MINUTES OF THE Meeting

of the

ASSEMBLY Committee on Taxation

 

Seventy-First Session

May 28, 2001

 

 

The Committee on Taxationwas called to order at 9:31 a.m., on Monday, May 28, 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.                     Bernie Anderson

Mr.                     Greg Brower

Mr.                     David Brown

Mrs.                     Vivian Freeman

Mr.                     John Marvel

Mr.                     Harry Mortenson

Mr.                     David Parks

Mr.                     Bob Price

Ms.                     Sandra Tiffany

 

COMMITTEE MEMBERS ABSENT:

 

Mr.                     Morse Arberry Jr. - Excused

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman Lynn Hettrick, Assembly District 39

 

STAFF MEMBERS PRESENT:

 

Ted Zuend, Fiscal Analyst

Cheryl O'Day, Committee Secretary

 

OTHERS PRESENT:

 

Barbara Byington, Assessor, Douglas County

Richard Harris, Tahoe Basin Resident and Landowner

Dudley Kline, Retired Engineer/Tahoe Basin Resident and Landowner

Madelyn Shipman, Assistant District Attorney, Washoe County

Helaine Harris Jesse, Richard Harris’s Cousin/Tahoe Basin Landowner

Mel Schwake, Private Citizen and Property Owner

Stephanie Licht, Legislative Consultant for Elko County

Hilton Atherton, Tahoe Basin Landowner

Kim Greenspan, Tahoe Basin Landowner

Robert McGowan, Assessor, Washoe County

Sigrid Schwake Pieretti, Private Citizen

Marvin Leavitt, Representing the City of Las Vegas

 

 

Assembly Bill 668:  Temporarily limits annual increase in taxable value of property in certain areas for assessment of property taxes. (BDR 32-1551)

 

Assemblyman Lynn Hettrick introduced himself as representing Assembly District 39, discussed the legislative origins of A.B. 668, and referenced S.B. 376.  He reminded the committee that his initial goal for A.B. 668 was to provide relief from property taxes for landowners in the Lake Tahoe region.  A.B. 668 was also to provide assessors with the authority to determine whether or not individual situations constituted hardships.  Assemblyman Hettrick’s motivation for the proposed legislation had its roots in a trend taking shape in the Tahoe Basin.  He advised that landowners were suddenly being assessed tremendously increased property taxes due to nearby land sales.  Legislation and the region had evolved to the point that the only purchaser available to many sellers was the Forest Service.  That fact affected the taxable value of property and created an inequitable position.  In essence, the government was forcing many citizens to sell their property because of high taxes, to the government, but at greatly reduced purchase prices.  Whether intentionally or unintentionally, the government was forcing taxpaying landowners off their land to the government’s own profit.

 

Assemblyman Hettrick pointed out another detrimental affect of the sales:  property purchased by a non-taxable entity came off the tax rolls.  Drops in tax rolls affected funding of local services, such as fire service, which was already suffering funding issues.  He reminded the committee that the proposed legislation allowed for a 6 percent annual increase.  Assemblyman Hettrick also included in his proposed amendment (Exhibit C) a suggested language deletion on page 2, line 3 of the bill.  He then discussed his assumption that landowners would place real property in a form that would not be interpreted as a transfer, if transferred to a family member.  He confirmed that he was in agreement with other proposed amendments to the bill.  It was his belief that the bill went in the direction desired by providing assessors with the right to determine whether a tax situation was “reasonably likely that it will in fact cause severe economic hardship.”  The constitutionality was provided for in the language.  Ultimately, the matter would go to a public vote in 2002.

 

Chairman Goldwater addressed the issue of flexibility for county assessors, which he believed was the ultimate goal of A.B. 668.  He wondered whether, given the passage of the proposed legislation, the assessors would have the strength to control the process and retain the innate fairness.

 

Assemblyman Hettrick agreed that fairness was one of his concerns, as it could be difficult to judge whether a situation constituted a hardship.  He discussed the quandary involving the public’s desire for “home rule,” only to, on other occasions, demand definition.  He suggested that property owners should be required to provide proof to the assessors of the existence of a severe economic hardship.

 

Chairman Goldwater agreed and felt it was important that the record reflect the committee’s intent that the standard for any hardship be a lofty standard.

 

Mr. Neighbors inquired whether the proposed legislation conflicted with the appraisal process in any manner.

 

Assemblyman Hettrick did not believe it affected appraised values.  Once an economic hardship was determined, property taxes could only be increased 6 percent per year, from the base year, regardless of the appraised value.

 

Mr. Brower advised that he would have preferred to continue with the direction foreseen last session, which was to change the way real property was taxed.  He suggested something on the line of California’s Proposition 13 with capped increases, absent a change of ownership.  Mr. Brower requested confirmation that the proposed legislation was deemed more reasonable, with a better chance of success than one along the lines of California’s legislation.

 

Assemblyman Hettrick clarified the situation by describing what would take place if that “path” were followed.  The problem that arose with California-like legislation was that the process took five years or more.  By that time, the landowners currently affected would have long before lost their property.  The assumption followed that others would then find themselves in the same position.  He acknowledged that the proposed legislation might not be ideal.  It was, however, quick enough to resolve the unintended ramifications to Nevada landowners under current law.

 

Mr. Brown inquired whether the “or” should be “and” under subsection 2 of the A.B. 668 criteria and what the implications would be.

 

Assemblyman Hettrick felt “or” was the only option in a situation where a landowner was forced to sell property and the only possible buyer was a governmental agency.  That situation would have an “absolutely negative” effect upon the county.  It would be counterproductive to The Executive Budget if the Forest Service, or anyone else who would ultimately pay a minimal “in lieu of” tax, purchased the property.  “And” would make property loss an inevitability.  He would rather see the property tax capped at a reasonable level so that landowners could retain ownership.  Assemblyman Hettrick reminded the committee that there was not one reasonably or low priced piece of land in the Tahoe Basin.  The Tahoe landowners were already paying a significant rate of tax.  He acknowledged that the Nevada Constitution required appraisals to be based on “like sales.”  However, like sales could relate to very different pieces of property.

 

Mr. Brower asked whether assessed values in the Tahoe Basin were decreased because of use restrictions.

 

Assemblyman Hettrick advised that was a “yes and no” question.  Assessed values were not decreased by use restrictions in terms of the actual base market value.  He acknowledged that mitigating factors could be taken into consideration and tax bills lowered.

 

Barbara Byington, the Assessor for Douglas County, related that S.J.R. 11 of the Seventieth Session stated “upon an exemption,” rather than “upon an assessed value.”  She also confirmed for Mr. Neighbors that they had been working with Nevada Revised Statute 361.227 to a large extent.  Assessors were required by law to establish values, which could differ considerably depending on how they were calculated.  Further, hardships could vary by county and the assessors preferred to share the decision of what was or was not a hardship with the county commissions.  Ms. Byington felt the 6-percent increase should only apply to the actual land value, not to any improvement.  It was not appropriate that someone who built a $14 million home could conceivably request a hardship exemption even though overbuilding could create a hardship.  She agreed that the state should be able to recapture seven years if and when a parcel was sold “for much more.”

 

Chairman Goldwater foresaw only one reason for dealing with an exemption as opposed to changing the assessed value and that was the issue of some tax actually being paid versus no tax being paid.  He could see someone “build themselves into bankruptcy” but stated those individuals would not pay the tax either way.  He also stated the county would have the appropriate lien against the asset.  Further, he wanted to define “economic hardship” on more of a regional basis, and not an individual hardship.

 

Ms. Byington agreed.  She felt the wording should be changed to address the “land” and not the “parcel” since it was the value of the land that created the original problem.  She suggested defining the exemption as the difference between the market value and the 6 percent increase.  That definition would give assessors a better overall ratio while allowing them to remain in compliance with NRS 361.227.

 

Chairman Goldwater warned that the bill addressed a focused, narrowly intended issue and he did not want it misapplied.  He also favored the idea of the local governments being part of the decision mechanism as they had a vested interest in property taxes.

 

Mr. Marvel wished to confirm that the bill was interim legislation until such time as the constitutional amendment was in place.  He proposed that it could be readdressed next session, if not working correctly.

 

Richard Harris, a Tahoe Basin resident and landowner, advised the committee that, without the implementation of A.B. 668, his family would lose the 35 acres it collectively owned and had held since 1927.  He confirmed that there was a summer home on the property and that the property was within the most restricted part of the Tahoe Basin.  The annual taxes increased from $7,000 to $110,000 for the year, but were reduced to $35,000.  His family had considered the maintenance of the property a benefit to the community as well as to themselves.  The Forest Service had agreed to “help them out” by purchasing the land.  Mr. Harris believed most landowners within the Tahoe Basin had been in the area for years and the homes were often 50 years old or more.

 

Ms. Tiffany inquired whether the matter had been discussed with the tax commissioner.

 

Assemblyman Hettrick advised that the tax issue was a county tax issue and that it would go through those channels.  Ms. Tiffany amended her question and asked whether advice had been solicited from any other entities.  Assemblyman Hettrick confirmed that the Nevada Constitution mandated every parcel be judged on the fair market value.  There was no exemption and no exception from that mandate.  In response to Ms. Tiffany’s question as to adjudication, Assemblyman Hettrick responded that the courts could not taken any action since it was a constitutional matter.  He advised the committee that the bill was technically unconstitutional but that it would be made constitutional by passage of S.J.R. 11 of the Seventieth Session.  He confirmed A.B. 668 would sunset in the event S.J.R. 11 of the Seventieth Session did not pass in the public vote.

 

Chairman Goldwater readdressed an issue brought forward by Ms. Tiffany.  In discussing the reduction of Mr. Harris’s tax bill from $110,000 and how the original $7,100 was probably low for the Lake Tahoe region, the Chair commented that $35,000 per annum still represented a tremendous increase.  He believed the hardship would fall somewhere in between the $35,000 and the $7,100 figures.

 

Dudley Kline, a retired engineer from the Nevada Department of Transportation, testified that he and his wife had lived their entire married life on a parcel of land at Lake Tahoe.  His family had obtained the property in 1939 and he and his wife raised their two children there.  Mr. Kline advised that last year’s taxes were $11,881.  This year’s taxes were $21,272.  The property included two small homes, 40 years old and 62 years old, respectively.  He advised that they had been able to retain the property through some creativity but was not sure how long he could continue.

 

Chairman Goldwater was concerned that the view might come out of the meeting that the legislature was trying to hold down taxes or that the way taxes were assessed could be changed.  He affirmed that there were no guarantees in that regard.

 

Madelyn Shipman, an Assistant District Attorney for Washoe County, advised that she had drafted the proposed amendments for the committee’s consideration.  Ms. Shipman clarified what the changes were and the reasons for them.  The first change dealt with improvements versus real property value.  She reiterated that the bill applied not only to property with single-family dwellings but also to undeveloped land.  The second change was the burden of proof requirement where, assuming criteria was developed to determine hardship, documentation would be required from the landowner to support their request for relief.  Ms. Shipman advised that the assessors had no subpoena power, nor the authority to require such proof.  She felt the exemption should apply only to permanent and sole residents, not to second or vacation homes.  The process could be accomplished by ordinance of the county commissions.  The next proposed change was to exclude family members for exemption purposes.  She felt that as the property was passed along, any subsequent owner should be required to prove their own eligibility.  She provided the example of someone inheriting the property as well as a life insurance policy that paid enough to make the beneficiary ineligible for the exemption.  Ms. Shipman discussed a recapture provision along the lines of the agriculture or open-space deferred recapture provisions, and suggested the bill drafters might want to have a further look at the NRS 361A provisions.

 

Mr. Price addressed California’s Proposition 13 and requested clarification of what action Nevada took at that time.

 

Chairman Goldwater advised that Nevada instituted the “364 cap.”  The Chair stated Mr. Price had raised an excellent point when he remarked that Proposition 13 had been incredibly devastating to a lot of people, including school children.  Chairman Goldwater concurred with Assemblyman Hettrick and added that California’s Proposition 13 had much greater negative impact than what was proposed by A.B. 668.

 

Assemblyman Hettrick responded to Ms. Shipman’s remarks regarding sole, permanent residents.  He specifically wanted to go on record that, “if the amount of the tax is going to force them to sell, I think (b) would apply to summer residents or, if not summer residents, permanent, in my opinion.”  (S.B. 668 Section 1, subsection 1(b))

 

Helaine Harris Jesse, Richard Harris’s cousin, testified in support of A.B. 668.  She advised she was a fifth generation Nevadan and that the Tahoe property was very important to her.  Ms. Jesse said it was vital the bill be passed as written.

 

Mel Schwake introduced himself as a property owner and advised that he had testified at the original hearing on the proposed legislation.  Working from memory, Mr. Schwake believed there was nothing in the Nevada Constitution that actually required the “fair market value” be utilized.  He understood it to entail “just valuation” in determining the value and required “equal and uniform” consideration for assessment and taxation.  He could not imagine anyone would suggest that doubling taxes in one year was just.  A.B. 668 should, in his opinion, relieve some pressure as it related to the economic situation.  With the Forest Service buying up so much land in the Tahoe Basin, there was only a small amount left and that raised property values.  Mr. Schwake discussed “trades” where the city of Las Vegas and Clark County obtained pressure relief by having more private property on the market.  However, every time Clark County relieved that pressure, it put greater pressure on the rest of the state.  In closing, Mr. Schwake stated that his widowed mother still owned the home his parents had purchased in 1964.  With taxes doubling every year, he did not believe she would be able to remain in that home.

 

Stephanie Licht, Elko County’s legislative consultant, advised the committee that many of Elko County’s concerns had already been addressed.  She testified that Elko County did support the Washoe County proposals.

 

Hilton Atherton, Tahoe Basin landowner, reiterated his support for A.B. 668 and that he would be forced off his land if some form of relief was not provided.

 

Kim Greenspan testified that she and her husband had lived in the Lake Tahoe area since 1984.  They could not afford another tax increase.  They had already sold five acres of land to the Nevada Division of State Lands and had listed their house for sale.  Mrs. Greenspan stated that she had been very creative but it was like a dream was ending.

 

Chairman Goldwater reiterated that the committee needed to be careful of the type of perspective developed.  He did not want any false assumptions perpetrated because tax increases were still going to occur and the Forest Service was going to continue purchasing land.

 

Robert McGowan, Assessor for Washoe County, stated Washoe County experienced increases greater than 6 percent in more places than just within the Tahoe Basin.  Mr. McGowan felt an agriculture-like deferment would take care of many things.  “Ag”-deferred provisions were not new and were currently utilized.  A taxing entity should never go back so many years that taxes became so high an individual could not afford to sell their property.  He acknowledged substantial amounts of money were being discussed from an individual’s standpoint, but not from a government’s standpoint.  Even with deferment, the government would get its money.  A win-win situation could be created where the government still ultimately received its taxes when the property sold and landowners received needed relief in the mean time.

 

Chairman Goldwater confirmed with Mr. McGowan that his suggestion was addressed in the second part of the amendment (Exhibit C).

 

Mrs. Freeman stated that she had discussed the subject matter of A.B. 668 with Mr. McGowan last fall.  Having missed some discussion, she inquired whether Mr. Hettrick had reviewed the amendment and whether he could support it.

 

Assemblyman Hettrick confirmed that he had reviewed the amendment and his only concern rested with the “or member of his family” language.  He reiterated his anticipation of landowners being astute enough to arrange their ownership appropriately for such a component.

 

Sigrid Schwake Pieretti testified in support of A.B. 668.

 

Marvin Leavitt, representing the city of Las Vegas, testified the matter constituted a very difficult question and he did not like putting any form of restriction on the value of property.  Mr. Leavitt discussed various formulas devised and how they worked, assumptions and the process of determining property value; he discussed the 6 percent formula and how it worked, stating it provided a guarantee of sorts to the government that a certain amount of money would be received.  Whenever property values were less than the actual value, other properties were valued higher to make up for the benefit provided to the first group.  He discussed bond payments and how a transfer from one person to another was suggested.  Mr. Leavitt felt that taxes should be computed and property valued without consideration of a landowner’s ability to pay the tax, but he acknowledged that the motivation for A.B. 668 did provide an unusual situation.  He recognized there was some value to ensuring that property dedicated to an agricultural use continued to be used in such a manner.  An agricultural exemption could be granted constitutionally and he agreed an exemption along those lines might resolve the issue.  He suggested perhaps it was time to initiate an exemption, especially where outside governmental interference had created a higher property value than provided for by any actual use.  Mr. Leavitt then confirmed for the Chair that he had reviewed the proposed amendment.

 

Mr. Marvel felt a very important issue had been missed.  He stated one of the theories of taxation was the provision of services.  He could not see how someone who received a “$100,000 plus” tax bill could receive a commensurate return in county services.

 

Mr. Leavitt suggested that someone who owned a $10 million home and who could afford to pay might actually need less services than someone with a double-wide trailer.  He reiterated that the only measure provided was “value.”  Yet, he had not heard any witness testified that their property did not bear the high value discussed.

 

Mr. Marvel was also very uncomfortable with the only apparent buyer being the government and the inevitable loss of taxes.

 

Mrs. Freeman inquired of the Chair if he was aware of any proposed legislation that would address Mr. Leavitt’s concerns and Chairman Goldwater responded that he was not aware of any pertinent proposals.

 

Assemblyman Hettrick readdressed Mr. Leavitt’s comments as being exactly what the bill’s sponsors had hoped to accomplish when they first started out.  Ultimately, the proposed legislation had to deal with the issue in a multi-state regional planning agency and yet it only affected the Lake Tahoe Basin, which was clearly unconstitutional.  He advised that went with the five-year process he discussed earlier.  Assemblyman Hettrick offered that the counties would benefit in many cases.  The thrust of A.B. 668 dealt with land that bore both a higher tax and higher value than 99 percent of the land taxed by the state of Nevada.  The landowners discussed were already paying more in taxes than the rest of the state, and the taxes would be increasing at a rate of 6 percent per annum.  If the proposed actions were not taken, the land would be lost to an entity that would pay an “in lieu of” tax and the property would fall off the tax rolls.  Ultimately, the area would not be able to afford its own services.  That was why he felt A.B. 668 was also in the counties’ best interests, and Chairman Goldwater agreed.

 

Assemblyman Hettrick stated the situation did not make sense and compared it to the stock market, with one major difference.  If one invested $1,000 in the stock market and it became $10,000, it was a nontaxable increase, except for the income it had generated.  He said that money invested in Lake Tahoe property, even upon an increase in value, did not generate income but generated expense until the property was sold.

 

Ms. Byington mentioned having no problem with A.B. 668 before addressing Mr. Neighbors’ comments on NRS 361.227.  She was concerned that assessors would be forced to perform incorrect procedures in the future.  She preferred the creation of an exemption, as opposed to a decrease in total assessed values.  That strategy would allow for the purpose of the bill, but would also allow assessors to perform appraisals in the manner dictated by law.

 

Chairman Goldwater stated it was a matter of determining how the process would logically work.  Assemblyman Hettrick felt it came down to semantics.  He agreed property should be assessed at its full value, but that the increase in taxable value should not exceed 6 percent per year.

 

Ms. Byington questioned the feasibility of carrying two separate values on the tax rolls and discussed the actions that would be required.  She mentioned the language required revision, as assessors did not deal with taxes.  Those responsibilities went to the treasurer.  Chairman Goldwater inquired how a recapture process would operate in cooperation with an exemption.  Ms. Byington explained options and utilized comparisons to handicap and historical exemptions.

 

Ms. Shipman believed everyone’s comments were of the same nature, but she also believed NRS 361A should be researched further.  She confirmed that “ag” deferments were appraised for both the highest and best use as well as for the agricultural tax value.  The different would be the recapture figure.

 

Chairman Goldwater advised that he would call a floor meeting “behind the bar” of the Assembly to address A.B. 668 further.  He stated the matter was too important to be less than absolutely precise on.  The Chair then requested that Ms. Byington, Ms. Shipman, and Mr. Leavitt work out the mechanics of A.J.R. 8 as he felt the matter was ready for action to be taken.

 

Assemblyman Hettrick wished to clarify the only reason for the change in language to A.J.R. 8 was to bring it into conformity with A.B. 668.

 

Chairman Goldwater closed the hearing on A.B. 668.

 

 

Assembly Joint Resolution 8:  Proposes to amend Nevada Constitution to provide for separate taxation of certain property regulated by interstate compact and to provide for abatement of tax upon or exemption of part of assessed value of undeveloped land or single-family residence under certain circumstances. (BDR C-785)

 

Chairman Goldwater opened the work session on A.J.R. 8.  After reviewing the work session notes on A.J.R. 8 for the committee, the Chair advised he would accept a motion to amend and do pass the bill.

 

Assemblyman Hettrick responded to Mr. Mortenson’s wish for confirmation by advising that A.J.R. 8 could be passed prior to A.B. 668, or even if such proposed legislation was not passed.  He advised A.J.R. 8 was permissive.  It provided “in the event of” language.  It adjusted for the fact that S.J.R. 11 of the Seventieth Session referred to residential property only.

 

Ted Zuend, the committee’s Fiscal Analyst, confirmed that S.J.R. 11 of the Seventieth Session would stand separately, but A.J.R. 8 would amend S.J.R. 11 of the Seventieth Session.

 

ASSEMBLYMAN MARVEL MOVED FOR AN AMEND AND DO PASS ON A.J.R. 8.

 

ASSEMBLYMAN MORTENSON SECONDED THE MOTION.

 

THE MOTION WAS PASSED UNANIMOUSLY BY THOSE PRESENT, AS ASSEMBLYMAN ARBERRY WAS ABSENT.

 

Chairman Goldwater recessed until floor session, advising that he would reconvene the Assembly Committee on Taxation on the floor.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Cheryl O'Day

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Assemblyman David Goldwater, Chairman

 

 

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