MINUTES OF THE JOINT Meeting
of the
ASSEMBLY Committee on Taxation
and
senate committee on taxation
Seventy-First Session
February 8, 2001
The Joint Meeting of the Assembly Committee and Senate Committee on Taxationwas called to order at 1:30 p.m., on Thursday, February 8, 2001. Chairman David Goldwater presided in Room 1214 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.
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Mr. Roy Neighbors, Vice Chairman
Mr. Bernie Anderson
Mr. Morse Arberry Jr.
Mr. Greg Brower
Mr. David Brown
Mrs. Vivian Freeman
Mr. John Marvel
Mr. Harry Mortenson
Mr. David Parks
Mr. Bob Price
Ms. Sandra Tiffany
SENATE COMMITTEE MEMBERS PRESENT:
Senator Mike McGinness, Chairman
Senator Dean Rhoads, Vice Chairman
Senator Bob Coffin
Senator Joe Neal, Jr.
Senator Ann O’Connell
Senator Michael Schneider
SENATE COMMITTEE MEMBERS ABSENT:
Senator Randolph J. Townsend (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman David Humke
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Kevin Welsh, Fiscal Analyst
Kathryn Ely, Assembly Committee Secretary
Rochelle Trotts, Senate Committee Secretary
OTHERS PRESENT:
Mr. David P. Pursell, Executive Director of the State of Nevada, Department of Taxation, Executive Division
Ms. Barbara Smith Campbell, Chairman of the Nevada Tax Commission
Mr. Mike Reed, Dean of the College of Business Administration, UNR
Mr. Sam Males, Executive Director of the Nevada Small Business Development Center
Mr. Bob Schriver, Executive Director for the Nevada Commission on Economic Development
Ms. Lorraine T. Hunt, Lieutenant Governor, State of Nevada
Chairman Goldwater called to order the first joint meeting of the Assembly and Senate Taxation Committees.
The first speaker was David P. Pursell, Executive Director of the State of Nevada, Department of Taxation, Executive Division. Mr. Pursell introduced Barbara Smith Campbell, Chairman of the Nevada Tax Commission. Ms. Campbell read from prepared text Exhibit C. Ms. Campbell indicated Mr. Pursell had established a strong informational and educational alliance with the private sector through the University of Nevada and the Small Business Administration. Ms. Campbell mentioned Mike Reed, Dean of the College of Business Administration, University of Nevada, Reno was present. Ms. Campbell concluded her presentation.
Mr. Pursell began his presentation and furnished the committee members with Exhibit D. Mr. Pursell explained the biggest effort was to reorganize the commission and pointed out the major differences of the organization before and after his appointment. The Executive Director was previously responsible for the Chief of Revenue, Chief of Audit, the Internal Auditor, two deputy directors, the Fiscal and Budget Division as a department. Mr. Pursell stated he felt this was too much control for the Executive Director. Mr. Pursell explained that the deputy directors were responsible for handling the hearings and this made them unavailable to the Executive Director. He also pointed out the perception of the business community was there was too much of a tie between the audit section and the collection section. Mr. Pursell mentioned he felt a District Manager in each location in the state would be beneficial. Mr. Pursell implemented this change and appointed managers in Las Vegas, Reno and Carson City. The managers reported to one of the deputy directors. Mr. Pursell removed one deputy from his responsibilities to handle hearings and reassigned his responsibilities with Information Services and Budget and Finance and he acted as a “fall-back” hearing officer. This approach would hopefully eliminate inconsistent information that came from the department. Mr. Pursell also pointed out the changes made to Accounting and Processing. Previously, this particular department had been supervised by non-fiscal employees who reviewed the material and it was replaced by accountants who reviewed the numbers and information. Mr. Pursell explained he reclassified an appraiser position within the Division of Assessment Standards to shore up the section and better meet the needs of the local governments in financially difficult situations. Mr. Pursell referred to page 7 of Exhibit D in which the District department positions were charted to reflect the number of employees in geographical areas. The section had major reclassifications and Mr. Pursell noted the programmers for the department were transferred from the Department of Information Technology to the Department of Taxation as a pilot program. Mr. Pursell discussed the mainframe system and explained the programmers accomplished retrieving statistics from the database that assisted in the development of performance indicators.
Mr. Pursell referred to page 8 of the Exhibit D. He stated most of these sections were tied to the Taxpayer’s Bill of Rights wherein the directive to the department was the process should be explained to businesses. Mr. Pursell noted the completed regulation would cover the audit side of the Taxpayer’s Bill of Rights, along with the completion of the revenue procedures. This would provide a blueprint that showed what was expected from businesses and what businesses could expect from the department with regard to the audit and collection procedures. Mr. Pursell cited previous audits he had reviewed that showed businesses being billed several times in one audit. As a result of the Taxpayer’s Bill of Rights, there was only one bill during the audit. Mr. Pursell stated the businesses had expressed an understanding of the process and results of an audit. Mr. Pursell then turned to the section that reflected Revenue Collections. Mr. Pursell explained these were routine collections on delinquent accounts. The breakdown is 30, 60 and 90 days and a projection for FY2001 showed $30,075,014. Mr. Pursell explained the gathering of the statistics to do this projection was done with a stand-alone system because the mainframe system would not generate these types of statistics. Consequently, a lot of time was spent on preparing the statistics manually. Mr. Pursell stated he hoped to have an integrated system in the future.
Mr. Goldwater asked if the department used these numbers for quotas and Mr. Pursell replied in the negative.
Mr. Pursell believed an indicator would be created that could equate a cost to the billing effort. Mr. Pursell referred to page 9 of Exhibit D and explained the Inactive Accounts did not become inactive until the department had lost complete contact with the business. In 1997, when the Legislative Auditor did an audit they looked at the inactive account amount. The amount was not broken out, it just appeared as one lump sum. Mr. Pursell requested the lump sum be broken down into components. Mr. Pursell explained the section for Payment Plans reflected negotiated payment plans the department had entered into, but the department had lost contact with the individuals. The bankruptcies had gone through the court procedure, but the department could not locate an individual. It was learned the department had not been writing off accounts and, by statute, when an account was five years old and there was no activity, the commission should write off those accounts. Mr. Pursell stated the section entitled Collectible Inactives are the most recent accounts that have gone from active to inactive. Mr. Pursell explained for some reason when the computer program was developed, even though the accounts are inactive, they continued to accumulate interest and would forever. There had been attempts to modify this, but because of the coding within the system, modification would disrupt the mainframe system. Mr. Pursell stated for this reason they had to “leave it alone” and the number would continue to increase. Additionally, because of the size of the staff, a significant amount of time was not spent on these inactive accounts.
Mr. Goldwater advised Assemblyman Humke was present and also the Lieutenant Governor of the State of Nevada, Lorraine T. Hunt.
Mr. Anderson referred to page 2 of Exhibit D and asked Mr. Pursell about the tax distribution to the school fund. Mr. Anderson spoke about his previous responsibilities as a chairman of a committee that reviewed fees, fines and forfeitures from the court system and that they remained a burden. Mr. Anderson stated he was curious as to how Mr. Pursell viewed the relationship of the government entities to their tax responsibilities.
Mr. Marvel asked Mr. Pursell if some of the delinquent accounts started to accrue about the time when all the auditors were lumped together. Mr. Pursell responded that was a possibility.
Ms. Tiffany referred to page 13 of Exhibit D regarding electronic document management and asked why the department could not do these things. Mr. Pursell explained the department entered into a three-phase process to review the current computer system. The legislature appropriated $800,000 for the second phase of the project. Mr. Pursell indicated he stopped the second phase because of the discussions of e-commerce and the streamline sales tax concept and the reorganization of the department. Mr. Pursell attempted to consider using the $800,000 toward imaging and scanning of records. Mr. Pursell explained it would be more efficient for the department if they could use a portion of that money for imaging and scanning. This would position them for the next phase and that would be the streamline sales tax project. The streamline sales tax project involved two big issues; the electronic transfer of funds and Internet interaction between the business community and the department. Mr. Pursell stated there appeared to be interest from the federal government concerning the project and the federal government might consider appropriating federal funds to finance a pilot project.
Ms. Tiffany asked if the use of credit cards would be helpful in collecting some of the back taxes.
Mr. Pursell cited the state of California’s statistics in which they had collected up to 40 percent by simply allowing the use of credit cards. Ms. Tiffany asked if there was a savings account in place with sufficient funds to pay for credit card company administration fees. Mr. Pursell stated they were currently working on a proposal that addressed that exact question.
Mr. Goldwater asked Mr. Pursell if he has been able to identify things that would help clarify language in the law on issues such as the use of credit card acceptance.
Ms. Campbell explained when they had questions on the intent of any statute they referred to the minutes and any other documentation from the committee meetings. Additionally, they utilized the standard of “strictly construed.” She explained when they were in doubt they remained on the conservative side of an issue. Ms. Campbell suggested there were a few older statutes that could use clarification. Mr. Goldwater asked Ms. Campbell if she could provide more information on those statutes and Ms. Campbell agreed to do so.
Ms. Freeman stated she thought the department was statutorily able to use credit cards. Mr. Pursell was not certain whether the department could do that and explained the department was not set up to accept credit cards. Ms. Freeman suggested this issue should be brought to other committees for their consideration. She also suggested providing information regarding actual dollars collected.
Mr. Pursell introduced Mike Reed, Dean of the College of Business Administration, University of Nevada, Reno. Mr. Reed presented the perspective from the university’s standpoint with regard to the partnership between the department and the university. Mr. Reed stated the emphasis was on compliance and auditing for compliance and education in the business community.
Senator Neal asked a question regarding overall tax collection. Mr. Neal asked if all of the taxes were being collected, and if not, what percentage was being collected. Mr. Pursell referred Mr. Neal to page 8 of Exhibit D that provided figures addressing this question. Mr. Neal asked why the department was not able to collect all taxes from businesses. Mr. Pursell cited a number of reasons which included businesses getting behind on tax payments, cash flow problems and an inability to make payments. Mr. Pursell explained they did not write off the delinquent accounts until the department had lost complete contact with the business. Mr. Neal asked if the department was able to determine what type of business was involved and Mr. Pursell responded in the affirmative. Mr. Pursell offered to get the information, but could not set forth specifically what types of business. He explained there are 99 different definitions of a type of business and the delinquency could be with any one of those types of businesses. Mr. Neal then asked about the department’s mechanism for alerting the department that there was delinquency. Mr. Pursell explained the department’s system generated a report for the revenue officers and the notice was sent to the business. The revenue officers were assigned specific areas within the state. When the business received the notice they usually contacted the department because there were taxes and penalties attached that continued to accrue. The department was willing to work with the business and implement a payment plan. If the department did not hear from the business they sent a revenue officer to the business.
Mr. Reed briefly described the partnership of the department and the university. He explained the college and the Nevada Small Business Development Center (NSBDC) had established relationships with chambers of commerce and development authorities throughout the state. The NSBDC had been reorganized so the deans of the two business schools, Mr. Reed and Dean Rich Flaherty of the University of Nevada, Las Vegas served as Co-CEOs of the NSBDC. The reorganization would allow NSBDC to better coordinate the efforts of the two business schools to support business growth throughout the state and meet the needs of community businesses. The NSBDC also worked with various state agencies and provided internships and jobs to its students. The idea behind the relationship evolved from the initiative of Mr. Pursell to provide better support from the department to Nevada taxpayers by using NSBDC relationships throughout the state to better inform and better utilize the offices of the Department of Taxation.
Mr. Reed introduced Mr. Sam Males, Executive Director of the Nevada Small Business Development Center (NSBDC). Mr. Males provided more details on the partnership. The NSBDC was initially started as a partnership program between the University of Nevada, Reno and the Small Business Administration in 1985. Currently, the NSBDC had 50 partners throughout the State that worked to support the NSBDC mission. The NSBDC’s mission was to enhance economic growth through business development. There were 12 statewide offices and they continued to expand to address the population growth in Las Vegas. Mr. Pursell had proposed to Mr. Males having the NSBDC utilize the department office to provide more information for economic development purposes. NSBDC expanded the types of information made available so developers could use it in their planning process and small businesses would utilize the information to assist them in identifying opportunities. Mr. Males indicated Mr. Pursell asked what they could do with their Geographic Information Systems (GIS). Mr. Males explained the GIS system was a system where demographic and sales data information was accumulated and mapped out so businesses could utilize the information throughout the state.
Mr. Goldwater asked Mr. Males if the NSBDC was administering all the programs to include minorities and women. Mr. Males responded in the affirmative.
Mr. Males concluded the partnership provided significant cost savings and cost effectiveness with the outreach programs already in place in the existing infrastructure.
Mr. Pursell concluded the annual report could be found on the department’s Web site.
Senator Rhoads asked if the depreciation on mines had been resolved. Mr. Pursell explained they were able to receive information in order to do an income approach on all mining properties for the current year. Mr. Pursell stated he did not believe there had been any protests of the values established by the department. Mr. Pursell stated he intended to ask the industry if they were interested in going before the Nevada Tax Commission to review the regulation.
Bob Schriver, Executive Director for the Nevada Commission on Economic Development was the next presenter. Mr. Schriver introduced Lieutenant Governor Lorraine Hunt, who currently served as the chairman of the Nevada Commission on Economic Development.
Ms. Hunt explained the commission had been extremely aggressive in the past 25 months. The marketing program had been changed. Ms. Hunt stated the tax incentives were very instrumental in recruiting new companies to come to Nevada. However, it could be difficult because the tax incentives are built into the government. Ms. Hunt also stated she has had many dealings with international companies wanting to do business in Nevada.
Mr. Schriver explained the tax incentives found in Exhibit E. Mr. Schriver referred to page 1 and explained the tax incentives fell into four categories: sales and use tax abatement, business tax abatement, personal property abatement, and property tax abatement. Companies that received deferrals had to put up a bond in the amount of tax due and were deferred over a period of 60 months. Mr. Schriver reviewed sales and use tax abatement and explained 38 states did not implement a sales and use tax abatement on capital equipment and manufacturing. However, to be competitive the state needed to have that available to the right companies. The legislature established an average annual statewide wage which was being used as the opening standard which a company must meet before the commission would consider it. The business tax abatement had been added and refined and directly impacted state revenues. The personal property tax abatement was implemented in 1997 and all the categories had strong uses. The commissioners presently met on a monthly basis to consider applicants.
Mr. Schriver referred to the chart on page 2 of Exhibit E that reflected the number of jobs created over the past fiscal years. Mr. Schriver defined direct impact, indirect impact and induced impact, and noted all terms could be found in the Glossary.
Mrs. Freeman asked if the calculations included benefits. Ms. Hunt explained the average hourly wage calculated was $14.12 an hour and advised the benefits were not included in the hourly wage. Mr. Schriver noted the benefit packages he reviewed in past years, on average, were about 28 percent.
Mr. Schriver explained the business tax abatement impacted the state more directly because the counties did not participate in it. The newest incentive, the personal property tax abatement, had only two companies that utilized the incentive. Recently, five other companies had utilized this incentive and by statute the commission was required to notify all affected governmental entities. The personal property tax abatements were not considered unless the locally affected governments had given their approval. Ms. Hunt stated the commission sent information from the company to the city council, the board of county commissioners and the school districts. Generally, they approved and were in support of the company coming to their communities.
Mr. Schriver referred to the recycling abatement and stated it had only been used twice and was a very selective abatement. The company must recycle 50 percent of its raw material on-site. Mr. Schriver believed this incentive should be changed to match up with the personal property tax abatement and requested the legislature review this incentive.
Mr. Schriver discussed the value of jobs and stated the commission was interested in bringing in new dollars, not recirculated dollars. New dollars were monies brought in by companies that could have relocated anywhere, but had chosen Nevada for a variety of reasons. The value of a job was the engine for economic prosperity and growth, not merely a job. Mr. Schriver stated the commission, in FY2000, had provided abatements that totaled approximately $60 million dollars worth of new wages into the state coffers because of this incentive program.
Senator O’Connell referred to the problems in the center of the state and the lack of power and industrial housing and warehousing. Ms. Hunt noted the issue of accessibility through airports and transportation and stated these two areas needed to be updated because they were critical. Mr. Schriver referred to a telecommunications study recently completed that suggested methods to bring the “world” to rural Nevada and vice versa. The study revealed the efforts already in place such as the Ruby Gas Pipeline. Mr. Schriver explained the rural areas should focus on developing the land because most businesses were not developers and would only consider what property was already available. The accessibility to the community was the issue and had always been the goal of the commission. The commission developed a plan called “Building Prosperity” that focused on rural Nevada. Mr. Schriver explained the purpose of the program.
Mr. McGinness stated what was difficult was when a member of the rural community asked, “What is economic development going to do?” Mr. McGinness referred to the City of Gabbs losing its charter. Ms. Hunt explained the commission offered guidance to the communities and helped them get together and communicate with each other. The commission tried to inspire and motivate them.
Mr. Schriver reminded the committee about the “Made in Nevada” program. The Commission on Tourism was another area that worked closely with the rural areas.
Mrs. Freeman referred to the issue of recycling businesses and the surrounding neighborhoods in which they located. Mrs. Freeman asked how to assure the residents those kinds of issues would take precedence. Mr. Schriver referred to the notice requirements of companies requesting abatements. The commission requested the prospective client to present themselves directly and that in itself showed the commission the company intended to work with the community. The commission did not intend to provide incentives or an endorsement of any company the community did not welcome.
Mr. Goldwater stated the Assembly would be considering a proposed initiative to increase or to create a business profits tax. Mr. Goldwater asked Mr. Schriver and Ms. Hunt whether they foresaw a petition to the legislature for abatement of this tax should it become law. Mr. Schriver responded the commission would look to neighboring states and review how they had utilized their corporate income tax and it would probably take the form of a tax credit. Mr. Schriver stated he would encourage his commission to consider this approach.
Ms. Hunt commented that any new tax at this point in time for Nevada would be very, very harmful to the efforts. She stated global competition existed, not just national competition. Ms. Hunt pointed out the more like California Nevada became, the less likely we would receive new businesses.
Mr. Brower asked for a summary of efforts on promotional activities in Silicon Valley. Mr. Schriver stated Nevada was not a deregulated market and the business advantages and quality of life advantages were good. Ms. Hunt stated the commission already had relationships with California companies and Nevada was definitely a target area.
Ms. O’Connell referred to the rural areas and their feelings of being left out. Ms. Hunt noted the Rural Roundup for Economic Development addressed those issues. Ms. Hunt stated an overall analysis revealed a good return on investments. Senator Rhoads stated those roundups were very beneficial and they had good turnouts. Ms. Hunt also stated they had staff on the road constantly who visited rural communities.
Mrs. Freeman asked if there was a way Mr. Schriver could go into the communities and provide leadership in economic development. Mr. Schriver offered to provide to Mrs. Freeman information that focused on goal setting agendas.
Mr. Goldwater asked if there were any other questions and there were none. Mr. Goldwater noted the next joint meeting of the Assembly and Senate was currently scheduled for February 13, 2001. Mr. Goldwater adjourned the meeting at 3:40 p.m.
RESPECTFULLY SUBMITTED:
Kathryn Ely
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: