begun around 1996, but for the interest of Nevada, 1998 was the first significant date.

Assemblyman Marvel asked how much revenue would be lost to the State of Nevada through the exemption in S.B. 521. Senator Neal presented a chart (Exhibit D) which provided those figures.

Dino DiCianno, deputy director, Nevada Department of Taxation, presented a timeline (Exhibit E) concerning Steve Wynn’s art collection. He told the committee that sales taxes were paid on the collection prior to 1997, but that information was proprietary as to the amount and status because of the court case. He did not have the particulars of the purchases with him.

Andrew Barbano, reporter, Sparks Tribune, testified in opposition to S.B. 521. Mr. Barbano told the committee that under the 1997 legislation, 700 hours of viewing per painting per year was to be provided to students in Nevada. Under S.B. 521, only 100 hours per year was called for. That was an 85.7 percent reduction. He said if S.B. 521 passed, at least the committee could eliminate the fallacy of an educational component.

Assemblyman Anderson asked if more art was purchased, did the number of viewing hours also have to increase. Mr. Barbano replied in the normal auditing process, after an exemption was applied for, tax commission auditors were supposed to determine if the law had been followed and regulations adhered to in order to qualify for the exemption. Assemblyman Anderson commented it seemed the fewer paintings displayed but kept in the collection the greater would be the advantage to the owner. Mr. Barbano said S.B. 521 contended all that was necessary was to open the collection for free viewing to students for which there was no outreach of 5 hours per week for 20 weeks per year. In order to qualify for exemption on a new painting it would only be necessary to make sure the painting was viewed for those lengths of time. It would be far better to keep the 700 mandatory viewing hours for the students and mandate outreach. Mr. Barbano said it was his opinion there was no way to make S.B. 521 a good piece of public policy. The collection in question was, according to John Carroll of the San Francisco Chronicle, the most expensive per-painting collection in the world. S.B. 521 would open the way to exempt many things by calling them art.

Mr. Barbano said about one-third of all casino taxes paid in Nevada were returned to those casinos in the form of tax subsidies, such as downtown redevelopment or casino promotion.

Bob Fulkerson, director, Progressive Leadership Alliance of Nevada, testified in opposition to S.B. 521. Mr. Fulkerson told the committee the alliance was opposed to giving tax breaks to private art collectors and would support repeal of the 1997 legislation. The current legislative session had started out with a projected revenue shortfall and S.B. 521 would certainly increase that shortfall by losses to the general fund.

Mr. Fulkerson said legislation should not be needed to give Nevadans a discount. The owner should do that himself. Most museums were free or accepted donations anyway. He applauded the committee’s determination to support art, but felt S.B. 521 was the wrong vehicle for that purpose.

Lucille Lusk, representative, Nevada Concerned Citizens, testified next in opposition to S.B. 521. Ms. Lusk said the question before the committee was expanding the exemption beyond the current Tax Commission’s interpretation and giving a business the ability to charge an admission without paying tax on that admission. Ms. Lusk suggested good public policy would be to make the art available free of charge not only to children but to the entire general public.

Chairman Goldwater asked if Ms. Lusk could provide an outline of the Tax Commission’s decision to the committee. Ms. Lusk replied she would do so.

Al Walker, private citizen, testified in opposition to S.B. 521. Mr. Walker expressed the opinion it was no wonder the general public was cynical and did not participate in the Democratic process. One of the many reasons was the belief that government was completely controlled by the special interest group with the most money. S.B. 521 represented a very special interest group of one person. He found none of the arguments that the bill was in the best interest of the public to be valid. By allowing a tax break for the individual entity, the state effectively charged every other citizen an equal share of the lost revenue. Mr. Walker had not found one person in all his discussions on the art bill who agreed with the precept that S.B. 521 was good legislation. He did not believe the matter was the proper role of government and asked for the committee’s basic disapproval of the legislation.

Assemblyman Mortenson expressed appreciation of Mr. Walker’s involvement as a concerned citizen. However, he wished to explain the same government gave about $30 million for the expansion and renovation of the Silver Bowl and the Thomas and Mack Center. Assemblyman Mortenson saw one advantage to S.B. 521, which was the culture being offered to the people of Nevada. If $30 million could be spent for athletics, then surely $12 million could be spent for culture.

Assemblyman Manendo asked if Mr. Walker would feel more at ease if all Nevadans got a discount whenever the exhibit was open, and if children were free at any time. Mr. Walker replied Ms. Lusk had some valid points to offer in that regard, but he thought there would be a very small number of Nevada citizens, who were in fact paying for the display, who would be able to see it.

Ellen Nelson, private citizen, read her testimony (Exhibit F) into the record in which she expressed opposition to S.B. 521.

Chris Jensen, representative, Nevada Concerned Citizens, spoke in opposition to S.B. 521. She told the committee she had noticed signs at the casino in question which did not allow strollers in the hotel without a room key. So small children were not allowed, and that really kept a great many parents out as well. Ms. Jensen also wondered how home school children would be affected. She would supply the committee a memo outlining the items she felt would be good public policy.

Carole Vilardo, representative, Nevada Taxpayers association, testified in opposition to S.B. 521. The association opposed the fine arts exemption but had no problem with the personal property exemption.

Chairman Goldwater asked for further testimony on S.B. 521, and hearing none, adjourned the meeting at 3:45 p.m.

RESPECTFULLY SUBMITTED:

Lois McDonald

Transcription Secretary

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

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