MINUTES OF THE Meeting
of the
ASSEMBLY Committee on Taxation
Seventy-First Session
April 9, 2001
The Committee on Taxationconvened at 1:46 p.m., on Monday, April 9, 2001 and a quorum was present. 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. 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
COMMITTEE MEMBERS ABSENT:
Mr. Bernie Anderson - Excused
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
N. Jolene Jones Miley, Transcribing Secretary
OTHERS PRESENT:
Senator Steve Rauschenberger, Illinois, Co-Chairman, National Conference of State Legislatures, Task Force on State and Local Taxation of Telecommunications and Electronic Commerce
David Pursell, Executive Director, Nevada Department of Taxation
P. Forrest Thorne (Woody), Deputy Director, Nevada Department of Taxation
Carole Vilardo, Lobbyist, Nevada Taxpayers Association
Mary F. Lau, Executive Director, Retail Association of Nevada
Tom Grady, Lobbyist, Nevada League of Cities
Kenneth B. Lange, Executive Director, Nevada State Education Association (NSEA)
Mr. Goldwater opened the meeting at 1:46 p.m., and opened the hearing on A.B. 455
Assembly Bill 455: Enacts Simplified Sales and Use Tax Administration Act. (BDR 32-494)
Senator Steve Rauschenberger, Illinois, Co-Chairman, National Conference of State Legislatures (NCSL) Task Force on State and Local Taxation of Telecommunications and Electronic Commerce, testified in support of A.B. 455. Senator Rauschenberger used a PowerPoint presentation to the committee (Exhibit C). Senator Rauschenberger said that Congress galvanized the entire issue because they announced the “tax-free Internet” and introduced bills that interdicted state sovereignty, ignored some of the fundamental issues and failed to define what they were discussing. That action resulted in the first Internet Tax Freedom Act, whereby the congress established a study to tell Congress what to do about the Internet.
Mrs. Freeman asked if there was discussion at the federal level about a regional approach to sales tax collection from Internet sales. Senator Rauschenberger responded in the affirmative. He said there had been discussion that dealt with sales tax simplification in a compact model whereby states that had similar tax systems would cooperate with one another.
Senator Rauschenberger continued stating the goal of the NCSL was to surrender as little state sovereignty as was possible in pursuit of a system of a more equitable system for tax collection.
Ms. Tiffany asked about larger items sold on the Internet, i.e., automobiles, houses, and luxury items. She asked Senator Rauschenberger if he saw an impact in that market. He responded yes and no. He said that houses and automobiles were titled property. Conventional houses were not subject to sales taxes and sales taxes on automobiles could be collected through the licensing procedures.
Mrs. Freeman asked if a purchase made through the Internet was subject to a sales tax. Senator Rauschenberger replied that at the present time, it was not. Mrs. Freeman asked what he meant by the term “rounding up.” Senator Rauschenberger responded that in most states if the sales tax was levied at 7.5 percent, you would pay the state 8 percent sales tax. If the sales tax was 7.25 percent you would pay the state 7 percent. He said the state of Maryland was the only state that rounded to the nearest whole number.
Ms. Tiffany asked if there had been any constitutional conflicts with third party collection of sales taxes. Senator Rauschenberger replied the only constitutional questions that had been raised, was from opponents of those state compacts stating it was unconstitutional to enter into a state compact without congressional approval. He said the state compacts were simply a voluntary association of states to collect sales tax. He said the logic for using a third party collection contractually would not be dissimilar than hiring a company for collection, maintenance and/or management.
Mr. Goldwater stated the sales tax was established in the state of Nevada in 1930. He said the state legislature needed to make that tax applicable for the year 2000; A.B. 455 was a small step in that direction. Without the sales tax, it would be impossible to fund state and local governments. Mr. Goldwater said the “Professor Fox Study” out of the University of Tennessee that had been referenced by Senator Rauschenberger estimated by the year 2003 Nevada would be short-funded by $125 million dollars in sales tax collections. That figure was a conservative estimate and he believed it would be higher. According to Mr. Goldwater the Economic Forum, in their last prediction of state revenue, estimated sales tax growth at 5.9 percent; sales tax collection to date had been 5.1 percent. The Economic Forum was not factoring Internet sales into its prediction model. He said all indications were the lack of growth in the sales tax relative to other revenue sources indicated a flattened growth rate and he suspected the problem was the lack of sales tax from Internet sales. He opined the legislature needed to fix the problem.
David Pursell, Executive Director of the Nevada Department of Taxation, stated from an administrative perspective, it was important to keep Nevada as a participating state in the compact. In November 2000, Governor Guinn signed an executive order making Nevada a participating state in the multi-state compact. Mr. Pursell felt A.B. 455 kept Nevada in the process of following through with the agreement. He said the Department of Taxation was currently trying to coordinate and deal with electronic applications, making it possible for purveyors to file sales tax forms over the Internet. The Department of Taxation would need to identify the local jurisdictions.
Mr. Marvel asked if there was any similarity to the old “multi-state compact.” Mr. Pursell said there were some similarities, however, this new compact was very unique.
Mrs. Freeman asked about the database needed to proceed. She asked if the state had the information and if it was budgeted for. Mr. Pursell replied the Department of Taxation was not ready at the present time; however, the proposal put forward to the legislature contained an $800,000 request. Those monies would be used for imaging and scanning systems that were the first step in placing Nevada in a position to discuss the electronic applications, use of credit cards, and electronic transfer of funds. All those things will work with the streamlined sales tax project proposed in A.B. 455. He said there was also a request for a one-time appropriation of $1.3 million dollars to define the needs of Nevada and what type of computer system was needed in the future to handle the continued growth in the state, Clark County in particular.
Mrs. Freeman asked what kind of timeline was the state looking at. Mr. Pursell replied that hopefully it would be late next year, (2002).
Ms. Tiffany asked what Mr. Pursell perceived as enforcement measures to be included into A.B. 455. Mr. Pursell replied that any enforcement measures would be through a third party.
P. Forrest Thorne (Woody), Deputy Director, Nevada Department of Taxation, stated there were two issues involved. The department was looking at voluntary collection, whereby participants would sign-on through the streamline sales tax program. All sales transactions would use a third-party software program that had been certified to adhere to state statute for the collection of sales tax. Mr. Thorne stated that retailers who purchased and implemented the software would receive certain audit relief.
Mr. Goldwater asked if the sales tax collection would be mandatory or voluntary. He submitted an amendment (Exhibit D) that required political subdivisions to participate.
Mr. Goldwater stated that if retailers did business with the state, they would need to be a participant in the streamline tax collection program. Incentives would be good faith standards and relief from audit. Ms. Tiffany asked if the cost of the program was in the Governor’s budget. Mr. Goldwater responded in the affirmative.
Mr. Brown stated the streamline tax proposal would create a legal relationship with other participating states. He asked when the sales tax that had been collected becomes available to the states. Mr. Goldwater responded there would not be timelines through A.B. 455. Mr. Marvel asked if Nevada would be in violation of any commerce clauses.
Carole Vilardo, Lobbyist, Nevada Taxpayers Association testified in support of A.B. 455.
Mary F. Lau, Executive Director, Retail Association of Nevada, testified in support of A.B. 455. She said large companies that have gone on-line, such as Wal Mart, Sears and Amazon.com, paid sales tax to the state on items purchased within Nevada. She noted that Amazon.com paid taxes on merchandise sold in Nevada out of their Fernley warehouse, but did not pay sales tax on items shipped from their Seattle offices and warehouses.
Tom Grady, Lobbyist, Nevada League of Cities said the Nevada League of Cities supported A.B. 455 and commended the sponsors for bringing it forward.
Kenneth B. Lange, Executive Director, NSEA, suggested that A.B. 455 might not bring in the revenues that were anticipated. He suggested the legislature adopt a wait and see attitude.
There being no further business, Mr. Goldwater adjourned the meeting at 2:34 p.m.
RESPECTFULLY SUBMITTED:
N. Jolene Jones Miley
Transcribing Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: