The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:10 p.m., on Thursday, May 6, 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

GUEST LEGISLATORS PRESENT:

Assemblyman David E. Humke, Washoe County Assembly District No. 26

Assemblyman Joseph (Joe) E. Dini, Jr., Carson City, Lyon, and Storey counties, Assembly District No. 38

Senator Lawrence E. Jacobsen, Western Nevada Senatorial District

Senator Mark E. Amodei, Capital Senatorial District

STAFF MEMBERS PRESENT:

Alice Nevin, Committee Secretary

OTHERS PRESENT:

Assemblyman David E. Humke, Washoe County Assembly District No. 26, gave a brief explanation of the bill. Mr. Humke noted eight or ten agencies received the funds and all of the agencies were within Washoe County.

Katy Simon, Manager, Washoe County, presented Washoe County Special Motor Vehicle Privilege Tax Comments (Exhibit C). She explained the bill was designed to reduce the one-cent tax by two-tenths of one cent each year, or 20 percent each year. Ms. Simon stated this bill would reduce and eliminate the special motor vehicle privilege tax in the county over a period of 5 years.

Jim Galloway, Chairman, Board of Commissioners, Washoe County, clarified the tax was a remnant tax that needed to be eliminated. Joanne Bond, Board of Commissioners, Washoe County, stated she supported this bill.

Mary E. Henderson, Lobbyist, City of Reno, explained the "fair share" act from the 1991 Legislative Session allowed five makeup revenues. She stated this tax was one of the five makeup revenues. Ms. Henderson said Washoe County and Churchill County currently had this tax. She noted there were two components of the original act, a payback provision to Clark County for 3 years and a permanent loss of sales tax revenue, exported out, over a period of time. She explained the rural counties made the decision to do a 5-year phase in so that they received all of the revenues at the end of 5 years. She noted they also asked for the same makeup revenues. She said Clark County did a 2-year phase in. She commented the rural counties were finished when the 5-year period ended.

Ms. Henderson continued Churchill County, in 1993, because of reporting errors by the Department of Taxation, made a decision to be on the wrong side of the ledger on this issue. She noted in 1993, the board of commissioners, with the end of the Clark County payback, rolled property taxes back by six cents. She stated the Clark County payoff was done, but Churchill County imposed a makeup tax.

Senator O’Connell said this issue was brought before the Senate Bill (S.B.) 253 of the Sixty-ninth Session legislative committee.

Senator O’Connell said it was important to note Washoe County and the City of Reno were willing to commit to a loss in revenue. She congratulated Ms. Henderson and the governmental groups involved.

In response to a question by Senator Neal, Ms. Simon said the reduction in revenue would be phased in over a period of time. She noted the total amount was $6 million, which would be finished at the end of the 5-year period. She stated this would bring about a shift in priorities. She stressed the county did not want to impact services, so it would delay public works projects and the hiring of staff to accommodate the reduction.

Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, confirmed the bill phased in the reduction over a 5-year period, with a $6 million total loss in revenue.

Ms. Henderson said for the record, she wanted to thank Assemblyman Humke, Senator O’Connell, and the S.B. 253 of the Sixty-ninth Session legislative committee for their work. She acknowledged there had been misinformation about this particular tax and the committee helped to clarify that Washoe County and the other local governments were not at fault. She stated David Aiazzi, City Council, City of Reno, and Assemblyman Humke crafted the legislation and this bill was truly a tax-relief effort.

Senator Neal asked if this money had any relationship with the payback of funds to Clark County. Ms. Henderson replied no, this money was for the permanent distribution of sales tax revenues. She noted the Clark County payback ($2 million per year for 3 years), was actually paid by rolling back the property tax by six cents. She noted Washoe County was never in a position to gain a windfall when the payback ended, because the permanent freeze on the property tax was part of the makeup revenues.

Barbara A. McKenzie, Lobbyist, City of Reno, testified in support of Ms. Henderson’s testimony and this bill.

Senator Coffin requested expert testimony on the distribution of revenues. Marvin A. Leavitt, Lobbyist, City of Las Vegas, testified this issue changed the revenues specially levied for Washoe County. He noted when the switch with the sales tax and property tax originally occurred in 1981, it was determined that the newly enacted sales tax would be distributed by a property tax relationship. He explained property tax was being replaced and rather than distribute the sales tax while the sales tax was collected, distribution was made in relation to the level of property tax. As a result, he said, Washoe County fared better on the property-tax relationship than when it was done on the sales-tax relationship.

Mr. Leavitt continued, over the years the differential seemed to increase and the sales tax was a very good tax in Clark County; better than property tax, comparatively speaking, but the opposite was true in Washoe County. He stated when the change was made in 1991, the rural counties were given funds first because they were unable to support themselves. He noted the other counties received the remaining funds in proportion to their sales. Mr. Leavitt summarized Clark County versus Washoe County was exactly fair, percentage wise, on the sales tax distribution that was collected in those two counties. He said it was in direct proportion to their own sales, excluding the amount that went to support the rural counties.

Chairman McGinness closed the hearing on A.B. 471.

SENATOR TOWNSEND MOVED TO DO PASS A.B. 471.

SENATOR O’CONNELL SECONDED THE MOTION.

Senator Neal requested information regarding the statute (that resulted in the "fair share" solution), and Chairman McGinness said the information would be provided to him as soon as possible.

THE MOTION CARRIED UNANIMOUSLY.

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Chairman McGinness opened the hearing on A.B. 314.

Assemblyman Joseph (Joe) E. Dini, Jr., Carson City, Lyon, and Storey counties Assembly District No. 38, said this bill was a culmination of work between five counties (Lyon, Douglas, Carson City, Storey, and Churchill) to construct a juvenile detention and treatment center in Silver Springs. He noted in the 1997 Legislative Session, funds were given for construction of the building, but there were no funds allocated for operations. He stated this bill would provide the mechanism to fund the operation of the treatment center.

Chairman McGinness said he had spoken with James T. Regan, Chairman, Board of Commissioners, Churchill County, and the board supported the bill. Senator Lawrence E. Jacobsen, Western Nevada Senatorial District, testified in support of this bill.

Senator Mark E. Amodei, Capital Senatorial District, said when the capital improvement measure was approved during the 1997 Legislative Session, language similar to this bill was used to provide funding of facilities for the whole state. He stated this particular bill requested operating funds for the treatment center located in Silver Springs. He explained the facility represented a practical solution to a problem; the facility was needed; the facility was located in an area that was accessible for all five counties.

Ray Masayko, Mayor, Carson City, testified in support of the bill. He noted this facility was desirable to house juveniles who needed help. He said the bill provided a funding mechanism and counties or cities could choose to impose an ad valorem tax or find funding from continuing revenues. He stressed the possibility of imposing the ad valorem tax would be appropriate in this case. Mr. Masayko said a draft interlocal agreement had been written and the five counties wholeheartedly supported this bill.

Senator Neal asked how the five-cent figure was determined for the ad valorem tax. Mary C. Walker, Lobbyist, Carson City, Douglas County, and Lyon County, answered it was determined by looking at the actual cost of operations for the facility. She noted the cost would be about $900,000 per year, to be split amongst the five counties, based upon the number of juveniles that occupied the facility. Ms. Walker said the tax would be levied for each county’s proportionate share of the facility, with a cap at five cents. She said some jurisdictions might need additional revenues and the bill stated funding could be provided through revenue mechanisms currently in place. She explained this meant through a five-cent ad valorem increase or a combination of both options. Ms. Walker concluded the state provided funding in the 1997 Legislative Session to build the facility, but without this bill, the facility would not open.

Assemblyman Dini noted the Board of Commissioners, Lyon County, had chosen to take the funds from their general fund. He commented one of the reasons for this facility was some counties had no juvenile facilities and juveniles could not be kept in a jail with "regular" prisoners. He emphasized the district court judges in all five counties were supportive of this bill.

Chairman McGinness closed the hearing on A.B. 314 and opened the hearing on A.B. 667.

Anne Cathcart, Senior Attorney General, Office of the Attorney General, presented a letter entitled Assembly Bill No. 667 (Tobacco Manufacturer Accountability) (Exhibit D). She stated cigarette smoking was a serious health and financial concern to the State of Nevada. She noted it was estimated that Nevadans paid millions of dollars every year in medical costs to treat smoking- related illnesses. She stated the attorney general, after months of negotiations, settled Nevada’s legal claims against the major national tobacco manufacturers. She explained there were 45 states, 5 territories and the District of Columbia that participated in the Master Settlement Agreement (MSA).

Ms. Cathcart said the MSA did two things: it prohibited participating manufacturers from targeting youth in their advertising campaign and it obligated manufacturers to pay payments beginning in June of 2000. She informed the committee Nevada’s payment would be $48 million up to the year 2025. She noted beyond that point the payment would include a minimum 3-percent cost-of-living increase. She explained the agreement went a long way to ensure tobacco manufacturers were accountable to the state.

Ms. Cathcart continued the goal of this particular statute was to provide assurance that all companies, who sold cigarettes in Nevada, including those who had not entered into the agreement, were capable of fulfilling obligations to Nevadans. She said passage of the bill would also protect Nevada’s annual payment from a potential adjustment in the future. Ms. Cathcart said the bill represented the language exactly as it appeared in the Master Settlement Agreement.

Senator O’Connell clarified if someone went to court and claimed their illness was smoking related, how would the blame be determined as far as the manufacturers were concerned. Ms. Cathcart answered that would be up to a jury to decide.

Chairman McGinness closed the hearing on A.B. 667 and opened the hearing on A.B. 668.

Mark Schofield, Assessor, Clark County, representing the Nevada Assessors’ Association, testified in support of the bill. Barbara Byington, Assessor, Douglas County, reviewed section 17 of the bill for the committee. Kit Carson Weaver, Assessor, Carson City, spoke on section 19 of the bill.

In response to a question, Paul J. Iverson, Administrator, Division of Agriculture, Department of Business and Industry, testified the Division of Agriculture collected the livestock tax, and also the sheep and predatory animal tax for the State Board of Sheep Commissioners.

Senator Neal asked if the motor vehicle privilege tax affected this bill in any way. Ms. Byington said the motor vehicle privilege tax was a 4-percent tax on the vehicle and in some counties an additional 1-percent tax was added, for a total of 5 percent. She stated in Douglas County, the 1-percent tax sunsetted (expired by limitation) after 1 year.

Senator Neal requested clarification of page 6, lines 4 and 5 (second reprint) of the bill. Mr. Schofield clarified there were four municipal golf courses in Clark County, each owned by the local government, leased out to private management firms to operate. He noted one golf course qualified as a "public park" and the assessors’ association determined this created an inequitable situation. He commented he would like to see section 2 placed back in the bill. He noted through misunderstandings, the language was amended out of the bill during a Nevada Assembly floor session.

Senator O’Connell questioned the word "exemption" rather than "exclusion." Mr. Schofield answered there would be no fiscal difference because the golf course was already exempted property, since it was owned by the government. He noted it would be excluded, as a possessory interest, because it was leased or loaned for profit-making purposes. Senator O’Connell stated this would create a tax policy to tax or not tax these properties.

Robert A. Ostrovsky, Lobbyist, O B Sports, testified the Angel Park Golf Club was city land for park use only. He noted the city set the rates and determined the reporting requirements.

Senator Neal asked if homes situated on the golf courses paid property taxes. Mr. Schofield answered yes, they paid property taxes. Senator O’Connell clarified the client Mr. Ostrovsky represented had different circumstances than the other three properties because the city had different agreements with each of the golf courses. Mr. Schofield said the law changed in 1997 and the equity issue had caused the need for this legislation.

Mr. Schofield pointed out the first reprint of the bill was an effort by all four properties to agree on the necessary language. He summarized all of the properties were excluded; then a different interpretation said they met the qualifications of being part of a public park; then they all became taxable; then only one was excluded and three remained taxable. He concluded the golf courses were similarly situated, were similar businesses, but were treated differently.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, said the association supported providing equity in any tax situation for the state. She also supported section 6 (section 7) of the bill.

Chairman McGinness closed the hearing on A.B. 668 and adjourned the meeting at 4:10 p.m.

RESPECTFULLY SUBMITTED:

Alice Nevin,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

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