MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
May 1, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:07 p.m., on Tuesday, May 1, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Mike McGinness, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Randolph J. Townsend
Senator Ann O’Connell
Senator Joseph M. Neal, Jr.
Senator Bob Coffin
Senator Michael Schneider
GUEST LEGISLATORS PRESENT:
Assemblyman Joseph (Joe) E. Dini, Jr., Lyon, Storey, Carson City (part) Counties Assembly District No. 38
Assemblyman John C. Carpenter, Elko (part) County Assembly District No. 33
Assemblywoman Dawn Gibbons, Washoe County Assembly District No. 25
Assemblyman P. M. “Roy” Neighbors, Esmeralda, Lincoln, Mineral, Nye Counties Assembly District No. 36
Assemblyman John W. Marvel, Humboldt, Pershing, parts of Elko, Eureka, and Lander Counties Assembly District No. 34
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Butch Peri, Peri and Sons Farms, Incorporated
Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association
John Madole, Lobbyist, Nevada Chapter Associated General Contractors
Doug Busselman, Lobbyist, Nevada Farm Bureau
Peter D. Krueger, Lobbyist, Nevada Petroleum Marketers and Convenience Store Association
Russ Benzler, Administrator, Compliance Enforcement Division, Department of Motor Vehicles and Public Safety
Helen A. Foley, Lobbyist, Regent International
Sean G. Gamble, Lobbyist, Clark County Health District
Russ Law, Chief Operations Analysis Engineer, Operations Analysis, Nevada Department of Transportation
Rachel Nicholson, Concerned Citizen
Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association
Laurie Young, Appraiser, Assessor’s Office, Churchill County
Robert S. Hadfield, Lobbyist, Nevada Association of Counties
Tim Crowley, Lobbyist, Nevada Mining Association
David Pursell, Executive Director, Department of Taxation
Ryan J. Works, Lobbyist
Kami L. Dempsey, Lobbyist, Las Vegas Chamber of Commerce
Chairman McGinness:
We will open the hearing on Assembly Bill (A.B.) 639.
ASSEMBLY BILL 639: Authorizes person to operate or maintain on certain highways farm equipment using dyed special fuel. (BDR 32-1331)
Assemblyman Joseph (Joe) E. Dini, Jr., Lyon, Storey, Carson City (part) counties Assembly District No. 38:
This was originally an Associated General Contractors (AGC) bill and through the amendment process the AGC bill went “out the window” and my bill replaced it. I support AGC coming back into their bill. Butch Peri, a white onion farmer in Mason Valley, brought this to me. This deals with dyed fuel and the amended version tries to give him an exemption. Mr. Peri runs his equipment from his fields where he harvests onions to his processing plant, and you cannot stay off the highway to achieve this. If you are not on the highway, you can use dyed fuel, but if you are on the highway, you might get stopped, checked, and penalized. This bill would allow farmers to use their equipment on the highway from their fields where they raise the crop to where they process it.
SENATOR COFFIN MOVED TO AMEND AND DO PASS A.B. 639.
SENATOR O’CONNELL SECONDED THE MOTION.
(Senator McGinness noted there was another amendment to be presented.)
SENATOR COFFIN WITHDREW THE PREVIOUS MOTION.
Assemblyman John C. Carpenter, Elko (part) County Assembly District No. 33:
This is a very important bill to the farmers and ranchers in Nevada. This is a real problem because they are starting to crack down on the use of dyed fuel, and I urge the committee to support the bill
Butch Peri, Peri and Sons Farms, Incorporated:
This is a good and fair bill, because 90 to 95 percent of our travel is off-road. We do not travel on any federal highways while we are harvesting our onions. I do believe if you use something you should pay for it, but in this situation it would not be fair to do it that way. The law needs to be changed so we can use the dyed fuel and be doing everything legally so we are not breaking any laws.
Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association:
At the end of the Assembly meeting, the essence of the bill was taken out, basically to save the bill, because it is important. I want to give you some history to help you understand why we are putting the AGC amendment back in the bill. Years ago, when the law was passed to exempt special mobile equipment from the registration fees, chapter 482 of Nevada Revised Statutes (NRS) contained a definition for special mobile equipment which is very similar to the definition in chapter 366 of NRS on special fuel taxes. The exemption was placed directly in chapter 482 of NRS for registration, but was not placed in the section on special fuel taxes. What we are asking you to do is to add the exemption for the use of fuel tax under special mobile equipment. This should be done on the basis of regulation by the Department of Motor Vehicles and Public Safety (DMV&PS). We tried to work with mileages on the Assembly side and that is what got mixed up, resulting in our pulling the whole thing out. Rather than dealing with specific mileages on how far they could travel on state highways, we would recommend you leave it to the regulatory process with the DMV&PS.
Mr. Capurro:
One of the other problems we had is on page 2, lines 9 and 10. In testimony before the Assembly Committee on Transportation, Mr. Periwas asked how far his current fields are from his processing center. Mr. Peri believes one field is about 16 miles away. The problem is in Mason Valley. From one of his growing fields to the other it is around 38 miles; obviously the 20-mile limit will not work. The original intent was not to limit mileage and I would respectfully ask you to consider removing lines 9 and 10 on page 2. The net effect would be to not specifically state a mileage limitation with respect to the movement of this farm equipment. The definition of special mobile equipment is narrow and there are very few farmers whose equipment would meet this definition.
John Madole, Lobbyist, Nevada Chapter Associated General Contractors:
We would appreciate amending this bill to clarify the tax exemption for special mobile equipment and permit the use of dyed fuel. We have run across several problems: for example, someone could take a backhoe with dyed fuel in it, put it within a highway right-of-way to dig a trench, and technically, they would be breaking compliance with the law the way it is written right now.
Senator McGinness:
If we add the special mobile equipment, that will take care of your problems?
Mr. Madole:
Yes.
Doug Busselman, Lobbyist, Nevada Farm Bureau:
We are here to speak in support of passage of A.B. 639 (Exhibit C. Nevada Farm Bureau Testimony on A.B. 639). Nevada Farm Bureau’s support of this proposal was approved at our most recent board of directors meeting, where the details of a 20-mile limit restriction were discussed. I refer your attention to lines 9 and 10 on page 2 of the bill. Our board of directors adopted a position to request this mile limitation be removed from the bill. With the distance factors existing in rural Nevada, it is possible 20 miles might not get you from your field to your home base for storage.
The features of the intended restriction, which ties the movement from your own property to your own property, remain the same and in practice would be much more workable than an arbitrary mileage limit set in statute. We also understand and support changes to include special equipment of the general contractors be added to the provisions of the measure. In closing, we encourage your favorable consideration of A.B. 639.
Peter D. Krueger, Lobbyist, Nevada Petroleum Marketers and Convenience Store Association:
There are two proposed amendments (Exhibit D. Nevada Petroleum Marketers & Conveniences Store Association). The first amendment adds a tax rate for two new fuels coming into commercial use which currently are being used by state and local governments and have no tax implications. We have an unwritten policy in the state of Nevada to tax our special fuels based on the British thermal unit (BTU) value. We have simply applied the BTU rate in the proposed amendment, which adds to our current fuel tax rates of less than 27 cents. The BTU value of the new fuels is below the value for diesel fuel, which is used as the standard. Under current law liquefied petroleum gas or propane is taxed at 22 cents per gallon, and natural gas is taxed at 21 cents per gallon. Using the same formula, the BTU value of the fuel is divided by the diesel fuel value of 140,000 BTUs, times 27 cents to come up with the tax rate.
The second amendment (Exhibit D) is to clarify language added in the 1997 Legislative Session. Near the end of the session it was determined the Nevada Highway Patrol was citing the City of Henderson for running dyed fuel in their vehicles. We had two conflicting subsections within chapter 366 of NRS; one made it perfectly clear the municipalities could run dyed fuel on the highway, and the second one did not. We eliminated the conflict, and in doing so, created NRS 366.203 to provide further definition. In the process, we found the auditors from DMV&PS were applying a tax and penalty for selling clear diesel fuel to the United States government, which is exempt from the tax of any product. However, the provisions of the following section made it clear if you did not run dyed fuel you had to be taxed. All we are proposing here is to eliminate subsection 2 of NRS 366.200, which applies to the federal government, so dyed fuel still applies to state and local governments which is a common practice.
Senator Coffin:
You want to raise the rate per gallon based on the formula?
Mr. Krueger:
The tax policy has been to tax special fuels according to BTU value. To determine a tax rate for propane, natural gas, and hydrocarbons, we took their BTU value as ascribed and published by the American Society for Testing and Materials (ASTM) and others, divided by 140,000 as one of the accepted BTUs for diesel fuel, times 27 cents.
Senator Coffin:
Are “biodiesel” and “e-diesel” emissions less than the emissions of other kinds of diesels? Is there a reason to have these names attached to them? They sound green; is that true?
Mr. Krueger:
That is correct.
Senator Coffin:
Why would we create a disincentive on the use of something which emits less garbage into the air?
Mr. Krueger:
We are creating an incentive, although it may be a very small difference, to be consistent with the policy of taxing these fuels under BTU value. It is true there are different formulas for some of these fuels with a much lower BTU rate, but we did not want to complicate the tax code with multiple blends, putting a burden on auditors and our members to figure out what they are selling. With one of the fuels, there is some reduction in other formulas, but these two products are defined by the federal government as alternative fuels and are being encouraged for use in place of what we know as the standard diesel product. There is a clean-air advantage to using the alternative fuels; however, it is not a perfect world in terms of reduction in knocks.
Senator Coffin:
When we adopted the 19 cents per gallon tax on emulsified fuel, I think it was given a reduced rate per gallon, not based on its BTU value, but on its ability to be a cleaner burning fuel. Am I close to the truth on that?
Mr. Krueger:
No, Senator, I do not believe you are. In the last dozen years, we have tried to come up with a consistent policy to tax these fuels based on their BTU value. Other than allowing some nonscientific method, it is the only way to do it, and is as close to science as you can get.
Senator Neal:
The proposed amendment (Exhibit D) reads, “biodiesel as defined by ASTM 121;” what is that?
Mr. Krueger:
The American Society for Testing and Materials tests products of a chemical nature and provides a review, which is like a Good Housekeeping Seal of Approval. For a composition to be called “biodiesel,” it must meet certain qualifications as defined by this ASTM 121.
Senator Neal:
The 20 percent blend or greater is what has been defined by this standard?
Mr. Krueger:
It must be a minimum of 20 percent. Biodiesel uses something like fryer fat, which has previously gone to the landfill or other disposal, and is now being blended with standard diesel fuel. A “B-20” rating means a 20 percent biomass or bio-product, in this case fryer fat, blended with commercial diesel to allow clean-air quality which has been approved by the State Environmental Commission. The formulation goes from a minimum of 20 percent up to 100 percent bio-product, which is not yet available commercially as a fuel, but is being developed.
Senator Neal:
How was the rate of 26 cents determined?
Mr. Krueger:
The rate is derived for all these fuels based on standard diesel fuel, which is taxed at a rate of 27 cents per gallon in the state of Nevada, and has a prescribed value of 140,000 BTUs. The prescribed BTU value for any one of the fuels listed in paragraphs (a) through (e) (Exhibit D) is divided by 140,000 to come up with a percentage value in relation to diesel fuel, which is then multiplied by 27 cents, which, again, is the current tax rate per gallon for diesel fuel. Biodiesel and e-diesel, proposed to be added as items (d) and (e), are prescribed a value of approximately 125,000 BTUs, or roughly 91 percent of the prescribed BTU value of diesel. Multiplying 27 cents by 91 percent generates the 26‑cents-per-gallon rate.
Senator Neal:
That is how you arrived at the 26 cents?
Mr. Krueger:
Yes.
Senator Neal:
The heading of your handout (Exhibit D) lists Nevada Petroleum Marketers and Convenience Store Associates. Are these individuals you represent?
Mr. Krueger:
That is correct.
Senator Neal:
Are these individuals involved in the biodiesel field?
Mr. Krueger:
Yes. About five of our members are now selling that product to state and local governments, including Clark County. There is a plant in Las Vegas, operated by one of my members, which takes waste greases and oils from the large casino properties and large restaurants, and processes it into biodiesel.
Senator Neal:
Are you also involved with the emulsion fuel from water-phased hydrocarbon?
Mr. Krueger:
No, I am not involved with that group.
Senator Neal:
What about liquefied petroleum gas?
Mr. Krueger:
I do not lobby for that group; however, I do their association work.
Senator Neal:
What about compressed natural gas?
Mr. Krueger:
I have no involvement with either Southwest Gas or Sierra Pacific Power Company.
Senator Neal:
You are only involved with diesel fuel; would that include gasoline?
Mr. Krueger:
Our members sell gasoline.
Senator Neal:
On page 2 of the bill, there seems to be a change regarding the designation of farm equipment to include 18-wheel trucks, as long as they are carrying farm products. I usually associate farm equipment with tractors or things operating on a farm, not something traveling from Reno to Las Vegas.
Mr. Krueger:
I am not at all qualified to address the farm issue. I am using this bill as a vehicle to move along my amendment.
Chairman McGinness:
Was this amendment (Exhibit D) presented on the Assembly side?
Mr. Krueger:
No, it was not.
Russ Benzler, Administrator, Compliance Enforcement Division, Department of Motor Vehicles and Public Safety:
We take no position on the bill itself, but the department received Mr. Krueger’s amendment today and we would like to take a look at it for the fiscal impact on those amendments which would reduce the amount of money taxed on diesel. We need to determine the amount sold for this type of diesel, and what the impact would be on the highway fund.
Senator Neal:
What is the present tax on diesel?
Mr. Benzler:
It is 27 cents per gallon and the amendments would drop it by a penny for the two additional types of fuel.
Senator Neal:
Are you suggesting to the committee these particular blends would be classified under these standards to qualify them for the drop in the tax rate of one penny?
Mr. Benzler:
That is my understanding. They would take diesel and do whatever they do with it under these two provisions and drop the tax rate by a penny.
Chairman McGinness:
The current tax rate for these two fuels is 27 cents?
Mr. Benzler:
That is correct; we do not distinguish biodiesel and e-diesel.
Chairman McGinness:
I would ask you to get that information to us as quickly as possible.
Helen A. Foley, Lobbyist, Regent International:
Regent International is an ethanol distributor which supplies the majority of the ethanol for southern Nevada during our wintertime gasoline season. During the past year there has been a very successful e-diesel or oxy-diesel program in southern Nevada which has demonstrated over a million miles in on- and off‑road use. We have been utilizing companies that do aggregate work and the results have been very dramatic. There has been a 23 percent reduction in carbon monoxide and a 31 percent reduction in particulate matter which has been very encouraging news for southern Nevada.
The pilot project was supplemented by grant money from DMV&PS; however, it does cost them money to do this and if we had a penny reduction in the price of the fuel, it would go a long way in encouraging others to voluntarily participate in this program. Therefore, it would give the truckers and the equipment industry a great new option to meet the clean-air goals we have. They would be using domestic and renewable fuels to displace imported petroleum by using this and it would bring about an immediate reduction in emissions. The opacity, or the black soot that comes out of the pipes through diesel, is reduced dramatically through the use of e-diesel, and I know there have been similar results with the biodiesel. I think this program should be actively supported by the state; even a penny would make a difference.
Senator Neal:
How many gallons of e-diesel fuel does your company sell in a 1-year period?
Ms. Foley:
I do not know how many gallons they provide, but with this legislation they would need to blend somewhere between 7 and 15 percent of the total tank with conventional diesel fuel.
Senator Neal:
If you do not know the number of gallons being sold, then how can we determine the effect of a one-penny reduction?
Ms. Foley:
I can find out how much they currently sell, and I do believe, with this type of program there would be a greater incentive for the oxy-diesel. I know we use blended ethanol from October to March in all our vehicles in southern Nevada to reduce carbon monoxide, and it has been the cornerstone of the carbon monoxide program in southern Nevada. I will find out that number as well as what the potential could be for the diesel blend.
Senator Neal:
Does the market set the price per gallon for the diesel fuel sold?
Ms. Foley:
Yes, the market determines that.
Senator Neal:
If we reduce this by one penny, could your market price go up by one or two pennies?
Ms. Foley:
Based on the experience with gasoline prices over the last couple of months, I hate to guess at something like that; it could always go up. We use diesel which arrives by pipeline and then add ethanol or biodiesel to it, so it is a very fluid price.
Senator Neal:
That could possibly cancel out any benefit to the public?
Ms. Foley:
Not necessarily, because they will still be paying 27 cents on diesel, regardless of how high the diesel cost is, and if they use this it would be one cent less.
Chairman McGinness:
Senator Neal’s point was there is no guarantee if we lower the tax rate, the price is going to be lower.
Sean G. Gamble, Lobbyist, Clark County Health District:
We are in support of Mr. Krueger’s first amendment (Exhibit D) because it will provide incentives for owners of vehicles to use the special and alternative fuels. The Clark County Health District supports any measures to reduce air pollution in southern Nevada. Using alternative fuels does reduce the pollution and, rather than mandates, we encourage the use of incentives such as this.
Senator Neal:
What experience does the county have in the use of this particular fuel, in terms of reducing air pollution?
Ms. Foley:
The program I was discussing related to off-road use and the million miles the aggregate companies have traveled over the last year doing work. There was a grant received by each one of those companies through the health district in southern Nevada. Those funds came from smog fees, but were directly through an appropriation from the health district, which has been monitoring it very carefully and is extremely pleased with the results.
Russ Law, Chief Operations Analysis Engineer, Operations Analysis, Nevada Department of Transportation:
As far as A.B. 639 is currently written, our state has a great system of taxation with respect to highway use; if you use it you pay for it, the exception being government vehicles which are exempted, at least for special fuel. Our department has decided, with respect to this bill, if reasonable limits are applied where we know there is not a huge loophole, we have promised not to strap our junior engineers to the road and keep this farm equipment from running over them. In other words, if there are reasonable limits, we can absorb the loss. But, if, as proposed, you remove these mileage restrictions, or time of operation restrictions, then I will say Senator Neal is right: If you have farm equipment operating in California and have silos in Utah, you could transport crops from California to Utah without paying tax in Nevada. I think there needs to be some reasonable limits.
With regard to Mr. Madole’s amendments, special mobile equipment, as currently defined, should be exempt from dyed-fuel regulations. The definition includes backhoes, graders, et cetera, which operate incidentally on our highways. It does not reference any certain distance, and ultimately, we are going to rely on the judgment of the highway patrol as to what constitutes incidental use. But, for our department’s purposes, we would not like to see special mobile equipment driving several miles on our roadways because it is dangerous.
Regarding the amendments presented by Mr. Krueger (Exhibit D), he is correct that the rates we set in the statutes are based on BTU value or “energy value,” with diesel fuel forming the basis for those rates. The rates Mr. Krueger has proposed for the new fuels are reasonable and should be added.
To address Senator Coffin’s concerns about emulsified fuels, I did the calculations and the statute says up to 80 percent of the fuel could be volatile matter in the case of emulsified fuel. The folks who brew this fuel in Reno can use as little as 45 percent volatile matter and still have a product which operates vehicles. To determine the tax rate for water-phased hydrocarbon fuel, I multiplied each of the lower- and upper-range, volatile-matter content percentages of 45 and 80, by 27 cents, divided by the BTU value, or energy content for diesel fuel, and then the two products were averaged because we do not know how much they are going to use, but we do know it is going to be somewhere between 45 and 80 percent. At 80 percent it should have been taxed at about 24 cents and at 45 percent it should be taxed at about 14 cents, so, when I averaged those two together it rounded to 19 cents.
Senator Coffin:
That is how tax policy is made sometimes. Why has this type of fuel not become popular?
Mr. Law:
I cannot answer that, but I know there has been successful testing, including in our own department.
Mr. Peri:
Nobody will be hauling onions from a farm in California to a packing shed in Nebraska; that is not going to work. We are talking about staying in the state, and the farming operation which travels the most distance would probably be Winnemucca Farms, bringing potatoes from Orovada to their processing plant and sellers in Winnemucca. An attorney in Reno grows potatoes in Smith Valley and Wellington and his packing shed is across from our packing shed in Yerington. I think the furthest they are hauled is about 42 miles. I agree with paying for what is used, but so much travel is done off-road and so little travel is done on-road with this equipment, I do not think it is fair to address it in this category. We are not going to have people trucking goods from Las Vegas to Reno; it is a short distance and will help out farming a lot.
Chairman McGinness:
It seems like it is rather limited when you talk about a field or other area owned or leased in which the products are grown.
Mr. Peri:
It is by one person, and is spelled out as “his or hers,” which means you cannot be hired and hauling someone else’s product, you cannot lease out your equipment; it is pretty specific. The 20 miles is going to create a problem for someone having to clock the distance and is not a good regulation to have in there.
Mr. Capurro:
We could alleviate the problem of going from California to Nebraska or Utah by limiting it to a field in Nevada to a processing plant in Nevada.
Senator Neal:
Would that still be within 20 miles?
Mr. Capurro:
No, it would not be. With regard to Mason Valley, Mr. Peri has fields approximately 38 miles apart and the 20-mile limitation would prevent him from moving from one field to the other field, as the provisions of the bill now read. The intent was to not restrict the mileage, because we are only talking about some very narrowly defined operations, not commercial operations where somebody else is growing the product. In some of the operations up north, the farms were growing the product, but it was going to a commercial processing plant, which would not qualify under this bill.
Senator Neal:
Could you tell me the change you are making in terms of the definition of a highway?
Mr. Capurro:
You have to understand this was in the bill when we were talking about special mobile equipment being in there also, and one of the concerns was to not allow that type of equipment to operate on the freeways or controlled-access highways. That is the reason for restricting use of the freeway facilities for equipment not designed for that purpose.
Senator Neal:
It says the highway does not include a controlled-access highway as defined in NRS 481.041, and that means a freeway?
Mr. Capurro:
Freeways and other controlled-access type highways.
Senator Neal:
These trucks and equipment cannot operate on those types of highways, but what about Highway 93 going south which runs from one end of the state to the other?
Mr. Capurro;
The Nevada Department of Transportation could answer that better than I can, but I presume they are not controlled-access highways, or at least not for their entire length. Portions of it could be considered a controlled-access highway where there are no stoplights or stop signs to control cross traffic.
Senator Neal:
Are you saying a controlled-access refers to a stop sign or traffic lights?
Mr. Capurro:
On a controlled-access highway there are no stoplights or stop signs.
Chairman McGinness:
You are talking about freeways with on-ramps.
Mr. Capurro:
You can have on-ramps without having controlled-access highways, such as freeways which do not have stoplights or stop signs for their on- and off-ramps.
Chairman McGinness:
We will close the hearing on A.B. 639 and open the hearing on A.B. 205.
ASSEMBLY BILL 205: Makes various changes concerning state board of equalization. (BDR 32-493)
Assemblywoman Dawn Gibbons, Washoe County Assembly District No. 25:
This bill has to do with the State Board of Equalization, and is a cleanup bill which allows the Governor to designate one of its members as vice chairman of the board. Currently the Governor is only required to designate the board’s chairman. On page 2, the bill requires the Governor to select two alternate members to serve on the board, in the absence of certain members, and provides for the compensation of these members. Specifically, one alternate member is required to be a property appraiser to serve in the absence of the board member serving in that capacity. Likewise, the second alternate member is required to be a person versed in the valuation of centrally-assessed properties, to serve in the absence of the board member serving in that capacity.
Section 1 provides for the replacement of members of the board under certain circumstances. If a regular board member fails to attend two consecutive regular meetings of the board, this bill would provide the Governor “may” be notified of the fact and “may” replace the member of the board with a new member possessing the appropriate qualifications. The Governor may reappoint to the board a member replaced earlier, as long as that former member’s term of office has been expired. Finally, the equalization board is required by law to convene annually on the fourth Monday in March in Carson City. This was added so people would know when the meetings were and could plan accordingly because there was a problem with people making the meetings and they need all the members of this board to make these decisions.
Section 2 requires the board also convene on the fourth Monday of each month in Carson City, unless the chairman decides there is insufficient business for the board to consider. There is an amendment to allow additional meetings to be held in the state to do all necessary business.
Senator O’Connell:
On page 2, line 34, is there any reason we do not have any qualifiers as far as why the member was unable to attend the meeting?
Assemblywoman Gibbons:
We left it like that because it is difficult to get people on this board. We require them to have the expertise to serve on this board, and we did not want it to be so punitive as to make it harder to attract people.
Senator O’Connell:
I was thinking it needed to be lightened up to provide excused absences for the reasons you discussed. It is difficult to get people to serve on boards, and I thought if we could give them a little leeway as to why they failed to attend, it might be helpful.
Assemblywoman Gibbons:
One of the reasons this bill came forward is because of the lack of attendance. They need someone there who is a property appraiser, as well as other people with professional backgrounds. If someone misses a meeting, they cannot do the business for the state, which is why the language is there for the Governor to make the decision as to whether or not he would like them replaced. The Governor does not have to replace them if he thinks they are doing a good job and they tell him why they were not able to be there.
Senator O’Connell:
On page 3, line 17, is there any reason we are having to meet in Carson City? It would seem to me most of their business might be done in the Las Vegas area. Why are we qualifying they should meet specifically in Carson City?
Assemblywoman Gibbons:
That language came back from Ted A. Zuend, Deputy Fiscal Analyst, and I thought perhaps they were supposed to meet in Carson City, which was in the existing language.
Chairman McGinness:
We will close the hearing on A.B. 205 and open the hearing on A.B. 433.
ASSEMBLY BILL 433: Makes various changes relating to property taxes. (BDR 32-1140)
Assemblyman P. M. “Roy” Neighbors, Esmeralda, Lincoln, Mineral, Nye counties Assembly District No. 36:
Assembly Bill 433 seeks to clarify the legislature’s intent regarding the taxation of the beneficial use or possessory use interest of property, which would otherwise be exempt from taxation, by clearly defining the word use, for the purpose of sections 157, 159 and 227 of chapter 361 of NRS. Sections 157 and 159 provide for the taxation of the beneficial use and/or possessory use interest of otherwise tax-exempt property. The law has been challenged by the federal government, which claimed the law unconstitutionally taxed federal property, but the Ninth Circuit Court of Appeals has found the law to be constitutional and fully effective. The federal contractors now propose to construe the statutory language as limiting their taxable interest to only those hours of day during which the property is actually occupied or operated.
A handout on the litigation history (Exhibit E) is being given to you. It would be very time consuming to go through it, but I would be willing to answer any questions on the long list of court cases involved.
I would like to give a history on sections 157 and 227 of chapter 361 of NRS. Back in the 1960s, Assemblyman Archie Pozzi, Jr., owned an automobile dealership and was unhappy because hundreds of cars were coming into the Nevada Test Site under government control, and were made available to private contractors who paid no sales tax or vehicle tax. During the same period he heard about a court case in Michigan, NLRB v. Borg-Warner Corp. Webster Division, 356 U.S. 342, 42LRRM (1958), which was upheld by the U.S. Supreme Court, and ruled, whenever property that is otherwise exempt, whether it is real or personal, is made available to and used in business conducted for profit, it shall be assessable in the same manner. With that in mind, he went and had the laws changed to reflect this ruling in the state of Nevada.
Assemblyman Neighbors:
During the same period, I was working at the Nevada Test Site and went to see the late Judge Beck, who was a district attorney at that time, and I said, “If those automobiles are subject to tax, there are millions of dollars worth of equipment at the test site which would also qualify.” So we spent about 5 years in and out of court on the issue and sued major contractors like Aerojet, Westinghouse, and Reynolds Electric, and the end result was we won the case and received over $5 million up front. Since then, $20 million to $25 million has come in and is used by the county and the school district, not just Nye County, but, when we settled the lawsuit, Clark County received $300,000, although they did not participate in the lawsuit.
About 5 years ago, one of the small contractors decided he had a constitutional problem with whether the county was imposing a possessory tax, the beneficial use tax, or service tax, and took the county to court. There was a hiatus of about 5 to 6 years where the county received no money, and when it came before the Ninth Circuit Court of Appeals in San Francisco, one of the judges felt the law was very constitutional and two of the judges had a problem with it. The cited problem was the language should say “beneficial use” and “pro rata,” which we were already doing at the Nevada Test Site. It came back to the legislature and the law was changed to address the concerns of those two judges.
Assemblyman Neighbors:
In the meantime, the attorneys for the federal government have come back and would like to take a position on beneficial use such that a person in charge of a multi-million dollar drill rig or big building owned by the government could argue for pro rata taxes, if the property was not in use on Saturday or Sunday, and was only used 10 hours per day. The statute provides, ”the taxable value of a leasehold interest, or possessory interest, beneficial interest or beneficial use, for the purpose of NRS 361.157 or 361.159, must be determined in the same manner as taxable value of the property would otherwise be determined,” if you were the owner of the property. California has a possessory tax also, but it is only on the value of the lease and does not generate the same kind of money. When the money from the lawsuit was received, two schools were built in Nye County; both of them paid for in cash. One of them was a high school in Pahrump and one is a middle school, and when the tax rate is divided up it has been of great benefit to the schools and the other districts.
Senator Rhoads:
Under California law, a possessory interest includes grazing fees where they actually tax the lease fee. Would this do the same thing in Nevada?
Assemblyman Neighbors:
The property used for grazing is exempt land.
Senator Rhoads:
We are leasing the land.
Rachel Nicholson, Concerned Citizen, representing Nye County:
To my knowledge it has never been used for that purpose, although other laws would supersede and make it not applicable.
Senator O’Connell:
What happens if you only use a piece of property once?
Assemblyman Neighbors:
The county assessor would not charge for that. Although we appraised everything at the test site, we did not appraise the land because we decided at the time there was a question on the value.
Ms. Nicholson:
There are pieces of property used only for one-half year, which are already under the law and only taxed for the portion of the year they are used. This has more to do with the idea of fair taxation, such as paying for vehicles for the whole year, even though we may drive them only a few hours per year. Contractors are now claiming, if they have all their goods in a leased building for a whole year, they should only be taxed on the 40 hours per week when most of their employees work, which works out to about 23.8 percent taxation as compared to 100 percent, which is what we are trying to get to here.
Senator Neal:
Under this proposal, “’Durable’ means for a determinable period with a reasonable certainty that the use, possession or claim with respect to the property will continue for that period.” What do you mean by that?
Ms. Nicholson:
This has to do with trying to define goods, either real or personal property, given to these private contractors by contract. The term “durable” would come through their contracts, which are generally year by year, to designate exactly how long they would have control over the property.
Senator Neal:
Are we separating the possession of the property from the use of the property in terms of taxation?
Ms. Nicholson:
The purpose of this bill is to make sure those two things are seen as working together. What they would like to do now is say there is no possessory or use interest any time the motor is not running or the building is not occupied.
Senator Neal:
You might have a possession of the property but not necessarily use it, which would then tax the property based on possession.
Ms. Nicholson:
There is an exception for property which is simply being warehoused. We are talking about property controlled and possessed, and are not looking to tax property which is primarily warehoused for the federal government.
Senator Neal:
When you say warehousing, are you speaking of a designated place in which the property has to be placed to take it out of the taxing scheme?
Ms. Nicholson:
No. There would not have to be a building with something in it, but even now, the government will say certain pieces of property are being set aside and not being used for purposes of the contract.
Senator Neal:
What if I had a crane and I was constructing a ditch and used the crane for about 3 weeks then I shut off the motor? The crane is just sitting near the work, but not being operated; is it then taxed?
Assemblyman Neighbors:
The position of the county has always been, even in the lawsuit, we know the United States government does not pay tax. The contract at the Nevada Test Site and other locations is for cost, plus anything built into the contract. Going back to NRS 361.227, if tax is not paid on property, under current law there is a 3-year period and a window of about 30 days to pay tax on the property, or it will be sold. If the tax is not paid, as in the case of some of the big contractors which owed a lot of money, under the conditions of NRS 361.157 and 361.159, the county would have to take the case to court; there is no lien on the property.
To answer your question Senator Neal, during this period, if you have possession of a crane for over 6 to 8 weeks, even though you do not use the crane, the assessor would have to determine whether or not anyone else could use the crane, and if you, as a private contractor, were making money by possessing the crane. As an example, people who own their personal backhoes might say they would like to do the ditch job because they are paying taxes on the job.
Senator Neal:
If you are making money with the equipment, then you should pay taxes on it. But if the equipment is not being used and is still under a lease, if you show a profit at the end of the lease agreement, then you still have to pay taxes on it.
Assemblyman Neighbors:
Another issue would be whether or not your contract indicated part of your profit was because you were using that equipment.
Senator Neal:
You are leaning towards the possessory interest, rather than the use of the property.
Assemblyman Neighbors:
The law upheld by the United States Supreme Court, the lower court, and the Nevada Supreme Court, does deal with possessory interest on the property as otherwise exempt, when it is made available to a private contractor in a business conducted for profit.
Ms. Nicholson:
Section 2 does provide for property not actually being used, but simply being warehoused, and such property would not be considered to be used under this language. Nevada Revised Statutes 361.157 and 361.159 have always used the words “possessory or use interest.” This is no different from being taxed for your house for the whole year, despite being gone some of the year. Since we hold control over the property and no one else has a right to it, we pay for the tax on it. What is being asked is for private contractors through the federal government to be treated the very same way as a private contractor for anybody else. For instance, if Nye County were to contract with a private contractor to do some work, the contractor would either have to buy or lease equipment and pay taxes for the entire time the property is under purchase or lease; not just the portion of time the motor is running or the portion of time a certain job needs to be done. If any private contractor in the state needs a piece of equipment to carry out his or her business, even though the business may not require the equipment be used more than a few days or weeks of the year, so long as the contractor keeps possession of the property, taxes must be paid on it for the whole period.
Since the 1993 lawsuit was sustained by the Ninth Circuit Court of Appeals and this law was found constitutional, all the attorneys involved agree it was always the intent of this legislature for the taxes to be paid based on the entire amount of time the property is held. If a contractor holds the property and nobody else has the right to use it, then the contractor should pay the taxes on it, and it is our belief this was always the intent.
Assemblyman Neighbors:
Nevada Revised Statutes 361.157, 361.159, and 361.227 all use the same language, which is “possessory and leasehold interest.” Carole Vilardo, Lobbyist, Nevada Taxpayers Association, has an amendment to this bill, which we support.
Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association:
The proposed amendment (Exhibit F) is for a different exemption under NRS 361.082. It was brought to our attention by the rural county assessors who were having a problem with the exemptions on low-income housing. Under the proposed amendment, additional criteria would have to be met for an exemption, including:
The property is occupied by persons that meet the qualifications of persons with low incomes; or the rental rate of the housing project, or portion of the project, applying for the exemption is not more than 90 percent of the median rental rate for the geographical area; and an application for exemption, as prescribed by the Nevada Tax Commission, is filed with the county assessor.
The reason for this is to tighten up the exemptions, because in low-income housing projects, people who originally move in and meet the low-income requirements go up in income scale and remain there, taking advantage of the low-income housing when they do not really qualify.
Senator O’Connell:
I do not think we can do this. Any amendment added to the bill has to be compatible with the subject. I think it is not germane to the bill.
Senator Neal:
It is germane in terms of a statute in which it does not change the exemption. It is already there, so what they are saying is they are now qualifying the exemption. Rather than billing the project, moving in, and getting the exemption, now you have to have qualifications in order to get the exemption. In that sense, it would be germane because it does not create a substantive change. The substantive change is in the exemption, because, in a way, it denies the exemption, and this is a position, Senator O’Connell, which you have supported this session.
Senator O’Connell:
I agree with the amendment, but do not think they will allow us to put it on the bill.
Chairman McGinness:
Obviously it deals with chapter 361 of NRS, but we will have to find out if it is germane to this subject.
Laurie Young, Appraiser, Assessor’s Office, Churchill County:
We ask that you support the proposed amendment for A.B. 433. We have a housing project for low-income tenants and we had originally placed this property on the tax roll at 25 percent exempt, because, as we read the law at that time, it applied to “the portion of” the housing being used for low-income tenants. Mr. Bill Bartlett, the county assessor at the time, set the project at 25 percent exempt, based on information from the general contractor. Mr. Bartlett and the deputy district attorney at that time went to the county board on behalf of Churchill County, and then on to the State Board of Equalization, where they also stated the project should be 100 percent exempt. We took it to the district court and were unable to go any further, because the funding was not available to us. So, we are asking the clarification in this addendum be passed.
Robert S. Hadfield, Lobbyist, Nevada Association of Counties:
I am in favor of A.B. 433 and urge the committee’s prompt passage of this measure. It is in response to changing interpretations of Nevada law by federal contractors, and I am very concerned that Mineral County, which has a very large federal facility, will be much more negatively impacted than they are already, if we do not respond to the challenges in clarifying the law, as this measure does what is intended. The proposed amendment, if it in fact will qualify, is important because there has been a debate in rural Nevada about whether or not they are going to approve any more low-income housing projects. It has come up in Douglas County and Lyon County, because what is happening is we are seeing these facilities converted where they are paying the going rent rates of any other apartment in the community, and are paying no taxes, which is unacceptable to us. We believe people should get a tax break when they qualify and believe the amendment, if added, will make it clear they are entitled to a tax break and will get a tax break, but only when in fact they do qualify under the original intent of the federal law to get that tax break.
Assemblyman Neighbors:
The depreciated value of the property at the test site over the years has held at about $150 million and it has been assessed at about $45 million on the tax roll, which has certainly benefited the schools and the counties. Mineral County and some of the others are looking very hard at this now.
Chairman McGinness:
We will close the hearing on A.B. 433 and open the hearing on A.B. 361.
ASSEMBLY BILL 361: Revises provisions governing tax on net proceeds of minerals. (BDR 32-1078)
Assemblyman John W. Marvel, Humboldt, Pershing, parts of Elko, Eureka, and Lander counties Assembly District No. 34:
Section 1, subsection 2, language should come out because the date was not correct.
Tim Crowley, Lobbyist, Nevada Mining Association:
We are thankful to Assemblyman Marvel for not only this bill, but the bill he pushed through last session, which puts us into paying on actual revenues. It is only somewhat helpful to us, and is greatly helpful to the communities in which we live, allowing them to budget appropriately. It is helpful to us because it prevents us having to go back to the communities to ask for a refund if we overpaid, which does not always go over well. We appreciate the bill and do stand to benefit, but the greatest beneficiaries are the communities in which we live. The current law requires we make an estimate on the future year’s revenues on February 16. The Department of Taxation takes those estimates and reports them to the counties on April 25. The gap between February 16 and April 25, is so great, the numbers are bad by that point. I would recommend you have us make those estimates on April 1, to then be turned around to the communities on April 25, which would allow the numbers to be more accurate. The way to achieve this would be to delete subsection 2, in section 1, lines 10 through 12; and also delete on page 2, lines 9 through 12; and reinsert on page 5, the first section, “the annual statement of estimated gross yield net proceeds and royalties use of statement . . .” to include the entire section.
David Pursell, Executive Director, Department of Taxation:
Those proposed amendments really put us back in the position we were in before this bill, in terms of getting the projections to the local entities closer to the time to put their tentative budgets together, so it does give them a better number. It is certainly something we can administer from the Department of Taxation.
Senator Neal:
Explain the repeal section of the bill?
Assemblyman Marvel:
We are going to add one section back just so there is something they can compute their budgets on. But on the rest, we are trying to get rid of the archaic language and get completely away from estimated figures. What has happened in the past in some of our counties is, counties have predicated a budget on estimates, the money did not come in, and unfortunately, as Mr. Crowley said, the mining companies had to go back to the counties for refunds. This happened in Humboldt County on two occasions where they had to ask the school district and the county to refund the net proceeds.
Mr. Crowley:
What Assemblyman Marvel is trying to do with this bill is make it so the mining industry does not pay their net proceeds on an estimate. Estimates of what we are going to make in the future year are still necessary for the communities to get an idea of what we are going to pay, but we will not actually make a payment based on an estimate; we are going to make a payment based on what we actually made the previous year. So, in repealing the provisions in the law which required us to make payments based on an estimate, they threw the baby out with the bath water. Nobody wanted this first section which was repealed taken out, and we are asking you to put it back in.
Senator Neal:
You are not paying on the basis of what you are going to estimate, but what you paid the year before, which becomes the tax?
Mr. Crowley:
Yes.
Senator Neal:
If you exceed that amount, what happens?
Mr. Pursell:
It is not based on the last year’s actual tax bill; it is based on the last year’s actual production activity. It will be a tax based on the actual calendar year production rather than estimating and then truing that estimate later the next fiscal year. Assemblyman Marvel is right; if we miss those estimates, there could be large refunds due from both the state, because we share in that revenue, and the county. This puts it on an actual basis, so it is an after the fact, actual tax on their previous calendar year’s production.
Senator Neal:
To start this off for 2 years, the tax would be the same.
Mr. Pursell:
It will be dependent upon what the actual net proceeds are, which could change with the price of gold and the gross proceeds. Mining is allowed certain deductions against the gross proceeds, so it will depend on the price of gold and how many deductions they have. So, from calendar year to calendar year the actual net proceeds revenue could fluctuate.
Senator Neal:
What is the date this will be effective; is it July?
Senator Rhoads:
Upon passage and approval.
Senator Neal:
That would mean you would be looking at last year’s figures of what you paid in terms of the estimated tax.
Assemblyman Marvel:
It will be based on actual revenue.
Chairman McGinness:
They are not going to do any estimating anymore, but it will be based on actual revenue.
Senator Neal:
When would the tax be due?
Assemblyman Marvel:
On page 2, line 31, “the state controller shall distribute all money due to a county on or before May 30.”
Senator Neal:
The net proceeds determined as of May 30, is what you will begin to pay taxes on; is that what I understand?
Assemblyman Marvel:
It will be on the actual; they will make their report on April 1, and will actually know what the previous year was.
Senator Neal:
Which previous year will they be going back to, May of 2000?
Assemblyman Marvel:
No.
Senator Neal:
It will be going ahead?
Assemblyman Marvel:
Yes.
Mr. Pursell:
Rather than getting an estimate in the first half of the fiscal year, we will get the actual numbers, and the locals will get the tax revenue in May, the second half of the fiscal year, rather than getting an estimate in the first half and then “truing up.” When you true up numbers there could have been an addition or a reduction to the estimate.
Senator Neal:
Will the tax be determined on actuals for the calendar year?
Mr. Pursell:
Yes.
Senator Neal:
You will be looking at the calendar year 2000, for the actual, and then paid for by May 30, 2001.
Chairman McGinness:
Let me understand the amendments. On page 1, you want February 16 changed to April 1.
Mr. Crowley:
The way to do that is to leave February 16 in the language to apply to subsection 1. We still need to report that portion on February 16, so you would want to take out lines 10 through 12 and also lines 9 through 12 on page 2. The same language exists in NRS 362.115 except it is reported on April 1. It is the same language as was repealed, but it is reported on April 1, so the existing law accommodates everything we need; it has just been changed in this bill.
Chairman McGinness:
Then add back NRS 362.115 into the repealed section. Did you try to do this in the Assembly and it did not work?
Mr. Crowley:
We offered some technical expertise from our tax committee on how to get to paying actuals. It did not include this change which was made and we do not know why.
Mr. Hadfield:
This has been a long process over several years to get this straight; with the amendments we have it straight. I want to make it very clear to you, the counties impacted by this understand they will no longer get two payments, but will get one payment a year on May 30, which is toward the end of their fiscal year. We have made this very clear to them, and they understand and support it. This takes care of a disaster for school districts, counties, and the state of Nevada. We placed an unrealistic burden on the mines to go out into the future and estimate how much money they were going to generate to pay taxes, and then counties had to give back hundreds of thousands of dollars. This takes care of it; we support it and we will not be upset about getting one payment late in the fiscal year instead of one early in the fiscal year and one “truing up” later on.
Ms. Spriggs:
We are in support of the bill.
Chairman McGinness:
We will close the hearing on A.B. 361 and open the hearing on A.B. 656.
ASSEMBLY BILL 656: Authorizes annual payment of business tax under certain circumstances. (BDR 32-394)
Mr. Pursell:
Assembly Bill 656 addresses NRS 364A.140 which currently only allows for the payment of business tax on a quarterly basis, regardless of the amount of the tax due. State business tax has no minimum amount due and there is no allowance for a taxpayer owing a small amount of money to pay less frequently. For the convenience and cost savings to the taxpayers in the state, it is being requested by the department to allow for the annual filing and payment of the state business tax, for those businesses with less than one full-time equivalent employee per quarter. It will be more convenient and cost-efficient for the taxpayers to write only one check per year, and it will save the state postage and printing to send one return rather than the required four quarterly returns. This is a direct reaction from the Department of Taxation, when I was originally appointed in February 1999, to the concerns of small businesses which were getting $4 and $5 quarterly requests to remit the tax, and asked if there was not something we could do so they could pay with one check at the end of the year. Assembly Bill 656 will accommodate that request.
Ryan J. Works, Lobbyist:
I am appearing on behalf of the Reno-Sparks Chamber of Commerce. We support this bill and it will be beneficial to some of our members.
Kami L. Dempsey, Lobbyist, Las Vegas Chamber of Commerce:
We have more than 6500 members and would also support this legislation and believe, especially for small business owners, the more we can streamline how much paperwork they have to do and how often they have to register, not only helps the small employer, but also is beneficial to them.
We will close the hearing on A.B. 656.
Senator O’Connell:
Mr. Pursell, we had testimony earlier on A.B. 205 and Assemblywoman Gibbons said you helped her on this bill. There are two sections I had concerns about. Line 34, subsection 8, section 1 refers to meetings and attendance. Is there any reason qualifiers were not provided as to what would be acceptable if the person were to fail to attend two meetings? Would it be a problem if we wanted to do something to free it up a little?
Mr. Pursell:
I do not believe so. When I testified on this on the Assembly side, my main concern was on line 38. When they discussed it with the Governor, they said the Governor “shall remove” an individual, and we had a discussion of what good cause might be for that to happen. My response was, it would better if it was permissive for the Governor, because the state board does have a number of 2-day meetings, and the way it was written, if a 2-day meeting was missed for some unforeseen circumstance, then it would be a requirement for the Governor to remove the individual. So, the amendment was made permissive for the Governor, but it probably would not hurt to try to identify what type of circumstances would apply.
Senator O’Connell:
Some of these meetings go on much longer than 2 days, do they not?
Mr. Pursell:
I understand there was another concern voiced by the current chairperson of the State Board of Equalization. Last year a hearing involving Newmont Mining Corporation was continued from one meeting to another because new testimony and information came in. So, I suppose you could have a situation where an alternate member hears the initial hearing on a case, and then would have to follow through with the continued hearing, rather than handing it off to the originally appointed member to take over, in order to maintain continuity.
Senator O’Connell:
The other concern is regarding section 2, where they are talking about the meetings occurring on the first Monday or the fourth Monday of every other month in Carson City. Do most of these cases occur in the north or are most of them in the south?
Mr. Pursell:
Most of them are in the south.
Senator O’Connell:
Can you give us any reason for that language?
Mr. Pursell:
No. I am not sure what that would accomplish. In my experience with the State Board of Equalization, they set their calendar for the rest of the year at the first meeting on the fourth Monday in March. Obviously, it is based on where the cases are coming from, and if they need two 2-day meetings in Las Vegas, they schedule them into their calendars with a couple extra days just in case the board does not come to a decision in the original time frame. It would be better not to require businesses in southern Nevada to come north to attend the meetings of the State Board of Equalization.
Chairman McGinness:
Let us take up A.B. 656, for which there was no opposition.
SENATOR O’CONNELL MOVED TO DO PASS A.B. 656.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SCHNEIDER WAS ABSENT FOR THE VOTE.)
*****
Chairman McGinness:
Let us look at A.B. 361.
SENATOR RHOADS MOVED TO AMEND AND DO PASS A.B. 361.
SENATOR O’CONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SCHNEIDER WAS ABSENT FOR THE VOTE.)
*****
I adjourn the meeting at 4:02 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: