The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:10 p.m., on Tuesday, May 11, 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 Jerry D. Claborn, Clark County Assembly District No. 19

Assemblyman P.M. "Roy" Neighbors, Esmeralda, Lincoln, Mineral, and Nye counties Assembly District No. 36

Assemblyman Kelly Thomas, Clark County Assembly District No. 16

STAFF MEMBERS PRESENT:

Alice Nevin, Committee Secretary

OTHERS PRESENT:

Chairman McGinness opened the hearing on Assembly Bill (A.B.) 207.

Assemblyman Jerry C. Claborn, Clark County Assembly District No. 19, stated the bill included local or state apprenticeship organizations that sponsored apprenticeship programs.

John E. Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council, asked to testify on both A.B. 207 and A.B. 211. Chairman McGinness agreed to open the hearing on A.B. 211 and to hear testimony on both bills simultaneously.

Mr. Jeffrey said A.B. 211 was written because of a mistake in A.B. 476 of the Sixty-ninth Session.

ASSEMBLY BILL 476 OF THE SIXTY-NINTH SESSION: Provides exemption from taxes for real and personal property of certain apprentice programs. (BDR 32-1087)

Mr. Jeffrey presented Assembly Bill 207 and Assembly Bill 211 (Exhibit C). He pointed out page 2 of Exhibit C gave an explanation of the problem in A.B. 476 of the Sixty-ninth Session. He said, "A.B. 211 is simply an attempt to correct the language to grant the exemption, as was intended in 1997." He said there had been no opposition from local governments concerning the bills and he urged the committee to support both bills.

Senator O’Connell asked if the exemption applied to all apprentice programs. Mr. Jeffrey replied it applied to those programs approved by the State Apprenticeship Council (SAC). James J. Leonard, State Apprenticeship Council, acknowledged approved apprenticeship programs were exempt.

Senator Rhoads asked for clarification of the fiscal note for A.B. 211. Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, said the fiscal note projected $41,182 for Fiscal Year (FY) 1999-2000 and $44,321 for FY 2000-01. Chairman McGinness noted the programs had not been taxed previously so there was no actual loss in revenue.

Danny L. Thompson, Lobbyist, Nevada State AFL-CIO, said Mr. Jeffrey had provided adequate testimony on these bills. He noted the bills would clarify the statute and he urged support for the bills.

Senator Neal asked if the United States Department of Labor had certified the State Apprenticeship Council. Mr. Leonard said yes, after meeting certain criteria, certification had been received.

Cheryl C. Blomstrom, Lobbyist, Nevada Chapter of Associated General Contractors (AGC), spoke in support of both bills. She said members of AGC were signatory members to several labor agreements and participated in the apprenticeship programs through labor unions. She noted additionally, they were formulating an apprenticeship program for open-shop contractors, which would use this particular exemption.

Chairman McGinness closed the hearing on A.B. 207 and A.B. 211 and opened the hearing on A.B. 584.

Assemblyman P.M. "Roy" Neighbors, Esmeralda, Lincoln, Mineral, and Nye counties Assembly District No. 36, testified he served as chairman of an interim legislative committee which studied the construction and maintenance of highways and roads. He noted the committee was established by Senate Concurrent Resolution (S.C.R.) 53 of the Sixty-ninth Session.

Assemblyman Neighbors said the committee was charged with the responsibility of determining the extent of the shortfall in funds needed to maintain the state highway system and to expand the system to accommodate growth. He stated during the course of the study, every source of revenue that could be used for highways was considered. He continued special attention was paid to the tax on motor fuel because the tax produced the greatest amounts of money for the highway funds.

Assemblyman Neighbors noted A.B. 584 was one of the most significant pieces of legislation to come before the committee this session. He commented the bill was very lengthy, with 114 sections, but the changes to the law were fairly simple. He emphasized the bill drafter used this opportunity to rewrite the tax statutes regarding the gasoline tax, to make it easier to read and understand.

Assemblyman Neighbors commented the gasoline tax produced over $300 million per year for the state Highway Fund and the county road funds. He noted as a revenue producer, it was surpassed only by the sales tax and gaming tax. Because of its size, he said, the gasoline tax was an attractive target for tax evaders. He stated 3 years ago, the Council of State Governments studied the problem of fuel-tax evasion and concluded losses to state governments amounted to $1.5 billion per year; losses threatened the ability of states to maintain and improve their transportation system; individual dealers carried out the most fraud. He noted this bill would help to prevent tax evasion by centralizing the responsibility for collecting motor fuel taxes.

Assemblyman Neighbors clarified tax collection responsibility was currently divided between the Department of Taxation (collects the tax on gasoline) and the Department of Motor Vehicles and Public Safety (collects taxes on special fuels, such as diesel). He noted the responsibility would shift to the Department of Motor Vehicles and Public Safety. He stated this would free the Department of Taxation to concentrate on the collection of General Fund revenues and bring new focus to the fuel-tax collection program.

Assemblyman Neighbors continued this bill moved the point of collection to a higher level in the distribution chain. He said this change would reduce the number of taxpayers that agencies must deal with, reduce the number of returns filed and make it easier to identify and deal with problems and inconsistencies. He emphasized the potential increase in revenue was large. He stated this was not a new tax, and until now the chief obstacle to moving the point of collection had been the difference in tax rates in the various counties.

Assemblyman Neighbors remarked in the past it was believed the record- keeping problem was insurmountable. He stated suppliers would be required to keep track of the amount of fuel delivered to the dealers in different counties and ensure that the proper amount of tax was paid. He said this bill transferred the responsibility for collection of the gasoline tax and transferred the point at which the tax was collected to the terminal rack. He concluded implementation of this bill would discourage tax evasion, make our tax system more equitable, and provide the revenues needed to improve Nevada’s transportation system to accommodate the growing population and the expanding economy. He urged support of the bill.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, spoke in support of A.B. 584. She said the bill would provide more efficiency in the collection of a tax. She pointed out with the exception of one subsection, the bill would be effective on January 1, 2001 and this would allow time to get the collection process in place. She noted there had been extensive testimony but no opposition to the bill. Ms. Vilardo commented the bill would provide some advantages to the taxpayer and simplify the reporting and auditing requirements. She emphasized the association strongly supported the bill.

Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association, testified in support of A.B. 584. He noted the diesel tax was moved to the terminal rack and a substantial amount of revenue was gained from that collection process. He added it simplified auditing procedures and reduced the number of taxpayers involved in collecting the tax.

Senator Neal asked for an explanation of the term "terminal rack." Mr. Capurro said the "terminal" was the petroleum producer, which was the highest point in the chain; the "rack" was the actual rack where the fuel was distributed out of the large tanks at the tank farms. He clarified the petroleum companies were actually collecting the tax. He pointed out originally the tax was collected on report; then it was collected at the pump (the retail level); then it was collected by the distributor (the middleman level); with the passage of this bill, collection would be done at the terminal rack.

Mr. Capurro said at the present time all other taxes, federal and state, were collected at the terminal rack. He noted a problem in the past was making sure the tax was distributed to counties and the regional transportation commissions in the state.

Mr. Capurro continued the Department of Motor Vehicles and Public Safety has a public-private partnership with Lockheed Martin IMS to implement the tracking system for this procedure. He noted the tracking system was vital to ensuring the tax would be collected and distributed properly. He pointed out the process would actually start January 1, 2002, instead of January 1, 2001, as was mentioned in previous testimony. He said this date was chosen because the budget process would not be disrupted for the Department of Taxation or the Department of Motor Vehicles and Public Safety.

Mr. Capurro said the ability to collect all Highway Fund taxes by a Highway Fund agency was extremely important. He stressed a federal report several years ago brought about the collection process change and indicated a possible 5- to 8-percent evasion on the gasoline tax. He stressed the revenue savings were estimated to be from $3 million to $8 million without raising any tax rates. He concluded it was a reasonable consolidation of the tax at the same level that all other highway taxes are collected, and by the same agency that collected all other highway funds. He urged support for this bill.

Peter D. Krueger, Lobbyist, Nevada Petroleum Marketers and Convenience Store Association, said he supported this legislation. He noted for the reasons heard, this was the right policy move. He stated the side benefits would be more efficiency in collection and audit, and a better system to eliminate or reduce the problem of tax evasion.

Mr. Krueger referred to Amendments Needed for A.B. 584 (Exhibit D). He noted the amendments were strictly cleanup items.

Clay Thomas, Assistant Chief, Motor Carrier Bureau, Registration Division, Department of Motor Vehicles and Public Safety, testified in support of the bill.

Chairman McGinness closed the hearing on A.B. 584 and opened the hearing on A.B. 669.

Chairman McGinness said a policy discussion on this bill took place in a recent Senate Committee on Judiciary meeting. He noted discussion of section 5, page 5, of the bill brought about referral of the bill to this committee.

Robert D. Faiss, Lobbyist, Nevada Resort Association (NRA), testified in support of this bill. He presented his written testimony for the record (Exhibit E).

In response to a question from Senator Coffin, Mr. Faiss reiterated the casino entertainment tax applied only to amounts paid for admission, food or merchandise in a cabaret, nightclub or casino showroom; service charges were not included in the scope of the tax.

Senator Neal asked how the casino tax, in section 5 of the bill, related to the federal tax code. Mr. Faiss said the United States Code, Title 26 (Internal Revenue Code) includes the federal admissions tax, which applied to all admissions. He noted Nevada adopted only subsection 6 of that act, the federal cabaret tax, and then repealed it in 1965. He clarified at that time, the Legislature continued only the part of the federal admissions tax limited to cabarets.

Senator Neal clarified this bill would disallow casinos from paying taxes on services paid by credit card. He asked if credit card companies would pay the tax. Mr. Faiss replied no, Nevada law did not tax a third party to collect service charges. He stressed the tax was not collected now; the change offered clarified credit card service charges were within the service charge.

Senator Neal questioned the need for clarification. Mr. Faiss said agents of the State Gaming Control Board had taken the position that this issue needed clarification. He commented throughout history, audit agents had developed different interpretations of the casino entertainment tax. He concluded, "This bill did not ask to change, just to clarify that credit card service charges are service charges."

Dennis K. Neilander, Board Member, State Gaming Control Board, stated the board was a tax-collecting agency. He noted the board did not make tax policy, but attempted to enforce the law. He presented Requested Background of 1985 Amendments to NRS (Nevada Revised Statutes) 364.401 (Exhibit F). Mr. Neilander asked:

Mr. Neilander commented Chairman DuCharme (Steve DuCharme, Chairman, State Gaming Control Board) felt very strongly that this section of the law was not intended to cover credit card fees. He said the second issue had to do with whether to treat the law on a prospective or retroactive basis.

Sydney Wickliffe, Deputy Chief, Audit Division, State Gaming Control Board, explained the accounting treatment for the service charges. She said:

David Sisk, Vice President of Finance, Caesars Palace, clarified Ms. Wickliffe’s testimony. He noted regarding the 10-day period, a processor (agent) is acting on behalf of the credit card company and would net out his fee from the day’s proceeds.

Jeff R. Rodefer, Senior Deputy Attorney General, Gaming Division, Office of the Attorney General, presented his written remarks for the record (Exhibit G). He said an important issue to be considered is the prospective versus retrospective application of the bill, if passed into law.

Senator Neal asked if collecting this tax from the third-party processor would be a legal problem for the state. Mr. Neilander said if a third party collected the fee, the problems were as Ms. Wickliffe mentioned in her testimony. He explained a patron would charge an excursion to his room; the licensee would have to show that such purchases were not part of the casino entertainment tax, and were not subject to the tax. He continued an audit trail would have to be established showing where service charges were excluded from the casino entertainment tax.

Senator Neal asked if the State Gaming Control Board sensed any resistance from the casino industry in separating out these charges. Mr. Neilander answered he was not aware of any opposition. Senator Neal clarified in collecting the entertainment tax on these service charges, the only thing that was new was the credit card application. Mr. Neilander said the service charges paid to credit card companies in the past were not excluded from the casino entertainment tax. Senator Neal clarified in the process of handling the charges, the gross amount was deposited in the bank. He continued on the tenth of the following month those charges were zeroed out and transferred to the credit card company.

Ms. Wickliffe answered:

Senator Neal inquired about the legal significance of collecting the tax. Mr. Rodefer answered the legal significance revolved around the two words in the statute, "collected" and "retained." He said when the funds were zeroed out at the end of the day and swept out of that bank account into an operational account, an argument could be made that at least for a period of 1 day, or up to 40 days, the casino had retained those funds. He continued this was until the tenth of the month when the bank took the credit card service fee from the particular account.

Mr. Faiss said during testimony in the Assembly, the State Gaming Control Board appeared jointly with the NRA and concurred in the amendment. He noted:

Senator Neal clarified the credit slips, deposited into the casino’s bank account; zeroed out at midnight; and placed into an operating account, did not change the usage of those slips.

Mr. Faiss said the initial question was whether the service charge was collected and retained by a third person. He noted once the law was clarified, the State Gaming Control Board would act, based on the law.

Senator Neal clarified sales tax was collected when a credit card was used as payment. Mr. Sisk said sales tax is not collected on the actual entertainment portion. Senator Neal asked if sales tax was collected when a person in the showroom used a credit card to buy cigarettes or a picture. Mr. Sisk answered sales tax would be collected in that case.

Mr. Neilander said he and Mr. Faiss were hopeful to reach an agreement but were not able to do so. He repeated the issue is whether credit card fees are to be included within the term, "service charges." He said, in his opinion, the board’s (State Gaming Control Board) approach was a reasonable one.

Chairman McGinness closed the hearing on A.B. 669 and opened the work session. He referred to A.B. 207.

SENATOR NEAL MOVED TO DO PASS A.B. 207.

SENATOR RHOADS SECONDED THE MOTION.

THE MOTION PASSED. (SENATOR O’CONNELL VOTED NO. SENATOR TOWNSEND ABSTAINED FROM THE VOTE.)

SENATOR NEAL MOVED TO DO PASS A.B. 211.

SENATOR RHOADS SECONDED THE MOTION.

THE MOTION CARRIED. (SENATOR O’CONNELL VOTED NO. SENATOR TOWNSEND ABSTAINED FROM THE VOTE.)

*****

Chairman McGinness referred to A.B. 584.

Chairman McGinness presented letters of support for the bill (Exhibit H).

SENATOR O’CONNELL MOVED TO INDEFINITELY POSTPONE A.B. 423.

SENATOR COFFIN SECONDED THE MOTION.

Senator Neal asked for clarification on this bill. Mark Schofield, Assessor, Clark County, stated favorable testimony had been heard on the bill. He noted it was essentially clarification of a portion of the statute that allowed the use of discounted cash flow as an element of analyzing income streams to set value on property to ensure it did not exceed full cash value. He stated it was enabling language that allowed an assessor to consider a group of parcels as one unit.

Anne Cathcart, Special Assistant Attorney General, Office of the Attorney General, presented Assembly Bill 667 (Tobacco Manufacturers’ Accountability) (Exhibit I). Ms. Cathcart noted Exhibit I contained a list of the tobacco manufacturing companies which were signatories to the Master Settlement Agreement. Ms. Cathcart called attention to page 2 of the memorandum, which addressed Senator O’Connell’s question of the secondhand smoke issue. Ms. Cathcart said in any lawsuit, the burden of proof is up to the plaintiff and they would have to prove that they were damaged by the actions of the particular manufacturer.

SENATOR NEAL MOVED TO DO PASS A.B. 667.

SENATOR TOWNSEND SECONDED THE MOTION.

Senator O’Connell opened the discussion saying the problem was the lack of accountability to the city. She noted if a tax exemption was given, more clarification was necessary. She stated currently the contracts for the golf courses were not all written in the same manner.

Senator Townsend commented the Reno-Sparks Convention and Visitors Authority had a similar situation and he would be interested in further information on this issue.

Robert A. Ostrovsky, Lobbyist, O B Sports, said he represented the Angel Park Golf Club, which was located in a park. He noted they did not escape taxation, but paid in a different way.

Mr. Schofield testified other counties in addition to Clark County would be affected by this legislation. He noted the proposed amendment to the bill provided some accountability of reporting to the governmental body, but currently there were no other reporting mechanisms, other than the contracts with the various golf courses.

At the request of Senator O’Connell, Marvin A. Leavitt, Lobbyist, City of Las Vegas, clarified this issue. He said the golf courses the City of Las Vegas owned and leased had different leasing arrangements. He called attention to the fact that one golf course was located on BLM (United States Department of the Interior, Bureau of Land Management) land. He said there were rules that applied to the city, but did not apply to private operators, such as labor agreements and restrictions. He noted these rules drive up the costs, and in some cases, private operators could operate properties at a much lower cost.

Mr. Leavitt pointed out one golf course was located on city-owned property, but had been built and operated by a private operator. He said each one of the properties had a different schedule of lease payments and each situation was unique. He noted the City of Las Vegas had approval rights for the fees, which were done with an established schedule.

James J. Spinello, Lobbyist, Clark County, noted the situation was the same for Clark County. He commented it was a productive use of the land.

Senator O’Connell asked for more information on this issue. Chairman McGinness said a work session was scheduled for Thursday, May 13, and this matter would be reexamined on that date.

Chairman McGinness adjourned the meeting at 4:30 p.m.

RESPECTFULLY SUBMITTED:

Alice Nevin,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

DATE: