MINUTES OF THE Meeting
of the
ASSEMBLY Committee on Taxation
Seventy-First Session
May 1, 2001
The Committee on Taxationwas called to order at 1:34 p.m., on Tuesday, May 1, 2001. Chairman David Goldwater presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Mr. Roy Neighbors, Vice Chairman
Mr. Greg Brower
Mr. David Brown
Mr. John Marvel
Mr. Harry Mortenson
Mr. David Parks
Mr. Bob Price
Ms. Sandra Tiffany
COMMITTEE MEMBERS ABSENT:
Mr. Bernie Anderson – Excused
Mr. Morse Arberry Jr. - Excused
Mrs. Vivian Freeman - Excused
GUEST LEGISLATORS PRESENT:
Senator Dean A. Rhoads, Northern Nevada Senatorial District
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Cheryl O'Day, Committee Secretary
OTHERS PRESENT:
Paul Iverson, Director, Nevada Department of Agriculture
Dawn Rafferty, Invasive Weed Specialist, Nevada Department of Agriculture
Jeff B. Knight, Entomologist, Nevada Department of Agriculture
Irene Porter, Executive Director, Southern Nevada Home Builders Association
Kathryn Burke, Washoe County Recorder, Washoe County
Mary Henderson, Community Relations’ Director, City of Reno
Tom Grady, Represented Nevada League of Cities
Dino Di Cianno, Deputy Executive Director, Nevada Department of Taxation
Marvin Leavitt, Represented the City of Las Vegas
Carole Vilardo, Represented the Nevada Taxpayers Association
Warren B. Hardy II, Represented the City of Mesquite
Samuel McMullen, Represented the Retail Association of Nevada and Philip Morris U.S.A.
John Albrecht, Senior Deputy Attorney General, Nevada Attorney General’s Office
John Jeffrey, Represented Brown & Williamson Tobacco Co. and Lorillard Tobacco Co.
Senate Bill 468: Authorizes board of county commissioners to impose additional tax on transfer of real property for certain purposes. (BDR 32-1473)
Senator Dean A. Rhoads introduced himself as representing the Northern Nevada Senatorial District. He discussed conversations and a slide presentation regarding noxious weeds and how certain Montana land was removed from the tax roll. Although Nevada did not have the problem some western states had, weeds required annual action. He referenced Florida’s program that provided $100 per $100,000 in property value and advised that the counties needed some form of consistent annual funding. Invasive species would be dealt with as well as noxious weeds.
Chairman Goldwater asked if there was not currently a penny on the property tax for noxious weeds for Nevada Cooperative Extension (NCE).
Paul Iverson, Director, Nevada Department of Agriculture (NDA), introduced himself and advised that northern Nevada dealt with noxious weeds and southern Nevada had more of an issue with invasive insect and vermin species. Clark County alone spent in excess of $200,000 per year. Mr. Iverson advised that fighting invasive species could be very expensive and discussed the Africanized bee invasion of Las Vegas.
Mr. Iverson stated the proposed tax could raise about $1.6 million, if the entire state was involved. He emphasized the bill did not address an invasive weed, pest or insect issue; it dealt with a “species” issue. Every dollar would be spent in each county, by those counties, fighting invasive species. He pointed out it was a state issue. Mr. Iverson confirmed invasive weeds were not strictly a rural issue. They changed the ecosystem of the state and how Nevadans did business. They impacted wildlife, repairs in some areas, grazing, recreation, etc. He said local involvement was necessary and named a number of groups and agencies.
Chairman Goldwater inquired how those concerns were different than what Nevada Cooperative Extension provided.
Mr. Iverson advised that Nevada Cooperative Extension provided a different service for the Nevada Department of Agriculture. He then outlined how the Nevada Department of Agriculture was responsible for quarantine, surveying and controlling the eradication of weeds. Nevada Cooperative Extension’s involvement dealt primarily with education and public awareness.
Chairman Goldwater advised the committee that Nevada Cooperative Extension was funded by one cent of property tax money.
Senator Rhoads advised that Nevada Cooperative Extension was very vital in rural Nevada. He said they monitored the 4H/FFA programs, promoted competition in fairs, “home ec,” clothing, but not noxious weeds.
Mr. Iverson stated that funds were provided last year to combat tall white top. It was still primarily an educational program but the Nevada Department of Agriculture worked very closely with its educational wing, Nevada Cooperative Extension. The Nevada Department of Agriculture did the actual surveying and monitoring but Nevada Cooperative Extension assisted the Nevada Department of Agriculture on many levels.
In response to Mr. Mortenson’s question, Dawn Rafferty, Invasive Weed Specialist for the Nevada Department of Agriculture, responded that white top came from Asia. It was believed that it came into the United States as a contaminant in sugar beet seed in the late 1800s. She continued that when an invasive species entered the country, none of the factors that kept it in check in its native area come with it. The regions of origin did not have the “problem” because of the ecological balance.
Jeff B. Knight introduced himself as the Nevada Department of Agriculture’s entomologist. He reiterated that invasive species included more than just weeds and provided examples. He discussed viral invasions such as the one that wiped out palms in prime tourist regions along the coast of Belize. Northern Nevada was currently dealing with the potato ward. Mr. Knight stated that not only was there a loss of crops, but that if the potato ward gained a foot-hold in Nevada, Nevada would be quarantined by other states.
Mr. Knight went on to describe other invasive species being dealt with. He confirmed the Nevada Department of Agriculture’s involvement with Nevada Cooperative Extension and described assistance provided. He provided examples of annual costs (Exhibit C). It cost the state of Texas $600 million annually to control the red imported fire ant. Nationwide, invasive species costs ran as high as $128 billion. Early measures such as nursery inspections, trapping and surveying were suggested and the anticipated costs were considered minimal.
Chairman Goldwater discussed the necessity of the bill, how some counties were up against artificially set caps, and whether it would be beneficial to them to use part of their allocations.
Ms. Rafferty’s discussion of landowners’ legal responsibilities with respect to noxious weeds was followed by remarks as to certain invasive species.
Mr. Mortenson inquired whether any of the natural checks for the white top were going to be imported from Asia.
Ms. Rafferty advised that although desirable, introducing natural checks to the white top was not possible because of the white top’s close relationship to other indigenous and crop species. A check would need to be specific to the problem species.
Mr. Knight advised that a number of biological controls were being developed for invasive species.
Mr. Price questioned the ability of landowners to control thousands of acres. He inquired whether the BLM assisted in any manner.
Ms. Rafferty confirmed that the BLM and the Forest Service both had great amounts of money dedicated to fuel reduction, which contained a noxious weed component. They attempted to develop cooperative weed management areas with large landowners and any federal agency that was located nearby.
Chairman Goldwater inquired of Mr. Iverson whether there were any assurances that those funds would be used for the specific purposes discussed, once the real property transfer tax was raised.
Mr. Iverson confirmed the proposed legislation included an attempt to get the process back to the county level. For example, there was no way one state weed specialist alone could resolve all of the issues. The state weed specialist had to have the counties’ assistance. He then named the different agencies and groups that the state weed specialist needed to work with. Mr. Iverson discussed conversations with the Elko County Recorder over the $13,000 that would be generated in that county and how it would be used.
Irene Porter introduced herself as the Executive Director of the Southern Nevada Home Builders Association (SNHBA). She discussed Clark County-specific additions to the real property transfer tax and how, if S.B. 468 was passed, it should apply to counties with populations of less than 400,000, thereby excluding Clark County (Exhibit D).
Chairman Goldwater advised that Clark County’s desire to be excluded would be noted, if the bill was passed.
Kathryn Burke introduced herself as the Washoe County Recorder and she represented Washoe County. She acknowledged and agreed on the issues raised with respect to invasive species but advised that Washoe County also wished to be excluded. At the Chair’s inquiry, Ms. Burke explained the two computations involved in, and the actual workings of, the real property transfer tax. She advised that A.B. 501 intended to impose an additional 60 cents on the real property transfer tax. Washoe County also hoped to be exempted from that bill.
Chairman Goldwater confirmed for the record that Washoe and Clark Counties wanted out of the legislation. Further, that Washoe and Clark Counties had not been excluded while the bill was in the Senate was because the bill’s fund-raising methodology changed. He then closed the hearing on S.B. 468.
Senate Bill 222: Authorizes Nevada tax commission to exchange with certain local governmental entities information concerning businesses that are subject to business tax. (BDR 32-618)
Chairman Goldwater then opened the hearing on S.B. 222 and called Mary Henderson forward.
Mary Henderson, Community Relations Director for the City of Reno, advised that current state law required the city of Reno to provide specific information to the state. However, nothing in the law provided for the transfer of information from the state to the city of Reno. When entities were licensed at the local level, the city of Reno had no access to state records. Many businesses obtained licenses at the state level but not the local level. She provided an example of a plating company near the airport that had licensed only at the state level and was creating environmental problems. Another example involved kids being bussed in to sell candy and when the city of Reno attempted to deal with complaints, audits and revenue enforcement, they were without the necessary information. Ms. Henderson then discussed the revision of NRS 364A.100 and pointed out that the proposed legislation was enabling legislation that the Nevada Tax Commission (NTC) could always deny.
At Chairman Goldwater’s inquiry, Ms. Henderson confirmed that confidentiality would be protected and that any information they provided would be to a governmental agency.
Tom Grady, Nevada League of Cities, advised that there were benefits to taxpayers. He stated if a state audit had recently been performed, that information could be shared with the local governments, which would eliminate their conducting a duplicate audit.
Mr. Marvel asked whether the subject matter was a statewide problem. Mr. Grady confirmed that it was. He stated that many of the license fees for local governments were based on net revenue.
Dino Di Cianno, Deputy Executive Director, Nevada Department of Taxation (NDT), confirmed that the provisions allowing a determination were permissive in nature. He agreed that the information involved was proprietary in nature. Regulations would be established with the commission and local governments as to the criteria for requesting the information and what would be released. Mr. Di Cianno advised that the Nevada Department of Agriculture was only concerned with calculations that related to the full-time equivalent of employees but they would not have any data on wages.
Chairman Goldwater engaged in off-record remarks with Carole Vilardo before closing the hearing on S.B. 222.
Senate Bill 317: Revises provisions governing local government finance. (BDR 31-353)
Chairman Goldwater opened the hearing on S.B. 317.
Marvin Leavitt, representing the city of Las Vegas, advised that the bill had been introduced by the Nevada League of Cities (NLC) on behalf of the Committee on Local Government Finance (CLGF). NRS 354 was the general chapter that dealt with budget and finance matters for local governments. He stated that the provisions had not been reviewed for antiquated language. Many of the provisions that related to other subjects were not contiguous but were difficult to find in various areas that related to Chapter 354. Mr. Leavitt discussed the Governmental Accounting Standards Board (GASB) and how it was the group that determined the generally accepted accounting principles for government. Local governments would need to comply with those accounting principles. He suggested that certain revisions should be made to Chapter 354 and that S.B. 317 provided for that compliance. He confirmed for the committee that new language was added to the beginning of the chapter so the same issue could be removed from its current location, bringing continuity to the chapter. Mr. Leavitt then described the Committee on Local Government Finance in detail and how the language establishing that committee was located in Chapter 266. It was now proposed that the applicable language be moved to Chapter 354.
Chairman Goldwater discussed with Mr. Leavitt how he wanted to be absolutely certain that any language being deleted as obsolete was actually obsolete.
Mr. Leavitt discussed Section 25 and a capital improvement plan. The local governments had a requirement that the plan must agree with the budget for at least the first year. He stated that the plan used to be more “wishful thinking.” He made mention of processes within the Nevada Department of Taxation that would exempt very small governments.
Chairman Goldwater requested confirmation that governments exempt from the Local Government Budget and Finance Act (LGBFA) were not required to file a capital improvement program plan. He then asked the reasoning behind that exemption.
Mr. Leavitt advised there was a separate exemption under law regarding certain budgetary filing requirements. Page 4, Section 9, proposed changing the annual expenditure from less than $100,000 to less than $200,000. Some of the smaller local governments had little or no staff and could spend half their budget in attempting to meet those requirements.
At the Chair’s inquiry, Mr. Leavitt described Section 35 as a list of the various funds available to local governments. The Governmental Accounting Standards Board had changed the names and groupings over the years. The listing provided by S.B. 317 corresponded to the list approved by the Governmental Accounting Standards Board. Independent certified public accountants were required to submit financial statements in an approved format. If not, they needed to state they were out of compliance, which, in turn, affected bonds, etc.
Mr. Leavitt stated that Section 41 provided the methodology by which local governments established their funds pursuant to resolution establishing an internal service fund. Previously, the language was inconsistent and varied. S.B. 317 clarified the language related to establishment of funds by providing one location and one standard for such funds.
Continuing, Mr. Leavitt outlined Section 48 as a financial emergency statute. It had been in existence for many years and assisted in determining whether someone was in a financial emergency. In response to Chairman Goldwater’s question, Mr. Leavitt advised that the franchise fee utility companies paid to local governments was computed as a percentage of consumption. The franchise fee would increase as rates went up. That franchise fee would be levied on power, gasoline, telephone service, etc. at different rates by different local governments and would show on utility bills.
Chairman Goldwater inquired as to Section 50 that established a three-member panel with respect to the Nevada Tax Commission.
Mr. Leavitt discussed situations where a local government was in financial difficulty and both the Nevada Department of Taxation and the Committee on Local Government Finance were involved. The Committee on Local Government Finance reviewed data and submitted findings to the Nevada Tax Commission. He outlined a suggestion that three members of the Committee on Local Government Finance be placed on a panel with three members of the Nevada Tax Commission to meet and discuss subject local governments. Many of those individuals would be independent of the local government but the panel would have the expertise in financial matters.
Mr. Leavitt stated an increase was statutorily provided for a community in financial difficulty. He directed the committee’s attention to page 28, line 28 and quoted the text. If approved, the increase could not exceed $4.50 per $100 assessed value when combined with all other overlapping rates. The purpose was for continuing a local government, whether out of desire or necessity. He delineated other additional taxes and stated that there could be instances where enough funds were still not generated. In response to Mr. Marvel’s question, Mr. Leavitt advised that he believed taxes could be levied for no more than five years. He then confirmed for Chairman Goldwater that the proposed legislation would be effective July 1, 2001, if passed, except for the Section 50 provisions.
Carole Vilardo, representing the Nevada Taxpayers Association (NTA), acknowledged the amount of time spent in preparing S.B. 317 and heartily supported the bill. She addressed page 37 and the various number and type of things that were being repealed. She stated they were good examples of how and why statutes should be reviewed periodically to ensure that they reflected current and logical practices.
Warren B. Hardy II introduced himself as representing the city of Mesquite. He had no opposition or comment on S.B. 317. He advised the committee that Mr. Leavitt had agreed to allow Mesquite to utilize the bill to correct a census problem. Mr. Hardy informed the committee how there was a significant difference in census numbers between the Governor’s certified numbers (15,500) and the Bureau of Census’s (9,500) calculations. The difference created a significant problem for Mesquite when it came to the distribution formula. The Nevada Department of Taxation could use the Governor’s certified numbers in any year except a census year; however, Nevada Revised Statutes specifically stated that if a difference between the two sets of numbers existed, the Bureau of Census’s numbers must be used. That fact caused a number of unintended consequences. Mr. Hardy was emphatic that he did not wish to hold up S.B. 317 in any manner. He was requesting a few days to address Mesquite’s problem in the face of Mr. Leavitt’s agreement.
Mr. Mortenson asked whether the federal government provided a manner of correcting the census results.
Mr. Hardy confirmed that such an appeal was in place and was being addressed. He had been advised that the process could take upwards of two years or longer. If it were to wait, Mesquite would suffer a tremendous amount of financial damage within that time.
Chairman Goldwater asked Mr. Hardy whether an allowance as to Mesquite would “open the door” to other communities, creating an opportunity to “pick and choose.”
Mr. Hardy admitted that there was one problem: language would need to be developed that allowed for some appeal process within the appeal process.
In response to Mr. Marvel’s inquiry, Mr. Hardy advised that he believed the state demographer had been very accurate in the past. Mesquite had been specified as the fastest growing small community in the United States and Mesquite watched those numbers very carefully.
Mr. Marvel stated they used the state’s numbers for distribution numbers. Mr. Hardy confirmed census numbers could still be used in census years. He wished the Governor’s certified numbers could be used every year, but he admitted that suggestion might also bear consequences. The matter would require review.
Chairman Goldwater closed the hearing on S.B. 317.
Senate Bill 527: Revises provisions governing contraband cigarettes, licensing and taxation of cigarette dealers and enforcement of statutes regarding cigarettes. (BDR 32-1326)
Chairman Goldwater opened the hearing on S.B. 527.
Samuel McMullen introduced himself as representing the Retail Association of Nevada (RAN) and Philip Morris U.S.A. (PM) and discussed the Seventieth Session’s “gray-market legislation.” He explained that gray-market cigarettes were products intended for foreign sales but which had been “repatriated.” Repatriated cigarettes were not to be used in the determination of domestic numbers nor were they to be included in calculations involving the master settlement agreement with the tobacco industry. Last session’s legislation was to clarify those points. Additionally, action was taken to encourage or require nonparticipating manufacturers to function within the gray-market provisions to ensure that Nevada received its fair share of the master settlement agreement.
Mr. McMullen pointed out that S.B. 527 provided for small changes. Section 2 cleared up the provision for the actual sales that were allowed to be brought in and he discussed duty-free sales. Page 2, Section 3, line 8, required the design of an appropriate stamp, for record keeping by the department, to be turned over upon suitable request. Section 4 required reporting on cigarettes reimported into the United States. Section 5 contained the criminal provisions and it extended current law to cover all other elements of criminal activity. Section 6 allowed for confiscation and destruction of cigarettes. Section 7 provided additional provisions allowing injunctive relief. Mr. McMullen advised his clients had had a great amount of success with attorney general’s offices in aggressively enforcing those types of conditions. He stated it provided not only a “more level playing field” for retailers but also assisted the state’s provisional revenues.
Mr. Marvel questioned the anticipated revenue captured by S.B. 527.
Mr. McMullen advised those numbers had proven undeterminable. To some degree the proposed legislation simply provided Nevada with the ability to enforce federal laws.
Mr. Marvel voiced his belief that the gray market was being phased out.
John Albrecht introduced himself as a senior deputy attorney general with the Nevada Attorney General’s Office (NAGO). He confirmed that gray-market cigarettes were prohibited in Nevada. S.B. 527 clearly provided for the seizure of such cigarettes in Nevada and it allowed for the bringing of suit against nonparticipating manufacturers. Mr. Albrecht also confirmed that retailers often unintentionally resold gray-market cigarettes. He wanted to use S.B. 527 to let retailers know “up front – don’t sell these cigarettes in Nevada because we will seize them.”
Mr. Brown asked whether Section 7 was necessary, assuming retailers who purchased contraband cigarettes from wholesalers had breach of contract rights. Further, he inquired whether precedence had been established by another state.
Mr. McMullen responded he had performed a limited amount of research but was aware of requests before other states. He believed the bill created a potentially enforceable mechanism. Chapter 378 related to the gray market only. It did not address all of the cigarette laws. The section, as drafted, was intended to ensure a private remedy as to those trying to secret contraband cigarettes into Nevada. They did not draft the bill with a focus on damages. The desire was to provide injunctive relief.
Mr. Brown asked whether the bill was intended to put those individuals out of business or just stop their action. Mr. McMullen confirmed that the point was to stop the action.
Mr. Albrecht stated that Section 7 would be a good tool in implementing the master settlement agreement. He brought the committee’s attention to another concern beyond gray-market cigarettes by addressing those manufacturers who had not signed the master settlement agreement nor were making contributions to an escrow account, but continued to manufacturer cigarettes and sell them on the open market at a $2.09 per carton advantage. Section 7 would enable a company to take action against noncompliance companies. Mr. Albrecht advised that the Nevada Attorney General’s Office was one of the more aggressive attorney general offices in the nation in that regard. He believed the right of private action would make Nevada a much less attractive outlet for gray-market cigarettes. He discussed the formula for settlement money and stated that one intent was to force noncompliant companies to pay into the escrow.
Mr. Marvel inquired whether the Native American “smoke shops” were exempt from this legislation.
Mr. McMullen stated that federal regulations controlled access of repatriated cigarettes. It regulated the individual companies rather than the recipients. The law would view them as companies doing business. He admitted that there was the possibility that reservations could be used as outlets for those cigarettes. Mr. Albrecht advised the committee that the tribal smoke shops were attempting to purchase only appropriate brands.
Chairman Goldwater and Mr. McMullen discussed the ramifications of seized cigarettes being destroyed, the allowing of manufacturers to produce more to make up for the numbers, and the applicability of specific statutes thereon. Chairman Goldwater quoted text that “under existing law, cigarettes may be stamped and resold to licensed wholesalers …” as long as they are not in violation of some other county, state or federal law. He continued, stating that “we would now destroy those cigarettes under Section 6.” He closed by affirming that the matter would be reviewed further.
John Jeffrey, representing Brown & Williamson Tobacco Co. and Lorillard Tobacco Co., wished to go on record in support of the proposed legislation.
Mr. Marvel inquired if the current balance of the escrow account was known.
Mr. Albrecht responded there should be approximately $117 million to $118 million in the account. He advised that there was a $58 million deposit due any day, of which Nevada would get its seven-eighths of one percent.
Mr. Di Cianno referred the Chair to NRS 370.270(4) and read from statute. He stated if seized cigarettes were found to not have had the proper fees paid, that product would be sold at auction to the highest wholesale bidder. If there were not sufficient quantities to do so, then the contraband cigarettes would be destroyed.
Chairman Goldwater and Mr. Di Cianno engaged in further discussion. Mr. Di Cianno stated that Section 1 was expanded to include contraband cigarettes and the entity that had paid for the stamps would be reimbursed. Chairman Goldwater was concerned that funds could be moved away from the state that were not currently being paid out. He stated that process would have a fiscal effect upon the state and the matter would require further discussion at an upcoming work session.
Chairman Goldwater adjourned the meeting at 3:09 p.m.
RESPECTFULLY SUBMITTED:
Cheryl O'Day
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: