MINUTES OF THE Meeting
of the
ASSEMBLY Committee on Taxation
Seventy-First Session
March 20, 2001
The Committee on Taxationwas called to order at 1:30 p.m., on Tuesday, March 20, 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. Morse Arberry Jr.
Mr. Greg Brower
Mr. David Brown
Mrs. Vivian Freeman
Mr. John Marvel
Mr. Harry Mortenson
Mr. David Parks
Ms. Sandra Tiffany
COMMITTEE MEMBERS ABSENT:
Mr. Bob Price (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman Joseph E. Dini, Jr., Assembly District 38
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Kathryn Ely, Recording Secretary
OTHERS PRESENT:
Dave Lockwood, Member Services Director, FarWest Equipment Dealers Association
Don Renner, President, Renner Equipment Company
Hugh Montrose, owner, Carpenter’s Equipment
Buddy Howard, President, Winnemucca New Holland, Inc.
Jim Milstead, Branch Manager, John Deere Company, Reno
Gilbert Griffin, representing Carter Agrisystems
Dan Smith, representing Smith Valley Garage
Doug Busselman, Executive Vice President, Nevada Farm Bureau Federation
Joe Guild, President, Nevada Cattlemen’s Association
Carole Vilardo, President, Nevada Taxpayers Association
Dave Pursell, Executive Director, Department of Taxation
Assembly Bill 243: Provides exemption from certain sales and use taxes for farm machinery and equipment. (BDR 32-866)
Assemblyman Joseph E. Dini, Jr., representing Assembly District 38, explained he sponsored A.B. 243 on behalf of the farm equipment dealers in Nevada. With the advent of modern technology and a mobile society, farm machinery purchases could not move around the country to avoid Nevada’s sales tax. Only four states, California, Hawaii, Nevada and Washington taxed new agricultural machinery (Exhibit C). Mr. Dini referred to the map that indicated most states did not charge state sales tax on farm machinery. Surrounding the state of Nevada, Oregon, Idaho, Utah and Arizona had no tax on farm machinery which made out-of-state purchases attractive.
Mr. Dini commented that a savings of approximately 6.5 percent to 7 percent on a piece of machinery that could cost $100,000 was substantial. He stated, “This makes Nevada’s dealers noncompetitive,” and instead of each farm area having one dealer, one dealer served two or three communities. Millions of dollars was spent for economic development, but eliminating sales tax on farm machinery would give Nevada’s dealers an opportunity to grow and prosper. The request did not appear to be any different than giving businesses tax incentives for them to come to Nevada to do business. A.B. 243 would not remove the 2 percent tax and he reminded the committee the question needed to go the vote of the people.
David Lockwood, Member Services Director, FarWest Equipment Dealers Association explained his company represented the agricultural and industrial equipment dealers in Nevada, Arizona, California, Utah and Colorado. He presented a regional overview of what had happened to taxation on agricultural equipment over the past several years. Mr. Lockwood referred to the map in Exhibit C and noted the states in white were those states that did not charge taxes. The states colored yellow were those states that charged a tax on the value of the new equipment above that of the equipment that was traded in. He indicated that Nevada was “surrounded on three sides by white.” Mr. Lockwood explained California, as well as the state of Washington, had recently introduced legislation that would eliminate the tax. The pattern appeared in Utah, Colorado, Idaho, Arizona and all states that competed directly with farmers, ranchers and their equipment suppliers. In California, there was a choice and increasingly the choice was to go out-of-state to buy new equipment. Mr. Lockwood stated the agricultural community in Nevada was at a disadvantage to those surrounding community states.
Chairman Goldwater asked whether a “use” tax return should be filed when the equipment was purchased outside of Nevada and was used in Nevada. Mr. Lockwood responded in the affirmative and explained the problem arose because collecting the tax was difficult, and currently it was not being collected.
Don Renner, President of Renner Equipment Company, stated he wanted to present the problem from the dealer’s perspective. Northern Nevada had farms and ranches that were very valuable but needed restoration to keep that heritage. Several issues such as water and ecology were challenging farmers and costs continued to rise. Farm commodity prices seemed to remain the same, if not decrease. Farmers were charged with trying to live on less and produce more. Mr. Renner stated, as an equipment dealer, the equipment was the best that could be expected; however, the farmer needed the dealer to service the machinery because it had become highly technical. He explained the dealerships, in most rural areas, were the “hub” of the town and usually employed most of the people, or had the largest business in that community. Nevada was getting “bombarded” by dealers from out of state that were allowed to sell in the state and not collect sales tax.
Mr. Renner offered an example of a rancher in Fallon that bought a tractor and mixer in Twin Falls. The equipment cost approximately $150,000 to $160,000. The Fallon rancher brought the equipment to his ranch in Nevada. Mr. Renner commented he had been having a “tough year” and the business would have benefited him. He believed too much non-compliance occurred and Nevada continued to be threatened with the competing “no tax issue.” More time was spent on the tax issue than selling the product. The agricultural industry affected other Nevada industries such as hay trucking that “crossed the scales heading for California,” hardware and grocery stores, insurance companies and fuel for trucks hauling cattle, sheep and livestock. He went on to say farms were deteriorating and there were issues facing Nevada’s farmers and ranchers. Those issues seemed to linger and were passed on from one generation to the next. Mr. Renner explained Nevada did not have as much land as big farm states such as Washington and Idaho, but what Nevada had was valuable. Equipment dealers would like to expand and be able to service farmers and ranchers and see the playing field equalized. He concluded that the taxation department audited several dealers throughout the year but did not tax others such as farmers selling equipment to other farmers, or farmers buying equipment out-of-state without paying tax. That, he said, seemed unfair and should be addressed.
Mr. Marvel commented, as a rancher himself he understood some of his neighbors bought out-of-state to avoid the sales tax and dealers were probably losing the service business as a result. He purchased equipment in Nevada because the dealer was accessible and he knew service was good and available. Mr. Renner commented that the willingness to grow remained and he believed eliminating the sales tax would increase future business and, in turn, require hiring new employees.
Assemblywoman Tiffany referred to a situation in Clark County where individuals purchased all-terrain vehicles in St. George, Utah, and brought them to Nevada. They suggested special license or registration for the equipment rather than the tax exemption. Mr. Renner replied that other speakers would address that issue. Ms. Tiffany felt this would be a “catching net” to collect the tax. If there was an Internet tax to collect what Nevada would otherwise collect on sales, Nevada should be collecting this farm equipment tax. She was uncertain that she favored the exemption. Commenting from the equipment dealer’s perspective, Mr. Renner agreed that in one way that might help. It was a fairness issue for them; he preferred not to be in the tax collection business. Mr. Renner reiterated that he supported the farmers and ranchers.
Mr. Anderson commented he did not have a problem with the heavy equipment, or even the smaller pieces of equipment that might fall into that category. With regard to pickup trucks and bailers, how would those be classified? Mr. Renner responded that Colorado had written a bill to change its law and the language identified equipment as “farm related,” “agricultural farm” or “ranch.” An agricultural farm was described as approximately 20 acres or more and producing a crop that showed an income.
Ted Zuend, Deputy Fiscal Analyst, had discussed the issue with Brenda Erdoes, Legislative Counsel, and concluded the bill should be amended to specifically exclude motor vehicles registered with the Department of Motor Vehicles and Public Safety from the exemption. The amendment would give clear direction to the Department of Taxation.
Hugh Montrose, owner of Carpenter’s Equipment in Lovelock, Nevada, stated as a business owner and owner of a small-scale farm he believed the issue of exempting farm equipment from state sales tax had two compelling justifications. First, the “fairness” issue, and second, maintaining the rural agricultural communities within the state. The fairness issue could be readily understood by looking at the map in Exhibit C, which showed the states that charged sales tax on farm equipment and the states that did not. Thirty-eight states did not, eight had reduced rates and four had full tax. Nevada was one of the states that charged full tax. Mr. Montrose stated California was debating dropping the sales tax on farm equipment and, if that happened, Nevada would be an island. He believed the farmers of Nevada deserved a level playing field, and A.B. 243 provided an opportunity to help ranchers and farmers. It would preserve the economic viability of Nevada’s rural agricultural areas. The agricultural industry had not enjoyed the economic boom that had benefited many in the country in the last ten years. Food from grocery stores was not taxed, but the people who raised the food were. That needed to be addressed, he concluded.
Chairman Goldwater confirmed that Mr. Montrose was the former mayor of Lovelock, and asked him whether the issue of a local sales tax had been addressed with local governments, specifically the loss of revenue. Mr. Montrose responded it had, and they thought they could get support from Pershing County.
Buddy Howard, President of Winnemucca New Holland, Inc., a farm equipment dealership in Winnemucca, Nevada, and owner of B & D Equipment, a farm equipment business in Winnemucca, testified in support of A.B. 243. Mr. Howard stated his store was located 74 miles south of the Oregon line and the sales tax on farm equipment had been a constant issue among Nevada dealers. States that bordered Nevada and did not charge tax placed Nevada at an unfair disadvantage. The “6.5 percent” could make the difference between whether or not a customer made a purchase. His margin of profit decreased every year because of the problem.
Mr. Howard stated he was aware that 11 out-of-state dealers worked his territory all the time. The market share for 2000 showed, for new equipment only, that there was $1,308,000 sold in his territory. The territory included Humboldt, Lander and part of Elko counties. Mr. Howard admitted the committee was probably wondering why he did not report people to the tax commission. A few years ago he reported some but the only result was that his name was revealed to the customers and they quit doing business with him. He did not believe it was the responsibility of Nevada farm equipment dealers to police out-of-state sales. Commenting on California’s bill to eliminate the tax, he said, should that pass, Nevada would be surrounded by states that did not have a sales tax on farm equipment. If this was the case, and Nevada did not amend the sales tax on farm equipment, he believed there would “be a lot us dealers that would be closing the doors to our businesses.”
A few years ago, Mr. Marvel had talked with the Department of Taxation, which, at that time, attempted to audit ranchers and farmers but simply did not have sufficient staff to complete the audit. He was the first, he said, who brought in his books to help the department set a precedent and show most of his sales were in Nevada. The auditing of books was an impossible task.
Jim Milstead, Branch Manager, John Deere Company, Reno, represented a marketing unit in Reno and the company’s primary responsibility was for all business transacted in 13 western states. California and Nevada fell under his jurisdiction and for that reason he was interested in the issue. He was interested in protecting the dealers his company did business with, but also the retail customer who bought their products. Mr. Milstead said, “It is simply an issue of being able to compete.” A solution might be to register the farm machinery, but that would not solve the problem to the end producer. The input costs were that much higher than the surrounding producers who did not pay sales tax on the farm equipment purchased. Commodities and profit margins would be impacted in a negative way. His purpose was not to argue the taxation issue but to protect the dealers and the customers.
Gilbert Griffin, representing Carter Agrisystems in Lund, Nevada, “the eastside of the state,” testified he had been “bleeding for a long period of time.” Being a small dealer in rural Nevada, the “bleeding” had its origin in the loss of sales, which his company so desperately needed to keep his business viable. From a farmer’s perspective, many problems, from water to climate, existed in the high desert country of eastern Nevada, a “three crop” area that produced the bare minimum crop that allowed survival. These farmers competed with those of Utah that had much better conditions. Mr. Griffin stated the sales tax became another cost that made it difficult to compete.
Carter Agrisystems was the second largest employer in Lund, the first being the local school system. The company lost an employee and, because of eroding sales, elected not to replace him. Mr. Griffin stated the company was challenged to be profitable. What the farmer experienced in every day life eventually rippled down to the farm equipment dealer. When a customer said, “If you’ll match this price, I’ll buy it from you,” he knew the price was from an out-of-state dealer. There was no room to compete with that and charge the sales tax. He had to take an abnormally low profit margin or walk away from the deal. The number of sales lost to the organization as a result of this issue was alarming. Mr. Griffin said it boiled down to a “fairness” issue. Nevada could compete even though it had inherent high costs, mileage and long distances. He concluded Nevada would have the opportunity to compete if the tax was eliminated.
Dan Smith, owner of the Smith Valley Garage located in Wellington and Yerington, offered his support for the dealers. The agriculture industry was in a bind. Profit margins were small and significant capital was required to operate a business. The cost of equipment, fertilizer, chemicals, and the risks were high. Consequently, profits were very low. He stated they had approximately 20 customers who might purchase something new every year because they expanded and farmed 2,000 to 4,000 acres, where before there were more farms of 300, 500 and 700 acres. The market for used equipment diminished. The move to larger farms was an economic factor; there was little profit in the smaller farms and, if the farmers were not in a profitable situation, their farms died.
Doug Busselman, Executive Vice President of the Nevada Farm Bureau Federation testified in support of A.B. 243. He stated the Federation’s policy, which had been developed and adopted by farmer and rancher members, had sought tax relief for a number of years. Nevada farmers and ranchers competed in an international marketplace and against a number of agricultural producers who lived in states where sales taxes were not assessed against farm machinery and equipment. Farm machinery and equipment dealers had a difficult challenge competing against dealers in states where sales and use taxes for machinery and equipment were not charged. Against the backdrop of rough economic conditions confronting Nevada farm and ranch families, the removal of the sales tax on farm machinery and equipment would provide relief to improve farm and ranch net income, an action that could also pay substantial economic benefits for hard-pressed rural economies.
Based on the work of the University of Nevada College of Agriculture Economic Department, the income multiplier was 2.21, which meant for every dollar increase in income generated by the agricultural sector in rural Nevada, it generated $2.21 in total rural Nevada income. Increased energy costs, stagnant or declining commodity prices, and a host of other factors threatened the ability of agricultural producers to achieve break-even conditions. Federal economic assistance in the form of commodity programs that were available to agricultural producers in other states rarely applied to the types of commodities produced by Nevada farm and ranch families. Information (Exhibit D) from the Nevada Agricultural Statistics Booklet 1999–2000, including information collected in the 1997 Census of Agriculture report, provided an overview of the scope of Nevada’s agriculture on a county-by-county basis, as well as the narrow margins within which most farm and ranch families operated. The options to enhance Nevada’s agriculture sector were limited. The Nevada Farm Bureau Federation believed that passage of A.B. 243 was one opportunity available to this legislative body to offer assistance.
Joe Guild, President of Nevada Cattlemen’s Association and Co-Chairman of the National Cattlemen’s Association Tax and Credit Committee, stated the Association “wholeheartedly” supported A.B. 243.
Carole Vilardo, president of the Nevada Taxpayers Association, said they opposed exemptions because they eroded the tax base. It was particularly difficult to support an exemption when Nevada was looking for additional revenue. Ms. Vilardo understood there was a major policy issue to be decided on the basis of equity, fairness and protection of a segment of the business community, particularly in the rural counties. She had two recommendations: 1) a drive-away permit and 2) elimination of the personal property tax on farm equipment.
Competition from surrounding states that did not have a sales tax was a problem for car dealers when Nevada left the multi-state tax compact in 1981. Ms. Vilardo did not understand why Nevada could not give the dealers in farm equipment, or even in construction equipment, the privilege of having drive-away permits. Nevada utilized 10-day drive-away permits for motor vehicles if the vehicles were from out-of-state and were delivered out-of-state. Ms. Vilardo asked why Nevada did not apply this to farm equipment, allowing dealers, who lose business to other states, to compete in those on an equal basis without tax. She did not believe there was a statutory provision regarding drive-away permits and had seen no reference in Nevada Revised Statutes.
Secondly, Ms. Vilardo agreed that rural Nevada was beautiful, and it was important to maintain the viability of the rural areas. Because it was a very difficult tax to enforce, she recommended the committee eliminate the personal property tax on farm equipment. Ms. Vilardo emphasized the Nevada Taxpayers Association consistently supported those exemptions because these were the most difficult taxes to comply with and administer. While it might not give the same dollar benefit as the sales tax, she strongly recommended, for the health of the communities, to exempt the personal property tax from all farms and ranches.
Assemblyman Marvel remarked the idea was noble, but he thought the people would not grasp the significance of the personal property tax exemption and not appreciate the savings when paying sales tax on a $100,000 piece of farm equipment. Ms. Vilardo responded that her point was that whatever the committee did, including approving A.B. 243, the personal property tax on that equipment would be exempt as well.
Assemblyman Neighbors calculated, although there was a fiscal impact, it appeared the equipment purchased out-of-state escaped taxation and was not assessed the 2 percent. He stated it seemed Nevada was looking at a “worse or less,” because the dollar amount of taxes Nevada lost was unknown since the state was unable to collect an out-of-state tax. Yet, exempting those instate would still pay the 2 percent. He liked the idea of the personal property tax, too.
Regarding the compliance problem, Ms. Vilardo stated there probably was a way to solve the problem, but she wanted to talk with those involved before she addressed it. Part of the problem was “enforcement and compliance”; the other part was how to compete with surrounding states. Farming, ranching, and mining, comprised the lifeblood of these rural communities; concessions must be made for these particular industries, even if a provision was included to enable a review at a later time. Ms. Vilardo mentioned another issue she had previously discussed with various Senate and Assembly committee members. Ten years ago a three-year amnesty period was implemented for anyone who had not voluntarily registered for sales tax or paid use tax. She believed Nevada was at that time again where another period of amnesty might be appropriate.
Assemblywoman Freeman recalled the possibility of eliminating personal property tax was discussed in the interim. Ms. Vilardo replied the final resolution of the personal property tax issue provided for a review of the tax for a two-year period, with an attempt to create a threshold under which personal property tax would not be paid. There was concern from some counties that they might lose too much revenue. It appeared to Mrs. Freeman the committee should consider looking at the other counties to determine if some relief could be provided until Clark County decided what the impact would be there. It possibly could be addressed this session. Mr. Neighbors pointed out that he had one county in his district that had over $40 million assessed value in personal property tax. He thought that would represent “quite a hit” to the county revenue.
Mr. Marvel recalled the threshold issue was discussed in the last session and there were several items that, under the present definition of personal property, would be a significant part of the rural counties tax base. He commented there has to be some type of distinction what was “personal property” or provide another name for it.
Ms. Vilardo responded those were issues that were not addressed in time for the Seventy‑First Session. She hoped recommendations would be put forth because there was an ancillary issue too: in rural counties where there was a large amount of personal property for mining equipment, when the equipment depreciated in the first year, that helped “rate creep, and [had] gotten us up there.” Whether personal property should be “pulled” from the overall calculation within the property tax structure needed reviewing. Ms. Vilardo expressed her desire to see a minimum $10,000 exemption on all personal property, but she saw no reason why an exemption should be granted to farmers and ranchers on their farm equipment.
Chairman Goldwater closed the hearing on A.B. 243 and opened the hearing on A.B. 361.
Assembly Bill 361: Revises certain reporting requirements for tax on net proceeds of minerals. (BDR 32-1078)
Assemblyman John Marvel, representing District 34, stated A.B. 361 could have been more simply written. The intent was to eliminate the estimation of net proceeds and have only one reporting period. Mr. Marvel worked with Ted Zuend, Fiscal Analyst, and Carole Vilardo to develop amendments that carried out the intent of the bill. By working on an estimate and reporting twice a year, industries, like mining, were volatile. He checked with the Department of Taxation, and they indicated one reporting period would facilitate the administration.
Dave Pursell, Executive Director of the Nevada Department of Taxation, had reviewed A.B. 361 and the proposed amendment, and he believed A.B. 361 still kept intact the projections assembled for the local government so they had time to prepare budgets. The amendments would remove the criteria for partial payments on the estimate and provide for an actual payment in May of each fiscal year for the previous year’s activity. Mr. Pursell stated the department would have no problem administering the proposed changes.
Carole Vilardo supported A.B. 361. In the last session, it was Mr. Marvel’s bill that was processed to return to the ultimate “back to actual payment” to eliminate delinquency charges, multiple reporting and “looking at a crystal ball.” It was the completion of an issue that would allow a county to rely on a payment because the payment would be an actual one.
Mr. Marvel explained that in Humboldt County “estimated” money was actually forwarded to the school district and to the county. Unfortunately, one of the mines had a net loss and requested a refund. That caught the county and school district in a cash shortage because they had to refund the money. He thought it was unfortunate that net proceeds were put into an operating budget and believed that net proceeds were windfall monies that should be put into a “rainy day” fund or some type of capital improvement fund.
Chairman Goldwater directed a subcommittee be assembled and appointed Mr. Marvel as the sole committee member.
Tim Crowley, representing the Nevada Mining Association, stated he wanted to thank Mr. Marvel for his attention and effort put forth to assist in the budgetary matter.
Chairman Goldwater closed the hearing on A.B. 361.
There was no further business. Chairman Goldwater adjourned the meeting at 2:45 p.m.
RESPECTFULLY SUBMITTED:
Linda Lee Nary
Transcribing Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: