The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:15 p.m., on Thursday, April 1, 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

COMMITTEE MEMBERS ABSENT:

Senator Michael Schneider (Excused)

STAFF MEMBERS PRESENT:

Alice Nevin, Committee Secretary

OTHERS PRESENT:

Chairman McGinness announced Senator O’Connell had requested delaying Senate Bill (S.B.) 476 until Tuesday, April 6, 1999. He opened the hearing on S.B. 477.

SENATE BILL 476: Changes limitation on total ad valorem tax levy. (BDR 32- 705)

Greg W. Ferraro, Lobbyist, Nevada Resort Association, testified in support of the bill. He said this bill was in response to a very immediate need in the Truckee Meadows.

Jeff Griffin, Mayor, City of Reno; Chairman, Reno-Sparks Convention and Visitors Authority (RSCVA); Chair, Gaming Task Force, United States Conference of Mayors, said until 1978, Nevada had a gaming monopoly in the United States. He noted then Atlantic City was approved for casino gambling. He added today there were 65 incorporated cities in 28 states that have full, Nevada-style gambling within their city limits.

Mr. Griffin continued RSCVA’s response to this problem was to develop a game plan to respond to this new reality. He said the various areas of northern Nevada were separated into regions and the natural resources and attractions were identified. He said the creation of non-gaming kinds of attractions and conventions were identified, which was a particularly important factor.

Mr. Griffin said there were several elements to this bill. He noted one element was the expansion and rehabilitation of the existing convention center in Reno. He said this was urgent because a number of large conventions had made it known that they planned to seek other convention sites because they had outgrown the Reno facility. He emphasized the need to expand and rehabilitate the Reno convention center to meet these kinds of challenges.

Mr. Griffin stated downtown Reno was particularly stressed. Reno, he said, could be considered the grandfather of gaming and tourism in the state. He noted the downtown area needed a small-scale facility that would complement Reno’s larger convention center south of town. He called attention to the fact that two Las Vegas properties, the Excaliber Hotel-Casino and the Mirage Hotel and Casino, were larger than the 198 acre area of downtown Reno. He emphasized downtown Reno was the site of 42 percent of the rooms in Washoe County and was the important "heart" of the community. He stressed it must be able to continue in good health.

Mr. Griffin testified the community needed these projects and also needed good marketing. He said the RSCVA had changed its approach of northern Nevada to a "region-wide" approach. He said the National Bowling Stadium was particularly stressed and needed additional money to market the facility. He concluded speaking for the RSCVA, as well as Mayor of the City of Reno, the Truckee Meadows very desperately needs this legislation that will allow us to meet those challenges.

Senator O’Connell asked Mr. Griffin to comment on the Governor’s statement that he will not sign a tax bill. Harvey Whittemore, Lobbyist, Nevada Resort Association, responded saying in discussions with the Governor’s staff and the Governor, it was determined this bill did not fall within the category of items that he would veto because it was not General Fund money.

Tony Santo, President, Reno Hilton and Flamingo Hilton Reno; Member, Nevada Resort Association, said he had spent 18 years in the gaming industry, in both Las Vegas and Reno, and supported this bill. He said the Nevada Resort Association (NRA) met the past 6 months to discuss the future of Reno and the Truckee Meadows. He noted a number of issues were discussed and the easiest thing would have been to do nothing, but the members decided to act, because the future of gaming in Reno was slowly dwindling. He stated, with the help of Senator Raggio (William J. Raggio, Washoe County Senatorial District No. 3) the NRA unanimously supported the bill. He emphasized Reno had been reliant on the leisure market over the past few years and because of the proliferation of gaming throughout this country, specifically the northwest, the leisure market continued to decline.

Mr. Santo said the bill allowed the expansion of the convention center, desperately needed to diversify the market, and marketing of the bowling stadium. He stated it also allowed marketing of the Truckee Meadows and Lake Tahoe regions. He noted one of the goals was to market the skiing and golf that this region had to offer, as well as feature mountain recreation. He concluded NRA supported this bill, as was evident by the number of members present today. He stressed this was the best thing for the future of Reno.

Mr. Whittemore testified S.B. 477 was comprised of five sections. He stated section 1 imposed the tax at a rate of 3 percent of the gross receipts, in the unincorporated area of Washoe County. He said there would be a 2-percent increase in the cities of Washoe County, except in the district described in the Nevada Revised Statutes (NRS) 268.780 to 268.785, the railroad district. He summarized a 3-percent tax was proposed on all institutions except those institutions already paying an additional 1 percent for the railroad improvement district. He noted this tax was in addition to all other taxes being imposed except in certain cases where a tax could not be paid on a tax.

Mr. Whittemore explained section 2 of the bill described the methodology by which the first $1.5 million of the new tax funds would be divided. He noted the remainder of the proceeds of the tax would be distributed to the RSCVA to support the projects described by Mr. Griffin. He said section 3 described a steering committee to be formed to determine whether a capital improvement project located in the downtown Reno area was an appropriate use of the proceeds described in subsection 1 of section 2. He continued explaining the bill and read the proposed amendments to the bill entitled, Amendments to S.B. 477 (Exhibit C).

Mr. Whittemore stated the bill, when first printed, did not include three very important components that reflected the agreement of the parties and they were included in Exhibit C. He noted the NRA supported the bill and the amendments because it helped to meet their goals. He pointed out the RSCVA currently gave Incline Village over $900,000 in an annual grant.

Mr. Whittemore said the Board of Directors of the NRA unanimously approved a proposal presented to the City of Sparks that would have given a portion of the proceeds of the $1.5 million in tax funds to the City of Sparks for the development of marketing and tourism. He emphasized this offer was rejected. Mr. Whittemore said the NRA also unanimously supported their Sparks member that an additional 1-percent tax could not be levied simply to meet some unstated objective of increasing the taxes for a parity issue.

Senator Coffin asked how many members of the new group (called the Truckee Meadows Tourism Facility and Revitalization Steering Committee) would be elected by the people. Mr. Whittemore answered five of nine members would be elected officials. Mr. Griffin added six of nine members would have to agree on any project.

In response to a question by Senator Coffin about where the tax would be paid, Mr. Whittemore said the bill drafter mistakenly imposed the "Treasurer of Washoe County." He noted the amendment requested substitution of the RSCVA, which presently collected the tax funds. He noted it must be understood that this was a special committee designed for one purpose, to recommend proposed capital improvement projects for a very small core of the city. He emphasized this was not the function of the RSCVA.

Senator Rhoads inquired about the amount of time to pay back the bonds. Mr. Whittemore said, depending upon the expansion required, and pursuant to the plans which have been presented to the board, this could be accomplished in approximately 25 to 30 years. He expressed it was important to note that as a provision of this bill, proceeds would be used to pay down the bond, and the tax would sunset at the conclusion of bond payment.

Senator Neal clarified this was a special act. Mr. Whittemore said yes, because of the economical and geographical problems in Washoe County, a special act was required. Senator Neal asked if this meant it overrode the constitutional mandate not to pass special legislation. Mr. Whittemore said special legislation could not pass unless there were special reasons and he called attention to page 1, lines 1 to 6 of the bill. Senator Rhoads commented this would be the same as the "Fremont Experience" legislation that was passed several years ago. Mr. Whittemore said it was identical and his legal conclusion was that it was appropriate as long as it contained a severability clause.

David L. Howard, Lobbyist, Greater Reno-Sparks Chamber of Commerce (GRSCC), testified in support of the bill. He said the GRSCC felt a sense of urgency about this issue and felt this was very important legislation. He emphasized downtown Reno and local convention business were the economic generators of northern Nevada. He noted this legislation was very necessary for the improvement of Reno and it would help bring Reno back into the competitive tourism market.

Denny Martindale, Chairman of the Board, Greater Reno-Sparks Chamber of Commerce, spoke for the legislation, saying the Board of Directors of the GRSCC unanimously approved supporting the bill. He said small business owners needed the support of the gaming and tourism industry. He noted this tax would be paid by visitors and not by the community. Mr. Martindale stressed it was important to continue to build the tourism base in this community and expansion of the current facility was necessary for the Truckee Meadows to be competitive in the convention industry.

Roberta A. Ross, Owner, Ross Manor Hotel Apartments; Director, Greater Reno-Sparks Chamber of Commerce; Chairwomen, Citizens Advisory Committee, Reno Redevelopment Agency, said she supported the bill. She said this tax would directly affect the business she owned, but it was proactive for the city and county to take this responsibility. She noted the downtown area seemed to be a dying entity and the people that lived and worked in downtown Reno needed a strong marketing effort to bring people back to the downtown area.

Senator Neal asked about the present tax rate. Mr. Ferraro said it was 10 percent in the downtown Reno area; 8 percent in Sparks; 9 percent in Incline Village. He reviewed the tax increases and total amounts for each area, saying the tax would be applied across Washoe County. Mr. Whittemore added the intent was to equalize the increase at 3 percent, which would raise the tax by 2 percent in downtown Reno and by 3 percent in each of the other entities.

Mr. Ferraro said this bill would send a clear and unmistakable message that the region was very serious about tourism. He noted perhaps this would even bring additional investors to northern Nevada.

Senator Neal asked for an explanation of section 1 of the bill, because it was hard to understand the tax rate information. Mr. Whittemore said NRS 268.780 to 268.785 were provisions which described and allowed the imposition of the 1-percent room tax for the construction of the railroad improvements; therefore, the downtown district tax would be imposed at 2 percent. Mr. Whittemore clarified there would be a 3-percent tax levied in all of Washoe County except for the railroad improvement district, which would be 2 percent. He said all proceeds would be collected, under the proposed amendment, by the RSCVA.

Senator Neal said what this committee voted on was what would be passed into law, and this legislation needed to be clearly stated. Mr. Whittemore said he believed the language was very clear, but he would be happy to look at any additional language that would clarify the issue. He emphasized, in his opinion, the tax issue was very clear and he thought people reading it could understand it, especially because this bill was similar to other tax bills which had been approved by this committee in the past.

Senator O’Connell asked which areas competed with Reno for the tourism market. Mr. Whittemore said for conventions, Sacramento and San Francisco, California. He said he had heard discussion that Reno’s true market competitors were Salt Lake City, Utah and Denver, Colorado. Senator O’Connell asked if room charges would be competitive in those markets if this bill passed. Mr. Whittemore said Reno would be right at or below the national average. He added the judgement was that 3 percent was the maximum rate which could be added to the current tax rate. He noted a smaller increase would not get what was needed for the Truckee Meadows community.

David Farside, Concerned Citizen, spoke in favor of S.B. 477, but also addressed the parity issue. He noted it was stated here that there was an agreement that Sparks would maintain a 1-percent parity advantage over the properties of Reno and Washoe County. He recalled about 8 years ago, it was decided to ask the voters for a room tax raise of 1 percent for Reno, Sparks and the Washoe County. He continued the room tax increase was approved and the City of Reno and Washoe County implemented it, but the City of Sparks did not impose the tax, and that explained why they maintained a 1-percent advantage in the room tax.

Mr. Farside said he had requested a 1-percent room tax raise but the City Council, City of Sparks, had denied the request. He asked the committee to authorize an amendment so that in the future, the people of Sparks would have a window of opportunity to get the 1-percent room tax for Sparks citizens. He noted by amending this legislation, the City of Sparks would have an opportunity to reach parity with the other entities. He suggested the City of Sparks use one-half of the funds for improvement of parks and recreation and perhaps the other half could be used for a police substation in downtown Sparks. He emphasized money was needed to enhance and improve the community.

Senator Neal asked Mr. Whittemore to estimate what the present tax generated and how much the additional tax would add to this amount. Mr. Whittemore replied it was 11 percent at approximately $350,000 per percent in Sparks, totaling $4 million in total room tax paid. He continued the total room tax paid for downtown Reno was $17 million at present, which was 1 percent at $2.2 million or $21 million.

Senator Coffin asked how much additional bonded indebtedness would need to be financed and the answer was approximately $85 million to $105 million. Mr. Whittemore said the total bonded indebtedness would be added to the existing debt, and bonds would be issued by the same entities that issued the present bonds. He stated the total remaining indebtedness on the existing facility was $104 million and would increase to about $200 million. Senator Coffin asked if it was backed by the full faith and credit of local governments and the answer was yes.

Vicki McGowan, Director of Marketing Programs, Incline Village and Crystal Bay Visitors and Convention Bureau, spoke in support of the bill, but requested an additional amendment to the bill. She noted in the past there was an agreement that the Incline Village and Crystal Bay area would receive funds from the room tax. She stressed when it was known that there would be a request to increase the room tax, it was thought that an expanded and renovated convention center in Reno would help all of northern Nevada. She said it would help position northern Nevada as a premier convention destination.

Ms. McGowan continued none of the Lake Tahoe properties were present when this issue was discussed. She pointed out the statement that all of the parties had discussed this issue and negotiations had taken place did not include properties at Lake Tahoe. She said they were not members of the NRA and had not been included in any of the meetings between the NRA and the RSCVA.

Ms. McGowan said her request was to commit 2 percent of the room tax, as specified, but commit the additional 1-percent tax, collected in the north Lake Tahoe market, to transportation. She stressed this was a critical issue for the north shore properties. She noted the major competitors for the north shore were the south shore or Placer County, the California side of Lake Tahoe, which has a first class quality transit funded or subsidized, in part, by room tax.

Ms. McGowan said a proposal had been drafted to initiate an airport shuttle, but in order to guarantee the service, it would cost $450,000. She noted their share of the tax would be a little under $300,000 and private business would have to step forward and guarantee the remainder. She requested the 1-percent tax, currently allocated to downtown Reno but collected in Incline Village and Crystal Bay, be returned to the north shore for use in transportation.

Charles P. Bluth, President, Cal-Neva Resort, Crystal Bay, confirmed the NRA did not represent the north shore properties. He said they represent only 10 northern Nevada properties. He maintained this proposal was negotiated without including the north shore entities. He emphasized it was a shame that representatives of the north shore had to say everyone had not been given the opportunity to be heard on this issue.

Mr. Bluth said a very good partnership had been maintained with Reno through the years, an important partnership for the north shore, because the gateway to Lake Tahoe was through Reno. He noted this accounted for a third of their business. He called attention to the fact that the north shore was a unique area, with approximately 80 percent of the marketing dollars going to advertising. He said their room rates averaged three times the rates in the Reno area and this tax increase would hit their hotels three times greater than anyone staying in a hotel in Reno.

Mr. Bluth continued north shore had a strong marketing program, but generated only a 64-percent occupancy. He stressed presently the revenue generated in room tax was $2.7 million and it was paid to Reno. He said of that amount, $290,000 went to the bowling stadium, which did not benefit the north shore; $950,000 was applied towards marketing in Reno; now the RSCVA was requesting an additional $600,000, collected at north shore, and applied to the City of Reno.

Mr. Bluth said previously it was felt that Reno needed the tax revenue, but the total tax would increase from $2.7 to $3.6 million. He emphasized:

Senator Neal asked for clarification of the request for transportation. Mr. Bluth said it would be a "mirror system" similar to the one at the south shore. He noted they have shuttle buses that leave the Reno airport and go to the south shore. He said this was especially important during the winter months when people did not want to rent cars and drive up the mountain. He testified north shore would be at a disadvantage. He said the south shore room tax was 9 percent; Placer County was 10 percent; north shore would be 12 percent.

Greg Saunders, General Manager, Hyatt Regency Lake Tahoe Resort and Casino, said they supported the RSCVA and would continue to support their efforts. He stated their relationship with the RSCVA had been good but they were preparing to make a $26 million investment in the hotel and a level playing field was needed. He said his hotel competed against south shore and the Squaw Creek Resort, where the rates were much lower. He noted:

Bruce Breslow, Mayor, City of Sparks, introduced the City Council, City of Sparks. Tony Armstrong, City Council, City of Sparks, said the entire council was here to represent the City of Sparks. He clarified the Greater Reno-Sparks Chamber of Commerce was not the Sparks Chamber of Commerce, a 700- member group, with membership in Sparks.

Mr. Armstrong said the City of Sparks was looking at the 3-percent tax figure and the fairness of taxation without representation. He stated the City of Sparks was not included in any of the negotiations and discussions to put the 3-percent tax proposal together. He stressed the City Council, City of Sparks, voted unanimously to support the 2-percent proposal for expansion of the RSCVA and also voted unanimously to ask for the extra 1 percent, which was paid by the City of Sparks, to come back to the City of Sparks. He noted the city would like to build a convention facility in downtown Sparks. He stated the city was not in favor of giving the tax increase to the City of Reno to build a convention facility in downtown Reno.

Cindy Henderson, City Council, City of Sparks, said she was in support of the 2-percent tax increase, but requested the 1-percent portion of the tax be returned to the City of Sparks. She reiterated that the city was not invited to participate in the discussions regarding this tax. She stated this proposal would return almost $4 million to the RSCVA. She noted currently 1 percent goes to the Reno bowling stadium and the City of Sparks receives zero dollars back. Ms. Henderson said the City of Sparks spent over $60 million redoing the downtown area, and a portion of the new funds should return to the community which paid the tax.

Terry Reynolds, City Manager, City of Sparks, presented issues for clarification. He said the NRA forged this bill in compromise, and the City of Sparks was excluded from the discussions on this legislation. He noted the city had been willing to compromise on issues but they would have liked the opportunity to sit down and negotiate this legislation. He stated the city supported the 2-percent increase for the convention center and now requested the 1-percent tax, approximately $350,000, be returned to the City of Sparks.

Mr. Breslow presented his written testimony for the record (Exhibit D) and Proposed Amendment to S.B. 477 (Exhibit E). Senator Coffin asked about failure to pay and Mr. Breslow said Washoe County would be responsible for the debt if there were a default situation. Mr. Reynolds said the City of Sparks had instituted its own marketing program for Victorian Square to bring millions of tourists into their downtown. He stressed the city felt strongly if this tax were increased, a portion should return to the City of Sparks. Mr. Armstrong commented council members represent 65,000 people who live in the City of Sparks.

Andrew L. Barbano, Lobbyist, Casinos Out of Politics, said he opposed this legislation because the RSCVA spends money as quickly as they get it. He noted in the past, they devoted funds to bonded indebtedness and as a result had to go to deficit spending. He said they had to establish a line of credit to borrow against operations because when room taxes dropped, they did not have the money to pay their expenses. He commented this organization had little credibility with their own constituents in Washoe County.

Mr. Barbano said public money should not be used to subsidize private industry. He questioned was it good when Mr. Whittemore could appear before this committee to announce what the NRA would do, at the exclusion of other entities. He stated some lawmakers had signed the taxpayers protection pledge (NRS 360.291, Taxpayers’ Bill of Rights) and promised to oppose and vote against any and all efforts to increase taxes. He maintained this committee had an opportunity to define when a tax is a tax, or not a tax, and whether the Governor will sign a tax, which is really not a tax. He concluded he opposed this tax.

Mr. Farside said his question was if the City of Sparks really wanted to have a convention center, they could have increased the room tax by 1 percent. He maintained the City of Sparks should not try to undermine this bill, which would benefit all of Washoe County.

Chairman McGinness closed the hearing on S.B. 477 and opened the hearing on S.B. 494.

David Pursell, Executive Director, Department of Taxation, testified the department requested this bill to adjust the cycle used to conduct ratio studies in the counties. He noted the ratio study was a comparison of appraisals done by county assessors. He stated those ratios must fall within a certain parameter, set by statute, and the request was to change the cycle from a 2-year cycle to a 3-year cycle. Mr. Pursell said the counties have gone from a 5-year reappraisal cycle to reappraising property every year, which increased the number of parcels. He commented there are the same number of appraisers to handle the increasing workload.

Chairman McGinness closed the hearing on S.B. 494.

SENATOR NEAL MOVED TO DO PASS S.B. 494.

SENATOR O’CONNELL SECONDED THE MOTION.

*****

Mr. Whittemore testified in favor of the bill. He presented a Summary of Proposed Statutory Amendments (pages 1, 2 and 3) and Proposed Amendments to S.B. 521 (pages 4 and 5) (Exhibit F) and a visual aid entitled Before S.B. 521 and After S.B. 521 (Exhibit G). He said S.B. 521 was designed to address several uncertainties and technical problems in the application of the Nevada sales and property tax to certain works of art. He explained Exhibit F. He said this request was to improve what was believed to be a very important piece of legislation passed previously. He said the policy discussion took place when S.B. 90 was discussed before the committee at an earlier date.

Mr. Whittemore said people questioned whether having this facility specifically located in a gaming facility resulted in a net benefit to the state. He declared it clearly does. He questioned whether it was good tax policy to maintain an exemption which was still being determined as appropriate. He said this bill attempted to clarify the legislation and to make the legislative intent clearer. Mr. Whittemore emphasized for the record:

Mr. Whittemore continued there were questions as to whether art had been sold. He said yes, art had been sold. He clarified there were more than 10 instances where "the inventory" had been sold. He noted strong arguments would be made showing the art was inventory and the exemption would apply. He argued this bill was about improving the clarity of the fine art exemption created with the passage of the earlier legislation.

Senator O’Connell asked if the bill gave a second exemption, and Mr. Whittemore answered there was only the net benefit of one exemption. He said there could be the inventory tax exemption or the public art display exemption. Senator O’Connell clarified if part of the exemption was given to a charitable organization, there would be another deduction. Mr. Whittemore said under the revenue code, the effect is the same.

Senator Rhoads asked about the expiration dates in the bill. Mr. Whittemore answered it was transitory language that had to be included in the bill. Senator Rhoads clarified the eligibility determination for Nevada residents to get the 50-percent discount. Mr. Whittemore replied any acceptable evidence of residency would be appropriate.

Senator Neal asked if Mr. Whittemore knew of the Taxpayers Relief Act of 1997, which removed art as an exemption. Mr. Whittemore said yes, he knew there were changes in the tax relief act. Senator Neal said unlike stock, art was an investment purchased for pleasure and decoration. He continued there was a long-standing economic debate as to whether or not art was a productive asset that stimulated economic growth. He noted a spokesman for the Internal Revenue Service (IRS) determined it was not, and cutting the capital gains tax for the sale of art works would not significantly affect the economy.

Mr. Whittemore said yes, but it was not relevant with what was proposed in the bill because the exemption was designed to stimulate the economy. He said the issue was the effective tax rate on the gain of the sale of art and the economic consequences of raising or reducing the tax. He questioned whether this would have a significant impact on the United States economy. He noted in this instance, Congress determined there was not a significant impact and therefore the changes were effectuated.

Senator Neal clarified if Mr. Whittemore’s client has a secondhand art dealer’s license. Mr. Whittemore replied his client had purchased art over a period of time and was engaged in the business of selling art to customers who visited the gallery and viewed the art in the gallery. He added those sales had exceeded millions of dollars. He noted his client was involved in the active practice in selling art, which was currently displayed at The Bellagio Resort.

Senator Neal asked when Mr. Whittemore’s client received the secondhand art dealer’s license and Mr. Whittemore said that was not relevant to this bill. He noted the issue was not the legitimacy of the claim of the art being exempt because of the inventory tax provisions in our constitution and what had been effectuated in our statutes. He said it was whether or not there should be further exemption for particular art which was on public display. Senator Neal asked how many pieces of art had been sold and Mr. Whittemore replied 10 pieces of art were sold through June 30, 1998.

Senator Neal asked for a clarification of direct and indirect cost on page 5, line 40, of the bill. Mr. Whittemore said direct cost would be providing, on an allocated basis, the expenses such as providing electricity to the facility; a non-allocated and specific expense would be expenses such as providing a humidifying system to protect the art. He noted indirect cost would be costs associated with personnel expenses. Senator Neal asked if it would include federal taxes paid on the art. Mr. Whittemore answered the indirect and direct cost would likely include some allocation on federal taxes, if there were taxes associated with the operation of the facility.

Mr. Whittemore continued this was not a separate business operation and the direct and indirect cost of owning and exhibiting the fine art was limited by the phrases of owning and exhibiting the fine art. He explained it would be those expenses associated with the exhibition and ownership costs. He said there were expenses, not deductible from the net revenue admission charge, such as anything to do with casino operations. He noted all of those expenses would be excluded.

Senator Neal clarified this bill gives an amount for the charity. Mr. Whittemore said yes, there have been previous discussions about this and, as you know, the question of the revenues associated with the net revenues are incumbent upon a variety of factors, which the taxpayer cannot control. He stated his client was pleased with the number of people who wanted to view the art and because this was a unique facility, the cost of protecting the art was significant.

Senator Neal questioned how the public would benefit from this. Mr. Whittemore said the net revenue returned to the charitable organization, of the tax paid, was showing this committee that the admission fee issue was a non-issue. He noted it was designed to collect enough money to allow the exhibition of the fine art. He stated he had tried to provide a rationale, which met the public policy test of why there is concern about the admission fee.

Chairman McGinness clarified the net on the direct and indirect cost was determined in the audit process. Senator Coffin addressed Mr. Whittemore’s statement that $5 million was paid to one of the principals in the company and this would be part of the cost of showing the collection. Mr. Whittemore said if a gallery had to pay an individual who does not own the art, a fee for allowing the art to be shown, that would be an expense. He clarified the fact that the art was owned by an individual associated with a company was irrelevant as to whether those expenses should be deducted under the system that was provided. He said if it was not in the gallery, there would not be the credit, but if it was not in the gallery, it would not be viewed.

Mr. Whittemore continued it was hoped to show the admission fee was not an issue. He said the admission fee was simply a method by which we were trying to encourage the ability to display the art. He noted if there was a concern about excess money, it was hoped to give it back, through charitable contributions or grants to the state, or through paying the tax.

Senator Neal said he understood the exemption, and the amount of money which would not be paid could be estimated, but he would like clarification on the offering of funds to a charitable organization. Mr. Whittemore said because that was difficult to legislate, he had attempted to address the public-private partnership issue by making it clear as to the level of the discount and assurances that free tours were offered for children. He said it was felt there should be a discount, knowing the net revenue number would be smaller, but hoping that there would still be something at the end of the line. He pointed out the merits of the bill were the educational component and the 50-percent Nevada-resident discount incentives. He said efforts had been made to improve the existing law and, in his opinion, this bill improved the law. He concluded whether there should be an exemption was answered in 1997, and this bill confirmed the exemption issue.

To answer to an earlier question, Mr. Whittemore stated the state license on the sales tax was acquired on November 5, 1997 and the county secondhand art dealer’s license was obtained in March or April 1998.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, spoke against the bill. Mr. Barbano testified against the bill. He said the direct and indirect costs and deductions had the potential for a double deduction. He explained expenses deducted on the state level and the same expenses deducted on the federal level would be a double deduction. Jan Chastain, Concerned Citizen, said she would be excited to have fine art here in Nevada but she thought the direct- and indirect-cost issue needed further clarification.

Chairman McGinness closed the hearing on S.B. 521 and opened the hearing on S.B. 524.

Barbara A. McKenzie, Lobbyist, City of Reno, said the City of Reno proposed this bill and currently had requested an attorney general’s opinion on an option which was previously proposed. She requested postponing any action on the bill until the opinion was received. She noted, as written, the bill would not accomplish what it was intended to do. Chairman McGinness clarified the opinion would need to be received quickly because the committee had an upcoming deadline for all bills to be passed out of the committee. Ms. McKenzie said if it were too late, she would request the committee write a letter to the S.B. 253 of the Sixty-ninth Session committee asking for a review of the issue and its effect on the taxpayers in the community. Senator O’Connell said that was the first issue the committee would study.

Chairman McGinness closed the hearing on S.B. 524 and adjourned the meeting at 5:25 p.m.

RESPECTFULLY SUBMITTED:

Alice Nevin,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

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