The Committee on Taxation was called to order at 2:20 p.m., on Thursday, May 13, 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. 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

COMMITTEE MEMBERS ABSENT:

Mr. Morse Arberry, Jr.

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Following roll call, Chairman Goldwater distributed to the committee two responses to inquiries made by the Chair on behalf of the committee. One was the opinion from the Legislative Counsel Bureau regarding S.B. 521, known as the "Art Tax." Additionally, a lengthy response on S.B. 244, which was the "gray market" cigarettes bill, was received.

Chairman Goldwater acknowledged a gentleman in the audience who had been present at an earlier hearing and who wanted to testify on S.B. 477 but had not done so. Accordingly, Mr. Goldwater re-opened the hearing on S.B. 477.

David Farside identified himself as a resident of Sparks. He requested an amendment to the bill to mandate the 1 percent increase for the city of Sparks over and above 3 percent. That would create parity. Further, that the 1 percent room tax be used for parks and recreation, and also for public safety in downtown Sparks.

Mr. Farside explained approximately 10 years ago there had been a 1 percent increase in room tax for the city of Reno and the county. A meeting had been held regarding that increase, which would not have happened if the city of Sparks had not agreed 10 years ago there would be parity. They agreed to it and they reneged. Any governmental body that did not keep its word to its people was not worthy of the people's trust.

The 3 percent room tax, over and above the 2 percent that would be applied to the Convention Center, was the subject of argument that it should be divided between Reno and the city of Sparks. Mr. Farside opposed that, because the purpose of the 3 percent room tax was to put Reno in a position where it was more competitive with its neighbors and more competitive with other markets. He asked why would the city of Sparks receive part of the 3 percent room tax to compete with the city of Reno. Since there was no parity, Sparks had monies taken from that 3 percent to compete with Reno, and they also had a 1 percent room tax advantage over Reno and the county by not establishing parity. Therefore, the parity issue was essential. Local government and Sparks City Council, Steve Ascuaga and Roger Trounday, argued that the Nugget needed the 1 percent room tax advantage to compete. If so, the residents of Sparks were subsidizing the Nugget, because they were losing $365,000 a year by not having the 1 percent room tax. Therefore, they had to make up the difference for public safety and for downtown events.

Mr. Farside noted for 10 years the Nugget and other properties had enjoyed a 1 percent room tax advantage over and above Reno and the county, only because they did not keep their word. Their word was they agreed to the parity. The issue now was should that 1 percent be increased; should it be mandated. He stated he had been before Sparks City Council numerous times requesting they increase the 1 percent room tax to achieve parity. Three council members had refused. For many years he had been in favor of local option and home rule, now, however, he felt differently. One of the purposes of state government was to dilute the power of company-owned communities. Accordingly, Mr. Farside asked the committee to help him dilute the power the gaming industry had over the Sparks City Council, particularly the three members who voted for the room tax. By diluting the power two things would be accomplished: The 4 percent room tax would be increased to create parity in the county, and in so doing the decision process would be taken away from local government.

Mr. Farside continued, stating "The city of Sparks or the Nugget would love to have part of that 3 percent to market downtown Sparks." In 1998 Mr. Farside had gone before the Reno-Sparks Convention and Visitors Authority (RSCVA) and requested they consider giving Sparks back the 1 percent room tax and letting them use that money for marketing; they could form their own convention center authority in Sparks. They did not want that. Steven Ascuaga said that Sparks did not have anything to market. Therefore, Mr. Farside reasoned, if Sparks had nothing to market, why would they want part of that 3 percent to market and to compete with Reno.

Mr. Farside emphasized what he was asking for was the committee's consideration of mandating the 4 percent room tax to create parity. If the city of Sparks did not want the 1 percent, it could be given to the school district, or the RSCVA. He urged the committee to increase the extra 1 percent which would bring some closure and make the city of Sparks accountable.

Mr. Farside said if the mandatory 1 percent room tax was not feasible then consider creating a window of opportunity so that further city councils in Sparks had an opportunity to go after the 1 percent to create parity.

In conclusion, he said the Sparks allocation method over 30 years life of bonding would be $11,747,000. The 4 percent increase in room tax in Sparks for 30 years would create $14 million in revenues for the city of Sparks, for parks and recreation.

Chairman Goldwater thanked Mr. Farside for his testimony and asked if he was aware the bill only gave the Sparks City Council the ability to create parity, it did not actually create that parity. Mr. Farside responded the committee might insert the word "mandate" in it. He reiterated his request to have the 1 percent to be used for marketing, as well as not having any part of that 3 percent go back to Sparks. By doing that it would defeat the entire purpose of the 3 percent, which was to bring people downtown.

Assemblyman Mortenson asked for clarification on some points. By mandating the 3 percent there would be some requirement that Sparks put another 1 percent toward parks and recreation. Mr. Farside said what he was requesting was that the 4 percent be mandated. Doing that would create parity in Washoe County and Reno. The 4 percent he requested be used for parks and recreation.

Assemblywoman Freeman asked about the meeting 10 years earlier when Sparks made a promise, and was that documented. Mr. Farside said it was. He had been a candidate for city council against Kathryn Wishert at the time. Part of his campaign was the 1 percent room tax. Pete Sferrazza organized a room tax committee; Nat Caroselli represented the RSCVA, Diane Cornwall represented the county, Jim Spoo represented the city of Sparks, Pete Sferrazza and Karen Bryan represented the city of Reno. Everyone at that meeting agreed there would not be any room tax increase; no one jurisdiction or entity would raise it unless they all did. A discussion ensued, Mrs. Freeman asked where to get a copy of the agreement which was believed to have been contained in the minutes of that city of Reno meeting. Mr. Farside recalled that Sam McMullen brought a copy of the RSCVA offer at that time, which was for one-half of one percent to go for parks and recreation and the other half would be for local downtown events. Mrs. Freeman asked to see that documentation. Mr. Farside said he had requested a copy from the RSCVA.

Mrs. Freeman reiterated her request for a copy of those RSCVA minutes. Chairman Goldwater asked if anyone was in the audience from the RSCVA. Mr. Sande responded and said he would obtain a copy for the next meeting. Mr. Goldwater informed Mr. Sande it was the final meeting and asked him to have the minutes faxed now.

Assemblyman Price suggested checking the microfiche at the library for a newspaper article of the time. Mr. Farside interjected Sam McMullen was in the building and he had represented the Hilton at that time and the RSCVA, along with Nat Caroselli, and perhaps Mr. McMullen could provide insight.

Next to speak was Terry Reynolds, city manager, city of Sparks. He stated at the time the issue had been considered, there was a meeting and Mayor Spoo sat on that committee. When the issue came before the city council they elected not to do that. In Sparks, the mayor was the executive branch and did not vote, he had veto power but was not a member of the legislative body. Mr. Reynolds did not believe there had been a commitment and then reneging by the city council, because they maintained their position of voting against that and in several subsequent votes that had been the council's position. He said he would be happy to provide the committee with an indication of that vote and the minutes surrounding the vote shortly.

Mr. Farside commented Mayor Spoo represented himself at the meeting where he was representing the city of Sparks, and it had been done in good faith. He added neither Reno nor Sparks would have raised their room tax if they had not agreed. What happened was after Reno and the county increased their room tax by 1 percent the city of Sparks formed its own room tax committee, diluting the agreement, and agreed not to increase the room tax.

Assemblyman Marvel remarked it was a shame to have to arbitrate Washoe County problems; however, there were other aspects of the bill to be dealt with. He noted Mr. Farside's testimony was unique in that he wanted the committee to dilute local government's power. It was usually the other way, the legislature was often accused of diluting too much. Mr. Farside responded he had been on both sides and realized that sometimes one had to get out of the company store so he had tempered his feelings about home rule. He added if he was not present at the end of the meeting, to please consider his request and understand he had nothing to gain, and was just an ordinary citizen.

Mr. Goldwater again thanked Mr. Farside for his concern and articulate testimony. He said he hoped Mr. Farside would understand it was the final meeting with many pressing deadlines and was sometimes difficult to implement the kinds of changes he had requested.

Mrs. Freeman noted Mr. Farside was well known in Washoe County for being an activist on those kinds of issues and she echoed Mr. Marvel's comments about getting involved in local level issues.

Chairman Goldwater said the committee would await the requested documentation before taking action; if not available by the end of the meeting then the committee would vote. Mr. Goldwater then closed the hearing on S.B. 477 and opened the work session on S.B. 244.

Chairman Goldwater noted the bill was debatable. A gentleman came before the committee with a differing opinion. Mr. Goldwater had e-mailed all committee members questions that had been sent to the Legislative Counsel Bureau (LCB). Their response was contained in a memo (Exhibit C) that would be explained by Ted Zuend.

Ted Zuend, committee policy analyst, noted there had been 11 questions to which the responses, in part, were as follows:

1. Who was required to make payments to the State of Nevada pursuant to the Master Settlement Agreement (MSA). The original participating manufacturers, and certain subsequent participating manufacturers, as those terms were defined in the agreement.
2. Did importers of repatriated cigarettes participate in the MSA. An importer of repatriated cigarettes may participate in the MSA. Mr. Zuend noted the LCB respondent preferred to use the term "repatriated" rather than "gray market," because "gray market" referred to certain imports and those were not truly imports.
3. How may payments required to be made to the State of Nevada pursuant to the MSA be reduced. Payments were subject to a variety of adjustments. Two of those adjustments might be affected by the sale of cigarettes by nonparticipating importers and manufacturers.
4. What is Exhibit T. The gentleman to whom Chairman Goldwater referred talked about Exhibit T. How was Exhibit T related to A.B. 667. What was the significance of Exhibit T in A.B. 667 to payments received by the State of Nevada pursuant to the MSA. Exhibit T to the MSA was suggested legislation for the states. A.B. 667 was modeled on Exhibit T. An enactment of A.B. 667 would require nonparticipating manufacturers and importers who sold cigarettes in Nevada to make payments into an escrow fund.
5. Would importers of repatriated cigarettes who sold cigarettes in Nevada be required to make payments pursuant to A.B. 667. Importers of repatriated cigarettes who sold cigarettes in Nevada but did not participate in the MSA would be required by A.B. 667 to make payments into an escrow fund.
6. If importers of repatriated cigarettes continued to sell cigarettes in Nevada would the payments to Nevada under the MSA be reduced. The sale of cigarettes in the United States by a manufacturer-importer may reduce payments under the agreement. That was true for anyone who did not participate in the MSA.
7. Would enactment of S.B. 244 prevent payments to Nevada under the MSA from being reduced. Enactment of S.B. 244 may prevent a portion of any reduction in payments to Nevada under the MSA. A volume adjustment and a nonparticipating manufacturer adjustment enactment of 667 eliminated any negative adjustment due to the nonparticipating manufacturer adjustment, but the volume adjustment still could be affected. That related only to payments through the MSA, not necessarily the payments through the escrow account if they were to arise.
8. Did importers of repatriated cigarettes pay all taxes required by the State of Nevada. The State of Nevada imposed a tax on all cigarettes to whoever handled them, and the office had no information that any particular importer or group of importers failed to pay any required taxes.
9. Beginning on January 1, 2000, would federal law prohibit the practice of importing into the United States cigarettes previously exported from the United States. Beginning on January 1, 2000, federal law would limit the practice of importing into the United States cigarettes that were previously exported from the United States such that only a manufacturer of tobacco products or cigarette papers and tubes, or the proprietor of an export warehouse may import such cigarettes into the United States. Mr. Zuend added it somewhat limited the scope of how they could be imported.
10. Beginning in January 1, 2000, would federal law prohibit the law of repatriated cigarettes in the United States. Beginning on January 1, 2000, federal law would not prohibit the sale of repatriated cigarettes legally imported into the United States. Mr. Zuend said the answer was "No. You would just have to purchase them out of the bonded warehouse and then pay the taxes at that point. It was essentially federal attempt to control the taxes. Somehow the Bureau of Alcohol, Tobacco and Firearms were attempting to use it to prohibit that practice."
11. Would S.B. 244 duplicate federal law that was due to be effective January 1, 2000. No, it would not duplicate federal law because it would prohibit the sale in Nevada of repatriated cigarettes while federal law would not.

Assemblywoman Tiffany asked if it looked like it might affect the MSA, had the LCB given an amount. Mr. Zuend explained there were no amounts because the volume adjustment would reduce payments to the state if the actual volume or number of cigarettes sold in the United States as a whole by the participating manufacturers fell below the 1997 volume. The reduction might be offset if the actual operating income of the original participating manufacturers did not fall. If their sales collapsed either because of a health campaign or something else worked as intended, or just the fact prices had increased, payments would also drop.

Ms. Tiffany again asked about an amount to be contributed toward an escrow account. Mr. Zuend said the amounts contributed were set out in 667, they were per unit. He added in the event the manufacturers were found culpable, then the state could take some of those payments just as they could take Master Settlement Agreement payments. Ms. Tiffany commented it was not a mandatory amount. Mr. Zuend said they had to put the money in an escrow account; the state could only draw on it if they were found culpable for whatever health problems and associated events occurred.

Chairman Goldwater stated that was new evidence, he would allow brief rebuttal time to proponents and opponents of the bill.

First to speak was Harvey Whittemore, of the firm Lionel, Sawyer & Collins, representing R. J. Reynolds. He acknowledged the work done by Ted Zuend in preparing the opinion clarified the issue with respect to a number of matters the committee had requested. He then cited page 9 of the opinion, the last sentence in response to question 9: "It is the opinion of this office that beginning on January 1, 2000, federal law will limit the practice of importing into the United States cigarettes that were previously exported from the United States such that only a manufacturer of tobacco products or cigarette papers and tubes or the proprietor of an export warehouse may import such cigarettes into the United States." Mr. Whittemore commented the only two categories that could bring them in were an export warehouse and a manufacturer. Those were not the type institutions which would engage in the resale of those cigarettes as a supplier to wholesalers or retailers in the State of Nevada. He felt it was clear on that basis there was still room for confusion, and when he had testified previously that was still an open question. However, counsel's opinion had made clear there was a regulation that suggested the seller could suggest those cigarettes, products, papers, and tubes shall be subject to the chapter as if they had not ever been exported.

Mr. Whittemore went on to state there was still some confusion in the federal law. The testimony given suggested the interpretation of one of the federal agencies could very well be read as prohibiting the sale of repatriated cigarettes after January 1, 2000.

Mr. Goldwater noted regardless of that it seemed the Federal Government was going to make the practice more difficult. Mr. Whittemore agreed and felt it was clearly going to be difficult to engage in the business practice of which the committee was made aware. Mr. Goldwater observed the basic arbitrage that created the business would be zeroed out.

John Albrecht, deputy attorney general, Office of the Attorney General, Human Resources Division, commended the Legislative Counsel Bureau for its lengthy opinion in a complex area. He pointed out when the escrow account was created the State of Nevada had to sue to recover any money out of it. He added, "So I think what we are taking is money that is in our hand and were transferring it into a fund that we may be above to recover from someday if we sue or if we settle." Mr. Albrecht's statement was provided and marked as Exhibit C, Part 2.

Chairman Goldwater stated that was very helpful. He then called for opponents to comment on the legal opinion.

Robert Barengo, representing Nevada Tobacco Distributors (NTD), and Fred Hillerby came forward. Mr. Barengo said the president of the NTD, Mr. Ghyczy, had testified a few weeks earlier and as he said then and they reiterated, they agreed with the opinion, and they asked the bill to read January 1, 2000.

Chairman Goldwater noted a great many issues had been clarified. He then referred to the discussion contained in the work session document (Exhibit D) and summarized S.B. 244 and the views held by both opponents and proponents. The bill outlawed the sale of gray market cigarettes in Nevada. The gray market related to the sale of cigarettes. Proponents included cigarette manufacturers and Nevada cigarette wholesalers and certain retailers. They argued the retailers who sold such cigarettes had an unfair competitive advantage over those who traded cigarettes manufactured for the U.S. market. Further, they argued, there were quality differences between cigarettes manufactured for export and sold domestically even though they used the same brand name.

According to the proponents, that confused customers and damaged trademarks and good will of manufacturers. Proponents as well as those who opposed cigarettes for health reasons also argued the sale of lower priced cigarettes hurt efforts to reduce consumption by minors.

Opponents of the measure, including small Nevada wholesalers and retailers who sold the gray market products dispute those claims. They argued they had been competing fairly with the more powerful cigarette interests who only wanted to limit competition. They disputed quality of the cigarettes was different. They also pointed out they were required by state law to sell cigarettes at a minimum price which precluded lower prices that might encourage additional smoking by minors.

Mr. Goldwater then discussed the primary disputes. First, that there was Master Settlement Agreement. It was generally agreed upon there was some kind of Master Settlement Agreement interruption, although they might be paying into the MSA. The second argument was that the Federal Government had passed legislation to make gray market sales illegal effective January 1, 2000. It was not expressly prohibited by the Federal Government, but it would probably be made more difficult. The opponents of the bill want to potentially compromise by changing the effective date of the bill from passage and approval to January 1, 2000, and any median compromise would be any date from here to there.

Assemblywoman Tiffany wanted to make a motion to indefinitely postpone but felt it would not be accepted. She based her feeling on the fact the bill was "very murky." However, if section 5, at least, could be amended as to the date it would be better than nothing. Chairman Goldwater responded he would like to see if the bill could pass or fail on its merits. Ms. Tiffany said in that case she would move to amend.

ASSEMBLYWOMAN TIFFANY MOVED TO AMEND AND DO PASS S.B. 244 CHANGING THE EFFECTIVE DATE OF SECTION 5 TO BE JANUARY 1, 2000.

ASSEMBLYMAN LEE SECONDED THE MOTION.

The Chair opened the discussion to Assemblywoman Gibbons, who asked to have Mr. Zuend clarify how much the state would lose in tax revenue. Mr. Zuend responded the level of sales in total were higher. According to what he had seen earlier, about 90 percent of the market were participants in the MSA. The attorney general in 667 testimony said 98 or 99 percent of current sales were covered under the MSA already. The formula related to 1997 sales. Currently it was about 8 percent higher in cigarette sales than in 1997. To the extent those participants had increased their sales since then, they would have to not only lose those sales but lose future sales before the state's revenue from the MSA was compromised. That could occur not only because of sales of gray market but because of other factors mentioned earlier.

The chair remarked the answer was it was inconclusive how much revenue would be lost in the MSA if it was allowed to proceed.

Assemblyman Mortenson asked if it was not also inconclusive that the state would lose anything. The Chair said that was correct. It would be how much the state would not receive as a payment from the MSA, as opposed to how much the state would have to recover from the escrow account.

Assemblywoman Freeman admitted she felt very uncomfortable about the issue. As Ms. Tiffany indicated, the money that would come to the state from the tobacco settlement was so important to the health community and public health. If it was inconclusive whether the state would lose or gain from it, she did not want to take a chance on that. "It's so important to know that we will have the funding to provide for public education and hopefully get our young people to stop smoking." She added, she might vote against the bill if the committee went forward with the amendment. Mr. Goldwater asked if she was potentially seeking a motion to amend the bill to move the effective date sometime between now and the year 2000. She said she would rather indefinitely postpone.

There was no further discussion on the motion to amend and do pass changing the effective date to January 1, 2000. The vote was taken.

THE MOTION CARRIED. ASSEMBLYWOMAN FREEMAN OPPOSED.

Chairman Goldwater opened the work session on S.B. 259.

Mr. Goldwater noted the bill, sponsored by Senator Porter, had to do with the motion picture industry and was discussed on page 2 of Exhibit D. Also, the Nevada Commission on Economic Development provided a list and brief explanation of proposed changes marked Exhibit E.

Ted Zuend explained the first amendment was to exempt motion picture production from the business tax. The amount was not substantially increased based on current volume of motion picture production in the state that was over 60 days. That change based on current activity was minimal. The original fiscal note was in the amount of $5,000 or $6,000.

The second change was because the bill as drafted had not fit what they wanted to do regarding requesting certain permits from the labor commissioner. Further, they wanted to exclude television and motion picture production in the definition of what a production was, because that definition applied to those permits from the labor commissioner. The Commission on Economic Development also wanted to delete lines 13 to 21, which Mr. Zuend suggested would not work, because a definition was needed for a producer-promoter-employer in the statutes because the subsequent statutes used that definition. He suggested the wording after the period on line 15, which applied to motion pictures be eliminated but to retain the first part of the producer-promoter-employer definition.

Mr. Goldwater asked the committee's desire.

ASSEMBLYWOMAN TIFFANY MOVED TO AMEND AND DO PASS

S.B. 259.

ASSEMBLYMAN ANDERSON SECONDED THE MOTION.

THE MOTION CARRIED.

Chairman Goldwater turned next to page 3 of the work session document (Exhibit D) and opened the discussion of S.B. 349.

Assemblyman Neighbors explained the bill arose because during the 1995 session a bill came through on special fuels. It was the consensus of opinion that many people were in violation and not paying the tax. That bill was passed and early estimates were around $3 to $4 million. The actual amount currently was $12 million escaping taxation. The bill made it more difficult for people to evade the tax on using dyed fuels.

Mr. Goldwater noted there had been no amendments.

ASSEMBLYMAN NEIGHBORS MOVED DO PASS S.B. 349.

ASSEMBLYMAN ANDERSON SECONDED THE MOTION.

Discussion followed with Assemblywoman Tiffany noting the last paragraph of the work session document indicated the committee might want to consider amending the bill, but since it had not been considered, she asked for an explanation. Chairman Goldwater explained the Committee on Transportation received the petroleum fuel conversion tax bill and the Committee on Taxation had not had a chance to discuss the issue, he thought the bill might be a vehicle to discuss the conversion factor. However, it was late in the session therefore that issue would be set aside.

There was no further discussion and the vote was taken.

THE MOTION CARRIED.

Next on the work session was S.B. 362.

Chairman Goldwater explained the bill clarified certain statutes and improved conditions for taxpayers. It was the "taxpayer’s bill of rights." Among other things, the bill allowed the department to waive penalties and interest based on regulations established by the Tax Commission and also provided for a waiver by the department when the taxpayer had relied on advice from the department or an opinion from of the attorney general. The bill authorized certain actions relating to payment of taxes to be brought in Clark County and not just Carson City. Mr. Goldwater noted one committee member suggested amending the provision to allow actions to be brought in a court anywhere in the state. The deputy attorney general for taxation sent the member a memorandum suggesting language for such an amendment. Finally, the bill required additional information regarding the collection of sales taxes to be furnished to a person when they were granted a sales tax permit.

The bill was supported by the Nevada Taxpayers Association. There was no opposition to the bill; however, a representative of the Department of Motor Vehicles (DMV) was concerned about provisions which might affect the DMV’s administration of special fuel taxes. The concern seemed to include language in sections 2, 28, 29, and possibly 30.

A revised proposed amendment (Exhibit F) was discussed by Mr. Zuend. One of the proposed amendments accommodated DMV's concern, which had to do with the authority of the tax commission applying to DMV.

Page 1 of the bill would be amended in section 2. 1, line 3, by adding "by the department" which indicated the Department of Taxation.

The other amendments were from Mr. Anderson's original concern and they conformed to what his intent was believed to be. Those amendments were written by the deputy attorney general. Mr. Zuend pointed out the DMV would also like to have sections 28 and 29 removed because they did not apply. The provision in section 2 was removed so the exception would not be needed.

Regarding section 30, Mr. Zuend discussed it with Clay Thomas, assistant chief, DMV, who did not want to be in the filing for all counties at present. Perhaps after DMV had taken over the administration of the gasoline tax as well. Therefore, Mr. Thomas preferred section 30 also be eliminated.

One additional section the amendment did not cover dealt with business tax. In section 23, there was also the filing in a court of competent jurisdiction. Mr. Zuend felt the committee might want to amend that section to incorporate the language "Clark County and not just Carson City," and there was no reason the business tax should be excluded from those provisions. He also noted the word "department" should replace "agency" in all those amendments.

Assemblyman Anderson said it was his understanding if sections 28, 29, and 30 were removed, it would solve the concerns of the DMV. In addition, section 23 would be amended as set forth above. Mr. Zuend confirmed that was correct. Mr. Anderson asked to make a motion to which the Chair agreed.

ASSEMBLYMAN ANDERSON MOVED TO AMEND AND DO PASS

S.B. 362 AS RECOMMENDED ABOVE.

ASSEMBLYMAN PRICE SECONDED THE MOTION.

Mr. Goldwater noted the only amendment not included by Mr. Anderson's motion had been section 17.6, as stated on page 1 of Exhibit F, as follows: "If the certificate prepared pursuant to this section shows a net loss for the year covered by the certificate or an amount of tax due for that year which is less than an overpayment made for the proceeding year, the amount or remaining amount of the overpayment must be refunded to the taxpayer within 30 days after the certification was sent to the taxpayer." Mr. Anderson said that should have been included.

There was no further discussion and the vote was taken.

THE MOTION CARRIED.

Mr. Goldwater referred to the next bill, S.B. 521, known as the "art tax" bill, discussed on page 5 of the work session document (Exhibit D).

The bill made a number of substantive changes in the property and sales tax exemptions for the public display of fine art that were adopted by the 1997 legislature. The changes provided:

• Specifically that an exempted taxpayer may charge a fee for the public display of the fine art;

• That the exempted taxpayer must offer a 50 percent discount from the fee for Nevada residents during specified hours each week;

• That taxes were due when a fee was charged to the extent the taxpayer earned "net revenue" from those fees;

• That fine art for public display which had been leased was eligible for the exemption;

• That the fine art displayed must be made available for student tours, by appointment and without charge, for at least 5 hours on at least 20 days during the year the exemption was claimed; and

• Clarification of various provisions relating to the timing between the acquisition of the art and the period it must be displayed to be eligible for exemption.

Proponents argued the exemption was already available; the purpose of the bill was to clarify matters overlooked or left in doubt by the original legislation. Opponents, including a state Senator, criticized the bill as a tax break for the rich, resulted in less revenue for schools and local governments, opened the door for other special interest tax breaks, provided a benefit not available to average citizens, and was unnecessary cultural engineering by government. A representative of the Nevada Taxpayers Association supported the clarification of the property tax exemption but opposed a continuation of the sales tax exemption. The fiscal note indicated the revenue effect of S.B. 521 was indeterminate.

Chairman Goldwater had asked opponents to submit amendments that could make them more supportive of the legislation. He had also asked the LCB to provide an opinion on certain issues raised by testimony in opposition to the bill. The opinion was presented and marked Exhibit G. Mr. Zuend discussed the opinion.

Mr. Zuend explained various issues were categorized as follows:

• Admission fee provisions. The original bill had not provided a determination whether a fee could be charged. Subsequently, the Nevada Tax Commission ruled it had to be free of charge. The bill overrode that regulation. But, it also stipulated criteria that had to be met which before it had not. Such as, it had to be made available at half the charge for Nevada residents, and provisions related to net revenue that theoretically would not provide a full exemption. However, Ms. Erdoes, legislative counsel, in her written opinion, (Exhibit G) stated the deductions were so broad that it would be unlikely the tax would apply; therefore, would be effectively exempt. Mr. Zuend explained those provisions should not have a major impact.

• Financial impact of the passage of S.B. 521. Ms. Erdoes, in Exhibit G, pointed out the exemption existed so it was not clear what the fiscal implication was. It did exempt anything that charged a fee under the Department of Taxation regulation that was not now exempt. There was a fiscal consequence.

• Definition of fine art. The definition remained as it was, but because of concerns expressed by a state Senator and others that provisions in the definitions suggested one could exempt other things beyond those specifically in the statute. Therefore, the Tax Commission adopted a regulation to exclude 10 specific items such as automobiles, boats, signs, antique furniture, lamps, chandeliers, jewelry, mirrors, doors and windows. Ms. Erdoes suggested if the committee had concerns about other items those could be included in the statute.

• Leasing of fine art. Two new provisions added by the bill related to leasing of fine art that was exempt from taxation. It was based on the value of the art not the value of the lease. It further stipulated if it was an exemption for inventory a lease also applied. If it was treated as inventory then it was exempt. The provisions in the bill clarified the art did not necessarily have to be in a display in an art gallery to be treated as inventory, as long as it could be sold and was up for sale regardless of its location.

Assemblyman Price had a problem with the opinion. As he understood it, the Nevada Tax Commission adopted regulations that said it did not apply to classic automobiles. He had such an automobile. Mr. Goldwater explained it had to be worth $25,000. Mr. Price offered to sell it for $25,000. An offer was not forthcoming.

Assemblyman Mortenson said he had initially voted for the bill, not because he thought it was a bill for casinos. In fact, it was well known he opposed casinos when quarter-cent sales tax issue was brought forth. He voted for the exemption in the 1997 session for the art that any casino, not just the Bellagio, would have, because other hotel-casinos like the Venetian or the Mandalay Bay might decide to have art and the state could become a mecca for the arts. He explained the way he viewed it was that in the 1997 session the legislature gave $30 million to athletics in the Silver Bowl and Thomas Mack, and would probably get $30 million in benefits from it. However, in the current bill art that amounted to about $300 million was exempted, and would only cost about $15 million. Mr. Mortenson added, "In fact, if we listen to the state tax gentleman we don't even lose the $15 million because if it wasn't here we would never have even gotten the $15 million."

The argument that schools were losing the tax was specious, because the argument could be made the schools lost $30 million of the money given to athletics. It could be argued then that any money not given to schools was taken away from schools.

Chairman Goldwater stated he had solicited from both opponents and proponents ways to make the bill a good piece of public policy. He had received seven areas where the bill could be worked out:

1. Discounts to residents.
2. Who got the overage, a charitable organization, or paid with tax. Also the definition of what was net.
3. Amount to meet the threshold to qualify for exemption. Currently the threshold was set at $25,000. The person who submitted that suggested if the state wanted to encourage art, the threshold might be lowered to include other art.
4. The ability to put art on display and open to the public.
5. Hours of the week. Included here also was the need to define fine art.
6. School children.
7. Define display. It was never the intention of the legislature to mean the display of the art work that received the exemption remain in a 26 floor suite. Though it was available "to the public," it would not be available to the kind of public the legislature had in mind.

Mr. Goldwater invited other suggestions that could make the "art tax" bill a better piece of legislation.

Assemblyman Anderson asked about section 2 of the bill. If the art was extended to the residents of the state it should not be limited to a narrow time period. He suggested lines 7 and 8 be dropped. Further, he believed the legislature should encourage fine art and perhaps a $15,000 threshold would be more in line. That change would be made at section 4, subsection 4, lines 30 and 31. On page 5, limiting student visitors to 5 hours a day, 20 days a year was hardly enough considering the state was on a year-round school system. It would be more equitable to allow student visitors into the gallery on 90 days, since that was half of the 180 school day schedule. Also, it should not be limited to only K through 12 grades but should include university students as well. Since the state would be providing a tax exemption, he stressed how important it was to make absolutely certain the residents of the state had the greatest opportunity to see the art.

Assemblyman Manendo expressed similar thoughts about making the art available to all Nevada residents, particularly making it accessible to students, and lowering the value threshold to $15,000. He noted approximately $200,000 in additional sales tax revenue would be generated from the Bellagio's gallery stores.

Assemblywoman Freeman cited page 3 of the LCB opinion, in the paragraph entitled "Definition of Fine Art," and suggested an amendment encompassing what the Nevada Tax Commission had adopted as a temporary regulation.

Mr. Goldwater stated someone suggested the excess revenue over the "net revenue" should go to a charitable organization.

Harvey Whittemore, representing Mirage Resorts, noted the definition in question was on page 1, lines 19 and 20, and again on page 6, lines 30 and 31. The Senate suggested the contributions had to be made to programs for the arts as provided in NRS 62.211 and charitable organizations. The Speaker had suggested the Nevada Arts Council and the Fund for Cultural and Historical Preservation. Mr. Goldwater added to the list natural history museums and children's museums.

Mr. Whittemore returned to the suggestion of increasing the number of days open to student visitors. The impact of increasing to 90 days without reducing the hours was very significant in terms of the total time available for viewing, and also meant that for the entire morning time, paying customers would know children were free. He suggested 40 to 50 days without reducing the hours.

Assemblywoman Tiffany asked if anyone in the audience was at the Tax Commission meeting when they adopted the regulation for excluding the 10 items. Dino DiCianno, deputy executive director, Department of Taxation, responded. Ms. Tiffany asked if the adoption had been before or after the discussion of whether or not they could charge admission. Also, what had been the purpose of defining the exclusion of the 10 items.

Mr. DiCianno stated the adoption of the regulation and the discussion concerning charging a fee had occurred at the same time. Ms. Tiffany pursued a more definitive answer, asking, "on the same day?" Mr. DiCianno said there had been three different workshops and two different commission hearings in which those items were discussed. It was a long period of time before the commission adopted the temporary regulation. Ms. Tiffany restated her question, "At the time the regulation was adopted, was the question of the fee on the table at the same time?" Mr. DiCianno answered, "That's correct."

Ms. Tiffany then asked what the intent had been for exempting or defining the 10 items. Mr. DiCianno said the issue centered around clarifying the distinction between personal property and real property. And also to delineate there would not be an alternative functional use for those types of fine art, that they could not be used for something else. Ms. Tiffany asked what he meant by "something else." He said the best example was a classic car, could it still be driven and used, yes.

Ms. Tiffany said she had been to the Venetian opening where magnificent artwork on canvas had been on created and hung from the ceiling. Would that be considered an exemption, or fit into a real or personal property category. Mr. DiCianno said it sounded like real property and would not be exempt; however, he would need more information to understand how it was attached. If it became part of the real property it would not be subject to the exemption. It would have to be tangible personal property to be exempt.

Ms. Tiffany then asked Ted Zuend if, based on Ms. Erdoes’ opinion, there was only one property that could take advantage of the provisions of the bill, or were there others. Mr. Zuend did not believe that had been covered in the opinion. But, he ventured that anyone else in similar circumstances could take advantage of it. Dino DiCianno, Department of Taxation, said he knew of no one else who had asked about or tried to claim the exemption; but it was available to anyone who met the tests.

Assemblyman Marvel noted there was a current statute and if something was not done with the bill, if it was indefinitely postponed, then there would be a lawsuit under the old statute. Therefore, every attempt should be made to clean up the bill, and if it would encourage culture in the State of Nevada action should be taken.

Chairman Goldwater said the final item for discussion on the bill was the definition of "display" and he wanted to narrow that definition to the intent everyone had in mind.

Assemblyman Mortenson was concerned if an agreement was not reached or the bill did not pass or was indefinitely postponed, a significant access to the art would be lost. Regarding the value threshold, he wanted it to remain at $25,000 or be raised.

Assemblyman Lee said he would be voting for the bill, but was concerned about the times of availability to children. He could live with Mr. Whittemore's suggestion of 40 to 50 hours. He added it was time to move on the bill and would make a motion if the Chair desired. Chairman Goldwater asked to have the motion outlined.

Assemblyman Anderson outlined the amendments as follows:

• Section 2, line 7: Substitute language that said "during each hour the gallery is open but not less than 25 hours per week." Delete the lines at the end of line 7: "For a total of at least 25 hours each week between 6 and 12 a.m. for 35 weeks a year."

• No change to the $25,000 value threshold.

• Page 5: Increase hours and days for student visitors to 15 days each school quarter, of which there were 4, for a total of 60 days in a school year.

Mr. Goldwater noted there were 10 items that were not exempt from the regulation so that would be included as an amendment. Additionally, the definition of students, per Mr. Manendo's point, to include university students enrolled in art classes. A further definition of charitable organizations to include those stated earlier.

ASSEMBLYMAN ANDERSON MOVED TO AMEND AND DO PASS

S.B. 521.

ASSEMBLYMAN LEE SECONDED THE MOTION.

A discussion followed with Assemblywoman Freeman recalling a question that Assemblywoman Gibbons asked a few weeks earlier, "What's in it for the children in Reno or Washoe County?" Mrs. Freeman elaborated. She wanted to know if there was some flexibility allowed at the local school.

Mr. Goldwater discovered another suggested improvement to the bill which he read as follows: "During any fiscal year in which a taxpayer utilizes a public display exemption the taxpayer shall make available for educational purposes without charge to any public or private school within the State of Nevada or to the parent of any registered home school child within the State of Nevada following receipt of a written request from such a school or parent, one copy of any posters depicting such fine art that such facility has on display." Mr. Goldwater added that went to the heart of what Mrs. Freeman was questioning. He continued reading the amendment: "During the first full calendar year following the purchase they must display the art."

Assemblyman Neighbors said he liked Mr. Anderson's suggestion of reducing the threshold value to $15,000.

Assemblyman Manendo asked what had been resolved about Nevada residents. Mr. Goldwater said Mr. Anderson's motion made the discount available to Nevada residents all hours that the gallery was open and not less than 25 hours per week for 35 weeks.

Discussion ensued between members about the threshold, and it was agreed to reduce the valuation to $15,000.

Mrs. Freeman asked to make a statement. She had voted against the bill in the 1997 session and was instrumental in having it killed on the Assembly side. She was prepared to vote against it now as well; however, based on the amendments heard at the meeting she felt she could support it. She did, however, want to explain the reason for her prior opposition. She said she had "sat in the committee and listened to proposals or exemptions for sales tax from business in our state who would like a small relief on their sales tax, so they could have a competitive advantage from other state businesses. We haven't given that to them. We haven't allowed for an increase in the rebates to poor senior citizens on their property tax, so I'm very upset about what we do with sales tax in our state. But with the provisions that have been offered to us by the industry, I think I can support it and will be watching it very closely in the coming 2 years. I'd like to think that maybe in northern Nevada we could get some of these as well so we could take advantage of this and maybe the Resort Association would work with me on that so we could get something in the north as well."

Mr. Goldwater said the technical amendments (Exhibit H) presented by Mr. Whittemore were also included in Mr. Anderson's motion. The vote was then taken.

THE MOTION CARRIED. ASSEMBLYWOMAN TIFFANY OPPOSED.

Mr. Goldwater then returned to S.B. 477 and additional testimony.

Jennifer Stern, Swenseid and Stern, provided proposed amendments (Exhibit I) and stated she had been unable to testify earlier as she had been in another committee when the original hearing was scheduled. The amendments were clarifications to enable the Convention Center to issue bonds pledged with the proposed room tax. It clarified the stream of revenue allowed for RSCVA for such a pledge was the 2 percent increase in room tax revenue countywide in Washoe County. Additionally, the proposed amendments changed the reference to the district described in 268.780 to 268.785 inclusive to the district in which a 1 percent tax on the transient lodging for railroad grade separation projects was imposed.

Chairman Goldwater interrupted the testimony to recess the meeting in order for committee members to go to other scheduled meetings. He said Ms. Stern could continue with her testimony when the committee reconvened at 6:00 p.m.

Chairman Goldwater called the meeting to order and reopened the work session on S.B. 477, which was discussed in the revised work session document (Exhibit J). Mr. Goldwater explained the bill would increase the room tax in most of Washoe County by 3 percent. The increase would be 2 percent in the area in the city of Reno where the rate had already been increased by 1 percent to help pay for the railroad trench. The bill provided the lion's share of the revenue would be used to support the expansion and remodeling of the Reno-Sparks Convention Center. Separate allocations of $1 million and $500,000 per year, both adjusted for the annual room tax changes, were made to promote tourism and support the National Bowling Stadium respectively. Those allocations would eventually be used for capital improvements projects determined by a new Truckee Meadows tourism facility committee created in the bill. Additional revenue was earmarked for the city of Sparks, to be used by the Sparks Tourism and Marketing Committee, which was also created by the bill.

Considerable support for the bill came from various gaming and tourism interests in the Washoe County area. Provisions in the bill were crafted after lengthy negotiations with the various interested parties. There was some disagreement on a couple of provisions between representatives from the city of Reno and most other supporters of the measure. There was no testimony in opposition to the intent of the bill.

The Reno representatives requested subsection 3 of section 2, which made allocations to the city of Sparks, be removed. Most other supporters, including a representative from Sparks, requested section 4 that authorized Sparks to increase the room tax by 1 percent be deleted. Reno testified in support of giving Sparks that authority in lieu of the earmarked proceeds in section 2.

Sparks also requested section 2, page 3, line 11, be amended to insert "operation and" after "the" at the end of that line. Section 2 also needed to be amended on page 2, line 23, by deleting "incorporated" and inserting "unincorporated" to correct a technical error.

One member suggested the committee consider amending the bill to ensure that a majority of members on the new Truckee Meadows facility committee were elected officials. A number of technical amendments had been proposed by bond counsel, the RSCVA, and Mr. Barengo.

Harvey Whittemore, representing the Nevada Resort Association, explained the amendments to S.B. 477 second reprint included those amendments previously proposed, which created the amendments which would identify the tax in the lodging for railroad grade separation projects. Bond counsel feared that by simply enumerating the statutory sections other sections could be formed and therefore created some disagreement as to the amount of taxes to be paid in new districts created under the statutes cited in the bill. Therefore, the substance of the sections having to do with renaming were listed in the attachment to the letter from Swenseid & Stern (Exhibit I).

As Mr. Whittemore previously testified, the amendment to section 2, page 2, deleting lines 29 and 30, needed to be improved to allow for the reconstruction, expansion, and improvement, to develop the equipment list to operate and maintain the Reno-Sparks Convention Center, and to provide that those funds could be used for ancillary facilities such as a parking facility, acquisition of real property, and other appurtenances associated with the acquisition.

Other technical changes amended section 2, page 2, by deleting line 31, making clear the methodology by which the money was given to the various entities was set forth in a more discernable manner than presently existed in the bill.

The amendment, on the last page of the first three-page amendment was to section 2, page 3, by deleting line 2 after NRS 279.619, was that those funds could be used to acquire, establish, construct, expand, and equip such projects. The language bond counsel believed it was necessary to allow the proceeds being developed through the imposition of the tax would be done in a way that would allow clean opinions to the RSCVA and the bond issuers.

Regarding the letter of May 5, 1999 (Exhibit I), Mr. Whittemore agreed with Jennifer Stern's suggested language which made clear which portion of the proceeds were available for distribution to Incline Village and that the Incline Village Marketing and Tourism Bureau continued to receive its present allocation of existing room tax proceeds.

Mr. Whittemore emphasized the amendments proposed by bond counsel were simply technical and did not substantively change the intent of the bill. He urged the committee to process the bill with the amendments as described.

A discussion ensued. Chairman Goldwater asked for confirmation the amendments were technical and cleaned up the language. Mr. Zuend confirmed that was correct. It clarified the district in question already had the additional 1 percent room tax. Mr. Whittemore added the concern previously was using the existing statutory language in creating another district, and somehow not having to pay the tax that would be imposed.

Next to speak was Bob Barengo, representing Incline Village, and for the record noted he was listed in the red book of bond counsels of Nevada, which Mr. Whittemore was not. Mr. Barengo was in agreement with Mr. Whittemore's testimony and the suggested amendment. He wanted to make sure Incline Village continued to get payment for the period the notes and obligations were in place; that it would be required by law before March 1, 1999, so an action could not take place on a local level that would subject them to malfeasance of the money set aside by the bill.

Mr. Anderson proposed two amendments. In essence, what was desired was a new board comprised predominately of elected officials: One person appointed by the board of directors of the RSCVA who was a member of the Nevada Resort Association who represented properties outside the district; one person from the Washoe County Board of Commissioners; one person from the Sparks City Council; three people from the Reno Redevelopment Agency, and three people appointed by the Nevada Resort Association whose properties were located in the district described in NRS 268.780. That 9-member board would be "stakeholders" rather than people who were paying the tax.

Assemblywoman Freeman asked to have the proposed board membership clarified. Mr. Anderson explained both Reno and Sparks had redevelopment agencies made up of members of their respective city councils, in essence wore both hats. He wanted a more diverse composition. Mrs. Freeman pressed for further clarification, specifically asking about what amounted to four members from Nevada Resorts Association. Mr. Zuend interjected, those positions were already in the bill as drafted and were not changed. Mrs. Freeman still wondered about Mr. Anderson's rationale. Mr. Anderson explained he was trying to get to the point where there would be a "comfortable representation from the county and one elected also from the city council." Mrs. Freeman said, "that would give you five elected and four from the NRA. Is that what you wanted?" Mr. Anderson said it was whatever the committee wanted.

Assemblyman Lee said he had been paying attention and listened to what had been said so far. He understood section 4 was what Sparks wanted to delete. Mr. Goldwater said correct. Mr. Lee observed everything else on the bill "says let's take care of Sparks, but I don't know if Sparks is taking care of anybody else. If you could do all this and come up to the regular room rate that everyone else has it would seem to be more fair. It seems like you guys want the percent, you want the seats, but you don't want to jump in with full dollars in my book. Can you straighten me up on that, Mr. Anderson?"

Mr. Anderson related the city of Sparks room tax generated about $11.7 million into the program. Yet they had not received any part of the advertising dollars currently expended; however, occasionally there was a mention that the Nugget was in East Reno, which was a sore spot with the people who lived in Sparks. Incline Village, on the other hand, received relatively large amounts from the RSCVA. He believed the issue was that those were public tax dollars and should not be tied to the city of Sparks.

Mr. Lee rejoined that being from southern Nevada he wanted to see Reno and surrounding areas do well. His feeling was that all taxes should be the same and everyone on the board should be equal. He wanted Mr. Anderson to explain. Mr. Anderson attempted to explain the history of Sparks and its development over the years. The city had the option a few years earlier to increase its room tax by 1 percent but rejected that.

Mrs. Freeman pointed out in the hearing earlier in the day she had asked Mr. Farside for copies of the minutes which contained details of the vote regarding that 1 percent, and Mr. Sande had given her those records. Now she was prepared to vote for the bill as currently drafted, where in section 2 the payment went to the city of Sparks. However, she wanted section 4 left in the bill.

Mr. Neighbors had an amendment from the city of Reno. Mr. Goldwater called Barbara McKenzie to address that amendment.

Barbara McKenzie, representing the city of Reno, introduced Dave Rigdon, Reno City Council member. Ms. McKenzie explained they recommended subsection 3 of section 2 on page 3 be deleted; it deleted lines 6 through 25, which was the allocation to the city of Sparks out of the RSCVA funds. The second amendment was the renumbering of the sections and removed the reference to section 3, which would no longer be in the bill.

Mr. Marvel asked why they wanted deleted the way the proceeds were distributed. Ms. McKenzie said it gave the city council the opportunity to raise the room tax as Washoe County and Sparks had done. Mr. Marvel asked why they were advocating that. Ms. McKenzie said it was because the City of Sparks had the opportunity to raise the room tax and gave Sparks an allocation the other local governments did not receive out of the tax of the RSCVA projects. The city council felt like that was taking money away from the RSCVA projects that would be needed to make those projects successful.

Mr. Goldwater remarked the committee was not going to play referee between Reno, Washoe County and Sparks. He did not want to be in the position of being arbitrator.

Mr. Rigdon said several years ago they had the opportunity as local entities to raise the tax 1 percent. Sparks felt they would rather have the competitive advantage of not having the extra 1 percent versus the extra funds for their parks and recreation activities. Those were the decisions as local governments they had the right to make.

Mr. Goldwater opined the bill had been presented as a compromise between local governments including Sparks, and now, according to Ms. McKenzie's testimony, local government wanted to amend the compromise. That confused the committee.

Mr. Rigdon allowed that had always been their position. The city of Reno supported the bill 100 percent. Mr. Goldwater asked if their amendment was to "go away" it would still be alright with them. Mr. Rigdon replied they would not necessarily be happy but would still support the bill.

Assemblywoman Gibbons asked Ms. McKenzie to explain how it would affect Reno if the amendment from Sparks was to pass. Ms. McKenzie had not seen the amendment so could not respond.

Assemblyman Brower restated Ms. Gibbons’ question. If the 1 percent option was removed and the allocation was left in, would there be a negative impact on the city of Reno. Ms. McKenzie responded the city of Reno was not receiving any revenue from the bill. However, if those amendments were made it would put Washoe County and the city of Reno in the position of not having the competitive edge because the room tax would be less in Sparks.

Mr. Goldwater asked Mr. Trounday to comment, because he had represented to the committee there was a compromise and it was a worthwhile bill.

Mr. Trounday said they all started at 2 percent, to which the entire community agreed because it felt the RSCVA convention facility needed to be expanded and upgraded to be competitive. Subsequently, an additional 1 percent tax was introduced by the city of Reno. Meetings we held and the other political entities were consulted and it was agreed to go to 3 percent, except the railroad district which had already gone up in the 1997 Legislative Session. When the city of Sparks found out and they had not been consulted, they entered into the discussions and felt something should be done for the city of Sparks. At that point, they felt they needed to work with their city, so they came up with the proposal that the city of Sparks receive some money that was being allocated for downtown Reno. The city of Reno opposed the additional 4 percent. That would have been a potential for 50 percent increase in the room tax revenue for Reno. He said they tried to be very competitive in the convention business. It was not unusual for disparity within a community, and noted in Las Vegas there was a difference in the tax rate between downtown and strip properties. He added that at city council meetings where the Sparks properties were represented and three or four had consistently turned down the 4 percent increase.

In conclusion, Mr. Trounday said they felt Sparks should receive the escalated amount back so they could do their marketing and maintenance, but they were definitely against the increase of the additional 4 percent.

Mr. Marvel asked if Mr. Trounday was aware of the amendments by the city of Reno where they wanted to delete the allocation back to Sparks. Mr. Trounday was and added, it was basically saying if Sparks wanted the money being proposed, then let them impose the 4 percent, "Which is the exact thing that we are opposed to."

Mr. Goldwater said he sensed there was no opposition to the bond counsel amendment and the Tahoe amendment. The issues before the committee were the Reno amendment and Mr. Anderson's amendment.

Mr. Anderson said there were two parts to his opposition. First was a policy question he felt the committee should decide regarding the composition of the stakeholder board, whether it should be elected officials or not. Then the question of whether section 2 and section 4 should be deleted. Mr. Goldwater told him to proceed with the motion.

MR. ANDERSON THEN MOVED FOR THE REMOVAL FROM THE BILL AT PAGE 4, SECTION 4, LINES 10 THROUGH 27.

THE MOTION WAS SECONDED BY MR. MARVEL.

THE MOTION PASSED WITH 7 AYES (ANDERSON, MANENDO, LEE, BROWER, MARVEL, PRICE, AND GOLDWATER).

Mr. Price asked if the intent of that removal would then remove the overall authority of Sparks or any other city to impose a 1 percent tax if they wanted to. Mr. Goldwater said the intent of section 4 was to enable the city council to put it in there. Mr. Marvel asked if the city council could still impose a 1 percent regardless. Mr. Price said he had the same thought. Mr. Anderson felt a subsequent piece of legislation could be introduced in future years giving them the opportunity to do so through the legislative body. However, for the particular bill it would remove that option and the city council had voted consistently over the last 10 years to do that. Mr. Goldwater told Mr. Anderson to move on to the second motion.

MR. ANDERSON MOVED FOR THE ADOPTION OF THE COMPOSITION OF THE STAKEHOLDER BOARD BY AMENDING SECTION 6, PAGE 5, BY DELETING LINES 6 THROUGH 16 OF THE BILL AND INSERTING THE NEW COMPOSITION, NAMELY 1 PERSON APPOINTED BY THE BOARD OF DIRECTORS OF THE RSCVA; 1 MEMBER OF THE WASHOE COUNTY BOARD OF COMMISSIONERS; 1 MEMBER OF THE SPARKS CITY COUNCIL; 3 MEMBERS OF THE RENO DEVELOPMENT AGENCY, AND 3 MEMBERS APPOINTED BY THE NEVADA RESORT ASSOCIATION.

MRS. FREEMAN SECONDED THE MOTION.

Mr. Anderson said it was good tax policy to have the majority of the stakeholders be elected officials, and he expressed disappointment that the overall make up did not reflect that as it did in the south.

Mr. Marvel opposed the motion. He felt people who were actually responsible for the collection of tax should have the majority of representation. Elected officials came and went; continuity was important for people. The industry was represented, and they were the ones who were primarily responsible for the economic development and tourism enhancements.

Mr. Goldwater stated the bill was presented as a compromise and it was difficult to pick apart a bill that had compromises, and for those reasons he declared he would not be voting in favor of the motion.

Ms. Gibbons echoed his sentiments, adding she did not want to lose the business seat and the motel seat but understood Mr. Anderson wanted more voter representation. However, she believed the city needed to be promoted. Business people thought differently than political people. For those reasons, she

would not vote in favor of the motion.

Mr. Anderson respected his colleagues' positions; however, he felt the question that had been considered often was the development of the RSCVA in the northern part of the state and in Washoe County, compared to the southern part of the state where the body was predominately elected leaders. That had not happened in the north for a number of reasons. He felt an opportunity had been presented to restate the fact that public tax dollars should be under the control of elected officials. He felt it was not a parochial interest to look out for Sparks, Washoe Valley, Incline Village, and other parts of the county that might not have an interest, and he cited the reference Mr. Trounday made to the two taxing districts in Las Vegas. He noted, however, that "Reno had a tendency to want to put a tax on everybody whenever they want to run a trip, or train, or other thing without regard to other parts of the community. That is a parochial statement and I clearly understand the difference between the two."

Mr. Goldwater said he presented his arguments very well.

Assemblyman Brower agreed with Chairman Goldwater about the compromise agreement presented to the committee and he was not interested in seeing it picked apart unnecessarily. With respect to section 4, he had voted to remove it. That may have been a mistake because it came to the committee with section 4. He said he had consistently voted local communities to tax themselves if they wanted. Some people referred to that as bumper tax increases. He disagreed, it was not voting for tax increases but for local control. In this case Sparks told the committee they did not want that in there. He had no problem taking it out; however, the more the bill was picked at, the more they picked apart what had been presented as a compromise. For that reason, he said, he voted against the motion.

Mr. Marvel opined "We have too many elected officials and politicians scare me."

Mr. Goldwater said there had been a proposal to privatize the legislature, which he called an outstanding idea.

Mr. Goldwater noted there was a motion before the committee on Mr. Anderson's amendment to change the make up of the board.

A HAND VOTE WAS TAKEN, 4 WERE IN FAVOR, 6 WERE OPPOSED. THE MOTION FAILED.

MR. ANDERSON THEN MOVED TO ADOPT THE AMENDMENTS RECOMMENDED IN THE LETTER FROM BOND COUNSEL.

Mr. Goldwater noted there were the two other issues in the work document detailed earlier and those were included in Mr. Anderson's amendment.

THE TECHNICAL BOND COUNSEL AMENDMENTS, THE LAKE TAHOE AMENDMENT AND THE TWO TECHNICAL AMENDMENTS OUTLINED IN THE WORK SESSION DOCUMENT WERE MOVED "AMEND" BY MR. ANDERSON, SECONDED BY MR. BROWER. THERE WAS NO FURTHER DISCUSSION. A VOTE WAS TAKEN, ALL "AYES." THE MOTION PASSED.

FINALLY, MR. ANDERSON SAID HE WOULD LIKE TO MOVE TO AMEND AND DO PASS S.B. 477 TO CONFORM TO THE MOTIONS ALREADY TAKEN.

MS. GIBBONS MADE A MOTION ON THE PROPOSED AMENDMENT ON THE CITY OF RENO. THAT WOULD BE TO DELETE PAGE 3, DELETE

ALL THE MONEY TO SPARKS.

MR. NEIGHBORS SECONDED THE MOTION.

Mr. Goldwater expressed his opposition, again because it was a compromise bill, and he imagined that was a big leg of the compromise. He asked for discussion on the motion.

Mr. Anderson had one point to make. "Just as smaller sections of the state don't like things forced down their throats, I don't think the city of Sparks enjoys anything being pushed down their throats either, and that really bothers me when there's been a consistent level of participation here and discussion relative to they don't want this section or they will accept that section. Because they realize it's going to make the whole thing float and they are willing to go along with building a project that is beneficial to the city of Reno and particularly given the problems of the past, so I will speak against the amendment."

Mr. Goldwater then asked for a vote on the amendment.

THERE WERE 6 OPPOSED, THE MOTION FAILED. HE THEN ASKED FOR A MOTION ON THE BILL.

ASSEMBLYMAN ANDERSON MOVED TO AMEND AND DO PASS

S.B. 477 TO CONFORM TO THE AMENDMENTS ALREADY VOTED

BY THE COMMITTEE.

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

THE MOTION CARRIED.

The Chairman opened the hearing on S.B. 455 .

The bill was presented by the interim committee. Mr. Zuend opened the discussion in Ms. Vilardo's absence. He explained S.B. 455 was a technical bill. There were three sections. The first section would not allow a county or a government to incorporate in its base fees that were not a percentage. He gave the example of $100 per business, there was a capping mechanism in the statutes. Some governments had elected to go from a flat fee base to a percentage fee base, which was capped differently and could not be raised. When that occurred there was no provision in law to extract the fees that were capped under the mechanism. Therefore, if a decision was made to change the fee to a percentage basis, the flat fee could still be collected plus whatever the roll up factor was afterward. A double-gain could be extracted by that mechanism, and the bill would prevent it from occurring. He explained further there were two capping mechanisms. One did not allow the percentage once established to be raised, and the second was the business got a roll up factor based on inflation and some growth factors. But if a business moved from one to the other under the current law, the amount of fees collected were still in the base so one could get the roll up from those fees, plus have a new fee. Section 1 precluded that from happening. Local governments did not oppose that, and it did not inhibit their fee collections.

Assemblyman Lee asked for clarification. Mr. Zuend explained local governments could apply a flat fee, or they could apply a percentage fee to some measure of the gross income. Nothing in the law precluded going from a flat fee to a percentage fee basis. The flat fees were capped based on a formula in statute, much like the property taxes were capped. The percentage fee was capped because it could not be raised once it had been established. To move from a flat fee to a percentage fee without the new language, the amount of revenues collected from flat fees was still in the base. Theoretically, the fees of businesses could be raised and the fees on the percentage basis could still be collected.

Mr. Lee then asked if the Nevada Taxpayers Association was in complete agreement with the bill. Mr. Zuend said "Yes. Because this would preclude that revenue that goes away, because you switch from a flat fee to a percentage fee from being counted in the base." Mr. Lee said he understood.

Mr. Zuend discussed a second provision in section 1 that took out language regarding emergency conditions and raising fees because of emergencies. He explained if the government was in an emergency situation it was likely that businesses were also in an emergency situation, and putting the burden on the businesses because the government was having trouble was not adequate justification for raising fees to make up the difference. He believed local governments were in agreement.

Section 2 followed in the same vein in that if a fee was going to be changed from a flat fee to one based on percentage, notification had to be given to the business industry 14 days in advance.

Assemblyman Mortenson asked if when the notification was given would the fee still be exactly the same at the point of transfer from flat fee to percentage. Mr. Zuend believed that was true; the amount of dollars would not be raised at that point.

Chairman Goldwater noted the bill had been presented by the Nevada Taxpayers Association. He added Ms. Vilardo felt it was good for business people.

Mr. Zuend next discussed section 3, which put back into statute something that had been removed in error in the 1997 session on a different bill. The section related to gas taxes and prohibited local governments from raising certain fees. The section made exceptions to those prohibitions. In the 1997 session, the language in a bill inadvertently took out the language in the present bill. As a result, theoretically, a business license fee could not be imposed on gas stations, for example, which had not been the intent of the legislation in 1997. The return of the language ensured that local governments could impose a business license fee on businesses that dealt with gasoline, fuels, and so on.

There were no further questions or testimony. Chairman Goldwater closed the hearing and asked for a motion.

ASSEMBLYMAN LEE MOVED TO DO PASS S.B. 455.

ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED.

Chairman Goldwater opened the hearing on S.B. 522.

Alfredo Alonso, representing the Nevada Resort Association (NRA), explained the purpose of S.B. 522 was simple. It amended NRS chapter 372, Sales and Use Tax, and NRS chapter 374, Local School Support. The bill required strict construction of those chapters. It was necessary because, for example, Caesar's Palace had packages for dinner shows. The package was comprised of a $30 dinner, on which Caesar's paid the sales tax; entertainment, on which the casino entertainment tax was paid; then the gratuity. In the past, the Department of Taxation had taken the entire amount as a package and taxed it again. What was now being asked with respect to those packages was if they paid taxes already, that was sufficient. Mr. Alonso provided written testimony and points and authorities, marked Exhibit K.

Mr. Alonso stated in the Senate, discussions were had with the Department of Taxation who had supported the bill.

Assemblyman Marvel asked if there would be any loss of revenue as a result.

Dave Purcell, executive director, Department of Taxation, responded there would be no loss of revenue. He described the bill as a clarification of the department's audits procedures.

Assemblyman Mortenson asked for assurances from the department. Mr. Purcell said it would help clarify an issue of some of the audits where it had not been clear to auditors if there was a double taxation of some items.

There were no further questions or testimony. Chairman Goldwater asked for a motion.

ASSEMBLYMAN ANDERSON MOVED TO DO PASS ON S.B. 522.

ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.

THE MOTION CARRIED.

Chairman Goldwater opened the work session on S.B. 476.

Assemblyman Neighbors said he had worked out the bill with Nevada Association of Counties (NACO) and Carol Vilardo.

Chairman Goldwater turned to the work session document (Exhibit D) and noted the bill was recommended by the S.B. 253 committee studying the distribution of revenue among local government. It would allow a local government whose combined property tax rate was $3.50 or more in the fiscal year to exclude from the $3.64 combined rate any state levy for operations or debt and any school levy for operations in excess of 50 cents per $100 of assessed valuation. The bill would have the effect of allowing the combined rate in certain counties to go as high as $4.04 per $100 of assessed valuation. Further, the bill would allow governments in other counties to exceed the $3.64 limit should the state increase its rate beyond 15 cents or the school operating rate beyond 75 cents per $100 of assessed valuation. Mr. Neighbors' amendment addressed that provision of the bill.

Proponents of the measure, including the Nevada Taxpayers Association and representatives of cities and counties indicated the bill was necessary to ensure governments of several rural areas with declining assessed valuation could continue to operate. When the $3.64 limit was imposed, the state had eliminated its interest in property taxes. Subsequently, the state had imposed a 15 cent tax to pay principal and interest on state debt and an additional 25 cent school levy to reduce state general fund support.

An opponent testified that S. B. 476 would eventually lead to the elimination of the property tax limits for all local governments. Some committee members expressed reservations about the bill because it allowed local governments to increase property tax rates even though they had not enacted other taxes and fees allowed by law.

Mr. Neighbors explained the combined tax rate of a local government in a county whose population was under 40,000 would be by a vote of the people. He felt it was a good tool for some of the rural areas.

Mr. Zuend explained the proposed amendments (Exhibit L) as follows:

On page 1, section 1.2, line 8, the population needed to be changed to 25,000 from 40,000 as currently written on that amendment. The intent was to eliminate Clark, Washoe, Carson City, Elko, and Douglas from the provisions of the bill entirely. The figure was from the 1990 census and controlled all the provisions that made exceptions. The figure of 25,000 was between Lyon and Douglas Counties’ population in 1990.

Assemblyman Anderson remarked given the growth in Fernley, which was in Lyon County, would they be excluded automatically within the next census cycle. Mr. Zuend said there would be an omnibus bill in 2001 that would change all the populations to the 2000 census. Clark County would probably be 1 million or so, if a bill applied only to Clark. Lyon County would be under the purview of the bill, but Lyon did not have the tax rate so that provision could go either way.

Assemblywoman Freeman stated as a member of the S.B. 253 committee the issue was reviewed extensively and she supported it. The small counties were losing their tax base because mining was not doing well, among other reasons. As a result they could not provide health care. She added "We should be broad enough in our view that we can offer them the kind of help that they are asking for."

Mr. Zuend confirmed it would go to a vote. The tax would not exceed 5 years. There had been some question about the term "local government." First, they did not want to have the idea that school districts, which were probably a local government under the bill, could raise a tax. Further, both Ms. Vilardo, Mr. Hadfield, and Assemblyman Neighbors agreed, that instead of having written as "local government" it would say "county, city, or town" only, and would not apply to a television district, for example.

Subsection 2, Mr. Zuend said, was boilerplate language on holding a special election in an emergency. The language set out the standards for holding that election.

The bill also deleted the sections referring to those counties that were under $3.50. Now it would only apply in those counties or governments with a combined tax rate within that jurisdiction that was over $3.50 in fiscal year 99/00.

Mr. Neighbors clarified stating it could be a county, city, or any unincorporated town or advisory board that could levy a tax rate. Mr. Zuend stated the provisions would specifically state in the amendment, county, city, or town only, rather than local government. It would have to go to an election also.

Mr. Goldwater asked for a motion.

ASSEMBLYMAN NEIGHBORS MOVED TO AMEND AND DO PASS

S.B. 476.

ASSEMBLYMAN MARVEL SECONDED THE MOTION.

Mr. Goldwater asked for discussion. Assemblyman Price wanted the districts clarified. He had been concerned about that because there were some 250 different districts, and an argument could be made that "district" might fall under the purview of the bill. Mr. Zuend responded that instead of specifying "local government" it would be specified "county, city or unincorporated town only."

Mr. Mortenson questioned the cap that appeared only in section 1, subsection 2, but it did not appear in subsection 3. Mr. Zuend said that subsection 3 was eliminated by the amendment.

Chairman Goldwater said he was not voting for the bill because he believed the $3.64 cap one of the sacred cows of statute. Mr. Neighbors responded he felt the same way; however, he recalled the early 1980's when the tax shift was made and the state would have been out of the ad valorem business. Since that time they had crept back into it; 25 cents for the school, 15 cents on the state bond, and there was no limit to what could be done with the state bond.

Mr. Anderson said he would vote in favor of the bill; however, he believed Mr. Neighbors' comments were curious in light of the new found fortunes some of the local governments had discovered in another revenue stream outside of the normal taxing area, to augment their coffers. By passing the bill it may be another opportunity for the correct constitutional interpretation of Article XI, Section 3 to come to be.

Mr. Mortenson said he was going to vote against the bill. He had proposed the possibility that by raising the ad valorem taxes more harm might be done than good, for the reason people were going to start looking at their taxes and deciding to move to a place where there were less taxes.

Mr. Neighbors responded the bill specifically stated "by a vote of the people," and if the people voted a certain way then he, as a politician, would not go against that. However, it gave the rural counties a tool.

Chairman Goldwater then took the vote.

THE MOTION CARRIED. ASSEMBLYMAN GOLDWATER, ASSEMBLYWOMAN GIBBONS, ASSEMBLYMAN MORTENSON OPPOSED.

The next item on the work session was S.B. 523.

Mr. Goldwater read from the work session document (Exhibit D) which stated the bill provided that a local government was exempt from paying delinquent taxes on property held in trust by the county treasurer that was transferred to that government for use as open space real property. To be eligible for the exemption, the property must have been designated in a city, county, or regional comprehensive open space plan.

Support came from Washoe County that believed the payment of the taxes was little more than a nuisance because it involved the transfer of money from one government account to another. The proponents noted they did not budget for tax payments because they acquired the property only when it became available. The amounts of delinquent taxes were very small; total taxes on four parcels already acquired came to $700.

No one spoke in opposition to the bill; however, committee members expressed concern because of the potential loss of revenue to schools and other local governments. The supporters cited a letter from the Washoe County School District which expressed no concern about the fiscal impact of S.B. 523. They also noted delinquent taxes would always involve small amounts because if such property had any significant market value, the owner would sell it rather than allowing it to be claimed for delinquent taxes.

Chairman Goldwater asked for a motion.

ASSEMBLYWOMAN FREEMAN MOVED TO DO PASS S.B. 523.

ASSEMBLYWOMAN GIBBONS SECONDED THE MOTION.

There was no discussion and Mr. Goldwater called for a vote.

THE MOTION CARRIED. MR. GOLDWATER OPPOSED.

Mr. Goldwater said there would be some floor statements. If any member wished to handle a particular bill let him know. Otherwise he and his vice-chair would handle them. Additionally he said he would probably schedule one more "cleanup" meeting because there were some letters the committee needed to approve and some other matters they might want to discuss.

Chairman Goldwater noted there was a jet fuel tax bill, the title of which was incorrect. The title of the bill stated it increased the jet fuel tax. That was not right, it just changed the imposition. That bill was moved out of the committee. The committee needed to amend the title, and Mr. Goldwater submitted an amendment in his name to do that. If that was not alright with the committee, they could meet behind the bar and take action.

Mr. Zuend noted the "wine bill" S.B. 428 was an amend and do pass. There had been one provision submitted by Gary Milliken that Mr. Anderson questioned in connection with the amendment provisions which did not apply to certain transactions. When the amendment got to the Legislative Counsel Bureau, they did not know how they could do it. Mr. Milliken came in and decided to drop that portion of his amendment.

Assemblyman Marvel remarked on the fine job Mr. Goldwater had done in chairing the committee during the session. All the committee members agreed.

On that fine note, Chairman Goldwater adjourned the meeting at 8:00 p.m.

RESPECTFULLY SUBMITTED:

Darlene Rubin,

Transcribing Secretary

RESPECTFULLY SUBMITTED;

_____________________________ Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: