The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:05 p.m. on Thursday, March 18, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mike McGinness, Chairman

Senator Dean A. Rhoads, Vice Chairman

Senator Randolph J. Townsend

Senator Ann O’Connell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Michael Schneider

STAFF MEMBERS PRESENT:

Alice Nevin, Committee Secretary

OTHERS PRESENT:

Joan A. Lambert, Lobbyist, Nevada Land Title Association, said the real property transfer tax is collected by county recorders and proceeds shared among various local governments, as part of the pooled tax distribution of revenues. She explained the Department of Taxation has the authority to write regulations, and the Nevada Tax Commission has the duty of prescribing a declaration of value form that accompanies each deed. She noted this form is recorded along with the taxes administered by the department.

Ms. Lambert said the deputy attorney general for the Department of Taxation stated this was a locally collected tax and the department only has authority to write regulations. She noted most tax bills have a section of definitions, a section that establishes the tax base, a section that establishes the rate, and a number of pages containing information on auditing and collection. She pointed out, in contrast, chapter 375 of the Nevada Administrative Code (NAC) is very short and the collection mechanism is not addressed within the chapter. Ms. Lambert clarified if the tax is not paid when the deed is recorded, there is very little in the statutes that allows collection afterwards. She said currently no one is specifically responsible for paying the tax, and there are a great number of exemptions to the tax, both of which have caused enormous problems. She continued transactions have become more sophisticated and complex and the few regulations that explain the exemptions are antiquated. She noted Nevada’s 17 county recorders have kept the system together, by working together. Ms. Lambert stated the regulations are scanty with a number of attorney general opinions and district attorney opinions from the various counties. She said if there is an audit and an exemption declared is considered invalid, the title or escrow company has to pay the tax the customer owed. She referred to NAC 375.190, subsection 2, "If a deed has gone through escrow or if an escrow holder has recorded the deed, the escrow holder is liable for payment of any additional tax required."

To find a solution to this problem, Ms. Lambert talked with several county recorders about the difficulty of dealing with archaic regulations, scanty direction in the law itself and a real estate market that has increased in size and complexity. She commented better regulations are needed, explaining the exemptions, so that the tax can be collected more efficiently and more fairly.

Ms. Lambert continued the Nevada Title Association wrote the Department of Taxation and requested a meeting. She said the department agreed and several meetings were held, with county recorders and land title people participating from around the state. She noted even though the statute says the Nevada Tax Commission is supposed to adopt a declaration of value form, each county has developed their own. Ms. Lambert stressed it was determined that development of a more useful form was important because it would give recorders a working tool to see if the value declared is correct before they record the deed. The responsible party could then be established to pay any additional tax. She said at a taxation workshop, the deputy attorney general for the department said the responsible party could not be determined in the regulation and none of the collection mechanisms could be used because the department did not administer the tax. She concluded if it cannot be done in the regulations, it must be brought before the Legislature. She said a collection mechanism needs to be inserted in the Nevada Revised Statutes (NRS) chapter 375 to make it more comprehensive.

Charles T. Cook, General Counsel, Nevada Title Company, representing the Nevada Land Title Company, testified for S.B. 318. He submitted his remarks for the record (Exhibit C) and a Summary of Legislation (regarding the real property transfer tax) (Exhibit D. Original is on file in the Research Library.). He said a 1989 amendment amended NRS chapter 375 in every respect where it made a distinction between those that went through escrow and those that did not, but no change was made to the NAC at that time. He maintained the oversight was the problem and recommended the following: void and delete (NAC) 375.190, subsection 2; void and delete the first four words of NAC 375.190, subsection 3. He concluded this was an attempt to find a solution to the problem of escrow companies, who are prohibited from practicing law, who act as a neutral third party, who are unable to police transactions, but if audited are responsible for payment of the customer’s tax.

In response to an inquiry by Senator Neal, Mr. Cook responded:

Senator Neal questioned payment of the tax. Mr. Cook explained the tax is paid according to information given by the buyers and sellers. He said if there is a problem discovered, such as not qualifying for the exemption, misstating the value of the property or any other reason, they (the escrow company) are responsible to pay the adjustment. Senator Neal asked for an example of when the county recorder might request payment of additional taxes. Mr. Cook replied one example would be if the deed was conveyed from mother to son, but was determined disqualified for the exemption, because the mother had no son. Another example would be a deed between spouses who were not married, or a deed that said $20,000, but the value was incorrect. Senator Neal asked if there was an obligation to investigate those things as a part of the escrow and the answer was no, that would be outside the scope of escrow. He noted escrow was limited to third-party status, accepting instructions from both sides. Senator Neal asked if the escrow function was a necessary part of the transaction and Mr. Cook replied yes, escrow facilitated the deed process.

Paulette Walsh-Baker, President, Southern Nevada Escrow Association, testified escrow agents should be relieved of payment responsibility of someone else’s tax and county recorders need a mechanism in the law for collection of the tax. She concluded escrow agents are not in a position to police the sellers and should not be a collection agent for the state or the county.

Frank J. Stancato, Branch Counsel, Lawyers Title of Nevada, said he participated in the recent tax workshops, and learned certain regulations could not be changed because it could only be done statutorily. He noted, after agreeing on a revised declaration of value form, it was discovered that, in their estimation, the Nevada Administrative Code (NAC) 375.190, subsection 2 needed to be repealed. He suggested there were three options: get a change legislatively, go to the Nevada Tax Commission, or go to court. He noted the county recorders said legislation had to have an automatic mechanism, an enforcement mechanism and an identification of the responsible party for payment of the tax. Mr. Stancato acknowledged in Clark County, following an audit, three title companies were faced with a bill in excess of $450,000. He said S.B. 318, with some additional changes, would provide what the county recorders want as well as what escrow agents need. He noted the Department of Taxation has taken the position that it will not administer the tax, although they promulgate the rules and the forms, put liens on property, and have a collection mechanism. Mr. Stancato suggested the department be responsible for the payment of the real property transfer tax. In summary, he asked for a repeal of NAC 375.190, subsection 2, because the title and escrow companies should not be responsible for the payment of somebody else’s taxes. He said their mandate is to act as a third party to facilitate a real estate transaction between a buyer and a seller; to accept documents and money; to transfer the appropriate documents to the recorder’s office. He concluded, they cannot practice law, cannot serve as detectives and should not be the collection agent for a state tax, as this makes private industry an agent for government.

Senator Neal asked how the recorder determined additional taxes were owed. Mr. Stancato said the records and files of the escrow holder and the recording deeds must be made available to the recorder. Chairman McGinness inquired if, having attended the workshop, Mr. Stancato felt a compromise could be worked out at this time. Mr. Stancato said not in his opinion.

Alan H. Glover, Lobbyist, Clerk/Recorder, Carson City, testified in opposition to S.B. 318. He noted at a recent meeting, county recorders indicated they needed certain things, but did not have an opportunity for input into the language of this bill. He said the dilemma was the collection of any tax deficiency by county recorders. He stressed this is a complicated problem, with a huge financial impact. He agreed with Mr. Cook, saying the Nevada Department of Taxation has ignored this problem and it needs attention.

Robert S. Hadfield, Lobbyist, Nevada Association of Counties, (NACO) testified the association supports the county recorders and he cautioned the changes proposed would change the basic relationship between the counties and the process itself. He said the process, as it exists, could be revised so that title companies required people to provide evidence of certain things, such as exemptions. He said escrow and title agents are the axle of the wheel, the connection between the buyer and the seller, and they have the records. He said they do not wish to take on an additional burden but perhaps they could be compensated as part of the transaction. He warned some counties could not deal with the proposed changes.

Linda Slater, Recorder, Douglas County, presented a packet of letters written by county recorders in opposition of the bill (Exhibit E. Original is on file in the Research Library.). She read comments extracted from the letters. Ms. Slater said the bill is not user friendly, efficient or effective. She said for the record, all 17 county recorders are in opposition to S.B. 318. Ms. Slater said repealing this section of the code takes out the mechanism for recorders to audit records and verify that the value or the exemption declared is valid.

Senator Rhoads asked how other states handle this problem. Mr. Glover said other states have different taxes and exemptions. He suggested an interim study, which would look at the whole tax with exemptions. He said meetings of the two groups were not producing results and he felt the Legislature needed to be involved. Senator O’Connell asked Mr. Glover about the opinion he mentioned from 1989 and he replied he thought it made the recorder personally responsible to pay any uncollected amount of the tax. Senator O’Connell asked him to research it and bring the information back to committee.

Kathy Burke, Recorder, Washoe County, said Washoe County escrow files are audited and as recorder, she did not want to implement liens to collect additional real property transfer tax. She said any underpayment or overpayment is taken care of at the time of the audit. She emphasized county recorders, like title companies, cannot give legal advice. Jim Barnes, District Attorney’s Office, Washoe County, said he was in support of Ms. Burke’s comments and noted the office would not like to get involved in enforcement of this issue.

Judy Vandever, Recorder, Clark County, referred to testimony letters (Exhibit F) regarding the real property transfer tax issue. She testified against S.B. 318, saying the recorder’s office met with representatives of the Nevada Land Title Association and a compromise was achieved. She continued it was her understanding that the Nevada Tax Commission did not agree and the compromise was set aside. She said her office averaged a volume of 3,000 recordings per day and the bill, as written, would create a terrible burden for the recorder’s office and the taxpayers. She continued taxes would not be collected efficiently nor collected in total and this could create a huge expense for the taxpayer as well as complicate and slow down the recording process. Ms. Vandever said the county district attorney’s office interpreted the statute to say the Nevada Tax Commission served as the collection agent for the tax.

Robert Spencer, Auditor, Recorder’s Office, Clark County, discussed the audit process in Clark County. Senator Neal asked if title companies and escrow companies were the same and Mr. Spencer said title companies were mostly escrow holders.

Chairman McGinness asked Dino DiCianno, Deputy Executive Director, Department of Taxation, to clarify this issue for the committee. Mr. DiCianno said, for the record, the department does not have a position on this bill. He called attention to the bill’s fiscal note, which was based upon information provided by the 17 county recorders. Regarding responsibility for administration of the tax, Mr. DiCianno said the opinion from the Office of the District Attorney, Civil Division, Clark County, was in direct conflict with the opinion of the department attorney, in the collection of the tax. He said the real property transfer tax is in Title 32 of the NRS, along with the special fuels and room tax. He noted the fuel and room taxes were not administered by Department of Taxation but were established by ordinance at the local level. He continued funds collected at the local level were remitted to the department and they flow through and back to the local entities that are affected. He questioned the statement that county recorders are not collectors, referring to NRS 375.030.

Mr. DiCianno said statements were made at this hearing about the difficulty of working with Nevada Tax Commission in establishing regulations. He noted the regulations were adopted in 1979, based upon what was agreed to by the parties. He noted the declaration of value form would be presented to the Nevada Tax Commission for approval and adoption. He stated the words "responsible party" needed clarification. He questioned who is the responsible party; the seller, the buyer, the escrow agent or the title company. He pointed out once those words are clarified, regulations can be developed, heard by the tax commission, adopted and administered.

Senator O’Connell asked if the buyer and seller were signing under penalty of perjury. Ms. Walsh-Baker said the declaration of value form does say under penalty of perjury; however, when the counties audit the title or escrow company, they are billed because the NAC says the escrow holder will be responsible. Ms. Burke said in Washoe County they periodically go to the party that signs the form. Senator Neal questioned when the document becomes official and the answer was it is official once it is processed and recorded. Chairman McGinness asked if title companies considered putting a clause in their contract that if the tax were misrepresented, one of the parties would be responsible. Ms. Walsh-Baker said this could be done but it puts the recorders in the middle. Chairman McGinness asked if Washoe County received compensation from the state for administering the tax and the answer was no.

Norma Spaeth, Vice President of Escrow Operations, Stewart Title Company of Nevada, said the post-closing clause that allows collection afterwards, is to collect for their errors, not because of fraudulent statements made by the parties. She repeated other testimony saying escrow and title companies do not feel they have been given authority by the state to become the tax collector. Senator Neal said he understood a contract was signed. Ms. Spaeth said the real estate contract is given to the escrow company and contract instructions are prepared which state the responsibilities. She noted there is no statement as to the validity of the contract signed between the buyer and seller.

Chairman McGinness said the committee recognized there was a problem. He asked if a compromise were possible. Alan Glover suggested the group reappear before the committee in a week or 10 days.

Chairman McGinness closed the hearing on S.B. 318 and opened the hearing on S.B. 319.

Mr. Hadfield submitted a handout (Exhibit G). Mr. Hadfield said he was very cognizant of the concerns of the Legislature and the public as they relate to ad valorem taxes, or property tax. He said this issue has been the subject of many discussions at the association and S.B. 319 was introduced after much forethought. He said larger urban counties, who are not at the tax cap, support this effort because they recognize ad valorem taxes and assessed value is causing a severe hardship for many of the rural counties in Nevada. He said this measure is a conservative approach, and is one of several bills before the Legislature this session. He said the Senate Bill 253 of the Sixty-ninth Session committee looked at this issue and another proposal and chose to have an additional bill drafted, with another approach, which also addresses this issue.

Mr. Hadfield continued many counties are experiencing rapid growth as well as growing assessed valuations that outpace the allowable increase in tax rates. He said this allows communities to bond for needed schools and for growth. He noted at the same time there are counties whose assessed valuation is declining, whose schools and public infrastructures are aging and in need of repair and replacement.

Mr. Hadfield explained Exhibit G denotes where counties stand with tax rates and demonstrates the diversity in the State of Nevada. He noted page 3 (Exhibit G), reviews the state use of property tax revenue and page 2 (Exhibit G), shows this is not an automatic tax increase. This page contains a comparison of county assessed valuation and tax rates, both growth and loss numbers. He noted Esmeralda, Eureka, Lander, Mineral, Storey, and White Pine counties are declining and if the assessed valuation declines, the property tax rate applied to that value must increase to generate the exact same dollars generated today. Mr. Hadfield pointed out when bonded indebtedness is pledged by a vote of the people, for example, to retire school bonds, this tax must be levied to make the payment. He continued in some counties, if the assessed valuation declines, the tax rate must increase to retire the bonds to make up the loss in assessed valuation. He said there are many examples and NACO has attempted to highlight public awareness of the problem. He noted this is an economic situation with a tax system that will not provide the ability for many of Nevada’s counties to help themselves.

Mr. Hadfield stated the people of the State of Nevada made it very clear and continue to make it clear, they want responsive and responsible government and they want to pay as few taxes as they can for the services they want. He testified the problem with the system is even if an increase in taxes is voted in, it will come at the expense of someone else. He noted page 2 (Exhibit G), shows there is a serious issue and something must be done this session, or some counties will not be able to help themselves.

Mr. Hadfield introduced Leroy Goodman, Chairman, Board of Commissioners, Lyon County, and Executive Committee of NACO. Mr. Goodman said he was also the rural representative on the Nevada Commission on Economic Development. He noted he has traveled the rural areas extensively and does not like what he sees. He said the small counties need to be able to help themselves and there is an urgency to this issue.

Mr. Hadfield said NACO was also concerned about the proposed changes in regulations of central assessed properties, which could have a further chilling effect on the assessed valuation of many of the rural counties. He stated utility deregulation could affect some of the larger facilities presently on the tax rolls that may no longer be there as a result of competition.

Senator Coffin said it appeared there would be no relief for White Pine County. He said he supported the legislation but was not sure it went far enough. Mr. Hadfield said this is not a perfect solution for a very serious problem. He noted Governor Guinn has promised to reevaluate this issue over the next 2 years.

Mary C. Walker, Lobbyist, Carson City, Lyon County, and Douglas County, said this bill does not affect those counties but they support the other jurisdictions. Bjorn P. Selinder, Lobbyist, Churchill County, said Churchill County is not affected by the proposal, but the county supports efforts to provide relief.

Janine Hansen, Lobbyist, Nevada Eagle Forum (NEF), testified in opposition to the bill. She said Nevada Eagle Forum had been involved for years in trying to keep taxes low for the people in this state. She suggested perhaps the way to resolve these difficulties was through restructuring. Ms. Hansen commented government should not penalize families with an increase in tax. She said tax relief is needed for our citizens. She noted revenue shortfalls are often a great blessing because they force prioritization. She quoted Thomas Jefferson, "In questions of power let no more be heard of confidence in man, but bind him down from mischief with the chains of the constitution."

Ms. Hansen continued the NEF wants government’s hands bound by the constitution. She said today, Nevada ranks as the sixth highest taxing state in the nation. She noted from 1980 to 1990, Nevada’s population growth was 50 percent; the Nevada tax revenue was 190 percent; and the average tax revenue growth of all states was 104 percent. She pointed out tax revenue in Nevada rose more than twice as fast as the population or the cost of living combined.

Ms. Hansen suggested the focus of the Legislature has been misdirected into building government, rather than to represent and serve the people. She said the Legislature, counties and cities can come up with the money needed for basic services by cutting nonessential government. She told the committee that informed government taxation is the single greatest threat to the economic well-being of the family and greatly increases the stress and breakdown in the family. Ms. Hansen said many bills are specially designed to help families but to cut taxes would probably be a better solution. She maintained government should be looking for an opportunity to minimize government and cut bureaucracy. She suggested voting against any and all tax increases, but if a tax increase is approved, to allow the people to vote as the constitution provides. She concluded restore our liberties by voting no on S.B. 319.

Senator O’Connell said there is another bill coming out that addresses the same issue on a county-by-county basis. Chairman McGinness asked Ms. Hansen to provide a copy of the article which contained the statistics she quoted to the group. She provided a copy of the February, 1999 issue of the Nevada Journal, pages 8 through 10 (Exhibit H), which had an article written by Ralph Heller, Nevada Policy Research Institute (NPRI), Senior Research Fellow. She suggested Mr. Heller be invited to come and talk to the Legislature.

Lynn P. Chapman, Lobbyist, representing Families for Freedom, said Nevada needs freedom from taxes; most people want lower taxes, not higher taxes; legislators need to watch out for the citizens; leave raising taxes to a vote of the people. Nanette Moffett, Concerned Citizen, testified against S.B. 319, saying counties need to tighten their belts, and if they cannot, take it to a vote of the people. Elza Turkington, Concerned Citizen, said people should be allowed to vote for tax increases. A. W. Walker, Concerned Citizen, said he opposed the bill because control should be at the county level and the people should vote for tax increases. Ted Harris, Concerned Citizen, opposed the bill saying to permit counties to raise the tax cap to $5 was not justified. He said the solution was to allow people to vote to raise taxes. Merritt K. (Ike) Yochum, Lobbyist, representing the Independent American Party (IAP), said IAP concurred with Ms. Hansen’s testimony.

Senator O’Connell said, for the record, one of the major problems of small counties is long-term care for senior citizens. She said there is a high ratio of senior citizens living in the smaller counties and the assessed valuation is lowered further because of the number of mobile homes. She noted arrangements have been made to have an interim study on long-term care because it is very important and is part of the major budget cost that these counties are facing.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association (NTA), said NTA opposed the bill. She said the bill brought a very serious problem to the committee’s attention, although testimony has indicated that property taxes are misunderstood. She explained some counties have very small entities that exceed the tax cap, and to allow those counties to exist, the county must buy down so that the rate does not exceed $3.64. She pointed out this issue had been addressed by the Senate Bill 253 of the Sixty-ninth Session committee. She said in addition, there is another bill to increase the cap, which NTA will support. She commented this bill goes further than NTA thinks it should and does not cover everything.

Bonnie S. Weber, Lobbyist, Nevada Republican Assembly, spoke in opposition to the bill, suggesting certain counties be exempted from the bill. She noted raising taxes should come from a vote of the people. Lucille Lusk, Lobbyist, Nevada Concerned Citizens, opposed the bill.

Chairman McGinness closed the hearing on S.B. 319 and introduced Bill Draft Request (BDR) 32-757.

SENATOR RHOADS MOVED TO INTRODUCE BDR 32-757.

SENATOR O’CONNELL SECONDED THE MOTION.

THE MOTION CARRIED. (SENATOR SCHNEIDER WAS ABSENT FOR THE VOTE.)

*****

Chairman McGinness announced S.B. 287 will not be heard in work session.

Chairman McGinness adjourned the meeting at 5:10 p.m.

RESPECTFULLY SUBMITTED:

Alice Nevin,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

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