MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
March 6, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:04 p.m., on Tuesday, March 6, 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
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Mary Henderson, Lobbyist, Community Relations Director, City of Reno
Dino DiCianno, Deputy Executive Director, Department of Taxation
Alan H. Glover, Lobbyist, City of Carson City, and County Fiscal Officers’ Association
Robert Spencer, Transfer Tax Auditor, Recorder, Clark County
Marvin Leavitt, Lobbyist, City of Las Vegas
Colleen A. Wilson-Pappa, Lobbyist, Clark County
Pat A. Zamora, CPA, CGFM, Director, Accounting Department, Business and Finance Services, Clark County School District
Thomas J. Grady, Lobbyist, Executive Director, Nevada League of Cities and Municipalities
Stephanie D. Garcia, Lobbyist, City of Henderson
Dave Evans, Concerned Citizen
Melody Luetkehans, Lobbyist, Nevada Association of Realtors
Renny Ashleman, Lobbyist, Nevada Government Relations, Clark County
Bob Shriver, Executive Director, Division of Economic Development, Commission on Economic Development
Alfredo T. Alonso, Lobbyist
Marion I. Barritt, Vice President, Sunrise Sustainable Resources Group
Joseph L. Johnson, Lobbyist, Toiyabe Chapter, Sierra Club
Chairman McGinness:
We will open the hearing on Senate Bill (S.B.) 222.
SENATE BILL 222: Authorizes Nevada Tax Commission to exchange with certain local governmental entities information concerning businesses that are subject to business tax. (BDR 32-618)
Mary Henderson, Lobbyist, Community Relations Director, City of Reno:
This bill will affect all local governments in the state who do business with the Department of Taxation. This allows us to receive information from the Department of Taxation. Currently, we are not able to do that. We provide volumes of information to taxation and do not have the ability to receive information in return for such things as gross receipt information for a business license and federal taxpayer identification numbers. The bill does not mandate, but does provide enabling legislation that would allow the commission to provide that information to us. We are in a position of having to monitor business licenses in terms of providing business tax and collection for the state.
Senator Neal:
The records and files of the department concerning administration of this chapter, not confidential and privileged in the following cases, we add a paragraph (f), “Exchanges of information pursuant to subsection 3. The commission may agree with any county fair and recreation board or the governing body of any county, city or town for the continuing exchange of information concerning taxpayers.” The proceeding information takes that information out of the privileged category. If that is the case, the permissive language does not mean anything.
Ms. Henderson:
As I understand it, we cannot receive any of that information from taxation because of the way this language is constructed. This would allow the commission to make that determination.
Senator Neal:
How long have you requested this type of information?
Ms. Henderson:
I personally have not been requesting this type of information. The city has certainly been in that position for many years providing business licenses; checks that are required in order to put someone in business in our community.
Senator Neal:
What is the demonstrated need now for search information, when you did not have to have it in the past?
Ms. Henderson:
This has always been a one-way flow of information from local government to the state. This makes our job very difficult to do the kind of research work we need to do to protect the citizens and to make sure we are properly licensing businesses.
Senator Neal:
If you provided information to the tax commission, then it seems to me you already have that information. What is it you want in return, that you do not have?
Ms. Henderson:
Not all the information they receive comes from us. They have other information we need to access, such as federal taxpayer identification numbers.
Senator Neal:
Why would you need a federal taxpayer identification number?
Ms. Henderson:
It is required as part of having a business license.
Senator Neal:
Can you not require that of a person who is filing for a business license?
Ms. Henderson:
You can. It is a way of double-checking to make sure everything is matching at the state level and local government level.
Senator Neal:
You want the information for honesty purposes?
Ms. Henderson:
A part of our job is the enforcement piece with business licenses and requirements through the business tax. Our intent was to do a better job in the prescreening area of business licenses and gross receipt information.
Senator Neal:
Is there a requirement once the person gives you the information that he give that information under penalty of perjury?
Ms. Henderson:
There is an extensive form that must be filled out. I do not know if it is under perjury or not. We are also asked to do research work for the state on occasion on businesses and the collection of business tax.
Senator Coffin:
What kind of license or fee do you assess that would need that information for a backup because that is just listing the number of employees. Do you usually vary or base your licenses upon a revenue or sales figure that has nothing to do with the number of employees?
Ms. Henderson:
That is correct. Gross receipt is one area in which they were requesting the information.
Senator Coffin:
That is not contained in the business license form.
Ms. Henderson:
Some of what we are required to do feeds back to the Department of Taxation. There is an extensive form to be filled out, which it is not an easy process to get a business license. You have to have all the state requirements, State Industrial Insurance System requirements, and so forth, when granting business licenses, on occasion there is a need for this type of information.
Chairman McGinness:
On page 2, line 7 (S.B. 222), could the City of Reno, or the City of Fallon, request someone’s tax identification number and get their Internal Revenue Service Schedule as well?
Ms. Henderson:
I do not know, but I could find that out. I do not think that was the intent at all, to obtain people’s federal tax records.
Chairman McGinness:
On page 2, line 5 (S.B. 222), if you were doing opposition research, deciding whether or not to locate your business in another community, and you received the right information, does that somehow became less than privileged.
Ms. Henderson:
The intent was for the information to come to us at the city.
Senator Neal:
Who is “any county fair and recreation board”?
Ms. Henderson:
That would be Washoe County, which is the RSCVA (Reno-Sparks Convention and Visitors Authority). The county is the fair and recreation board. The RSCVA acts in that capacity.
Senator Neal:
The fair and recreation board can request information concerning taxpayers, which is very broad.
Ms. Henderson:
I agree. Our request was strictly for local governments, not a fair and recreation board.
Senator Neal:
This also could mean any investigations that were done by the tax commission on any taxpayer, right?
Ms. Henderson:
Any information would have to come with the permission of the tax commission. It is not required they provide it to us. It allows them to provide it, if we request it and they deem it would be beneficial.
Senator Neal:
You have declassified the exchange of information to put it in that particular category. If you request it, where does it say they cannot provide you the information?
Ms. Henderson:
If they cannot provide or refuse the information, that is their discretion. This does not require them to do that nor does it give us any means of demanding that information from them.
Senator Neal:
I am reading the language as it applies to this section starting on page 1, lines 13 through 15. This added paragraph (f), put it into that particular classification and it seems the commission would be hard pressed to deny the information.
Ms. Henderson:
They may be, but we certainly did not intend to put them in that position.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
The department has no position with respect to this bill. It does raise the issue of the policy direction with respect to this body and how it acts with respect to the release of that information. As you recall, it was the contentious issue when the business tax was originally enacted, the confidentiality with respect to that information. If this body so chooses to change the policy, the language is permissive with respect to the commission agreeing to release that information or not.
Senator Neal:
Has your department, in the past, received any request of this type that had to be refused by your office, due to the language presently in the statute?
Mr. DiCianno:
Yes, we have.
Senator Neal:
You have refused to give them the information?
Mr. DiCianno:
That is correct.
Senator Neal:
Give us an example of what type of request has been made to your office?
Mr. DiCianno:
Requests from businesses other than the actual entity that pays the business tax and local governments.
Senator Neal:
They ask specifically for the business tax. What is it about this tax people want to know?
Mr. DiCianno:
The nature of the business and how they operate.
Chairman McGinness:
I am closing the hearing on Senate Bill 222 and opening the hearing on Senate Bill 238.
SENATE BILL 238: Makes various changes relating to tax on transfer of real property. (BDR 32-138)
Alan Glover, Lobbyist, City of Carson City, and County Fiscal Officers’ Association:
I am appearing on behalf of the County Fiscal Officers’ Association. We have a number of technical changes. We spent quite a bit of time here last session on Senate Bill 318 of the Seventieth Session.
SENATE BILL 318 OF THE SEVENTIETH SESSION: Revises provisions governing collection of taxes on transfer of real property and clarifies responsibility for payment. (BDR 32-1434)
Mr. Glover:
The bill was requested by the Nevada Land Title Association which transferred the responsibility for paying the transfer tax from a title company to the buyer and the seller. The problem last session we could not come to an agreement on how to collect the tax and that is what S.B. 238 does. This gives us the mechanism to collect the tax. It is a very important piece of legislation and one that is needed. If you are going to have this tax, we need to have some way to collect it. How we came to bring this particular piece of legislation to you was to take language out of chapter 360 of Nevada Revised Statutes (NRS) and apply it to chapter 375 of NRS. It is my understanding none of the language in this bill is new as far as the first part of the bill. It includes the Taxpayers’ Bill of Rights and walks us through how we collect the tax. On page 2, line 1 (S.B. 238), delete the term “or assessed” from the bill. There are quite a few places where it has “from the county” and in all of these places we want to insert “county recorder.” On page 2, line 8, insert “recorder”; line 10, after “county” insert “recorder”; line 16, insert “recorder”; line 20, insert “recorder”; line 24, after “county” insert “recorder”; line 30, after “county” insert “recorder”; same on line 35, subparagraph 3, “recorder”; line 36, “recorder”; line 42, “recorder”; line 45, “recorder”; line 47, “recorder.” On page 3, line 11 after county, insert “recorder”; same on line 23, insert “recorder”; line 38 after county, insert “recorder.” On page 4, line 9, “completed within 3 years after the date,” delete the word “tax” and insert the word “document”; on line 33, delete “or assessed”; line 49 insert “recorder.” On page 5, line 6, insert “recorder”; line 14 insert “recorder”; lines 19 and 20, insert “recorder.”
Section 15 of S.B. 238 should be deleted, this is a substantive change to the piece of legislation. The reason all of section 15 should be deleted is, what we would like to do is, the county recorder makes a decision, it goes from there directly on appeal to the tax commission and takes out this hearing officer process. It would streamline and save quite a bit of money and we do not think it is appropriate for this type of transfer tax area. On line 39, insert “recorder”; on line 41 where it says “appeal,” delete “with the county” and insert “to the Nevada Tax Commission.” On page 6, line 5, insert “recorder.” On line 13, delete that whole section starting with “The county recorder or any other employee,” line 17, insert “recorder”; line 37, insert “recorder.” On page 8, line 17, in “An abstract of a judgment, or,” insert the word “certified.” That brings it into conformity with the rest of the recorders’ statute. We do not record copies, we only record originals or certified copies. On line 18, page 8, delete the last three words “of any county,” you want to make sure that it is within the county, in which the tax was due. On line 19, where it has “or,” insert “certified copy”; line 29 where it has an “abstract or,” insert “certified”; line 34, “or fee was due, record a certificate in the office of,” delete “any” and insert the word “the”; line 39, insert “recorder.” On page 9, line 2, delete “any” and put in “the office of the county recorder of the county” or put a period at the end of recorder. On page 9, line 6, insert “recorder”; line 12, insert “recorder”; line 27, insert “recorder.” On page 13, line 44, add the word “prior” in front of “purchase price.” On page 14, starting on line 14, it reads “the person who requested the recording of the deed,” strike the words“ and, the buyer,” strike “or,” and insert “and seller,” then strike “or both”; on line 18, insert after buyer “and seller are notified.” On page 15, line 26, strike “or from the United States.”
Robert Spencer, Transfer Tax Auditor, Recorder, Clark County:
The intent of the change on transfers to or from a trust is to avoid some of the avoidances of tax that have been used. The language is general, that any transfer to or from a trust without consideration did not meet other statutory requirements for an exemption: basically, Mom and Dad to their trust or from their trust back to them, or to their kids, or back from their kids to their trust. That is the language we tried to incorporate into this. The transfers concerning business (transfers) people use because the language of the statute is so vague, and we have had to exempt, we have lost hundreds of thousands of dollars in transfer tax because of it in Clark County. This is an attempt to do what was done when we had the original change to exemption 8 (subsection 8 of NRS 375.090), many years ago. In that case, we went to the Legislative Northern Nevada/Southern Nevada Estate Planning Council and they approved the language which basically stated that, but, it was changed to the language: “is to or from a trust without consideration.” We are trying to reestablish a true estate-planning measure.
Mr. Glover:
I was rather surprised when this bill came up with the fiscal note on it and I had talked to legislative counsel with the unfunded mandate language on it. This is a tax this body imposed. We are simply asking for a way to collect it. We have this tax and no way to enforce it.
Chairman McGinness:
Senator Neal is looking at section 13 that allows you to establish a fee for a check returned to the county.
Senator Townsend:
Do we really need a two-thirds majority to say people should not bounce checks?
Mr. Glover:
By taking that section out, this would not require a two-thirds vote. We have that authority under county ordinance and we have a basic county ordinance in Carson City that says, if you bounce a check, they charge you so much whether you write bad checks to the treasurer or someone else.
Chairman McGinness:
I think we will check with the counsel to find out, if that, indeed, is why there is a two-thirds vote on this.
Mr. Spencer:
One of the controversial parts concerns a 5 percent administration fee. For every tax like the sales tax you are allowed a “little haircut” for the person who fills out the form to send it in. There is no fee provided to the recorder’s office from any entity that benefits from the tax: school districts, in-state indigent housing, the state C-Tax (consolidated tax distribution fund) fund. It is all provided out of local revenues, which may or may not be allocated from the collection of the tax. We used to have a 2 percent administration fee. The district attorney’s office had expressed they would have additional cost involved if they ever had to prosecute a case. We reinstated a 2 percent fee and raised it to 5 percent.
Chairman McGinness:
Could that be the cause of your two-thirds vote, if there is an increase in that fee? You have 2 percent currently?
Mr. Spencer:
No, it was removed two sessions ago in the Legislature, when they took the transfer tax and put it in the combined revenue, the C-Tax. The administration needs to be funded. In section 42, exemption number 1 (subsection 1), many people felt if they transferred a piece of property to someone so he could refinance, that should be exempt because it was done for financing the property. Basically, what that was established for, in reading back in all the records, an actual deed of trust does transfer an interest in real property and should be taxed. They put the exemption in there so it would not be taxed and that is why we changed the language, at the beginning of this, to include a definition of a nontaxable document as a mortgage instrument. In the second exemption (subsection 2), which would now become number 1 (subsection 2), which is a transfer of title removing “or from.” I do not think it is a federal law, there are states that do tax HUD (U.S. Department of Housing and Urban Development) and VA (Veterans Administration) resales, they tax the buyer. On the “to or from the trust,” we tried to reestablish the language that would make it an estate-planning measure rather than a tax-avoidance measure. Many people were reluctant to address reorganizations outside of bankruptcy, because the exemptions would appear on documents showing an exemption (subsection) 12 at the old 12, which now would be a subsection 10, that shows all the different forms of bankruptcy. They were not really bankrupt, they were reorganizing. We felt it would be better to establish a separate exemption for those kinds of reorganizations. The reason for subsection 11 including the language: “identical common ownership,” was one of the attorney general’s opinions we received said, that “perhaps a court might allow something less than identical common ownership.”
It becomes controversy when you get people citing IRS (Internal Revenue Service) cases where only a 5 percent ownership was common. These are the things, if you make it “identical,” which would remove a lot of that controversy. Adding the language “the recorder is not liable for refusing to record a deed or conveyance for which tax imposed is not been paid,” means we try our best to collect it. The last session, I had over $1 million in transfer tax due and we had no collection ability mechanism in the statutes. We only collected $275,000 of that $1 million. The rest of it, with the statute of limitations, which refer to the big guys, know they do not have any recourse and we have no recourse against them, they get away without paying it.
Senator Neal:
Who are the big guys?
Mr. Spencer:
There is supposed to be a 3-year statute of limitations, for example, when Circus Circus Enterprises bought the Hacienda Hotel and Casino, they only paid transfer tax on the land, not the land and the building. It took me 5 years through persistence to collect the additional $22,000, which they could have let go.
Marvin Leavitt, Lobbyist, City of Las Vegas:
I am concerned with section 41. We would lose about $125,000, as it relates to this. We have agreed for a long time, the way to fund government is not by dedicated revenue sources, such as monies for highways from the gasoline taxes dedicated to highways. In general, the proper way to fund a government is to levy general taxes and for it to be a function of the budgetary process, where the recorder has the opportunity to go before the board of county commissioners, who make the budget decisions in a county, and justify what they need to implement, levy and collect the tax. Then have the county commissioners determine the amount of the budget allocation to this particular function. I think that is the right way to handle governmental expenditure, rather than to dedicate a certain percent of revenue, which is forever dedicated to a particular purpose without regard necessarily to the actual cost of collection. When this particular portion of money leaves, just put it into the consolidated tax fund, there was a number of gives and takes going back and forth as to the fact that all this money would no longer need to be allocated. It would simply go into that fund. There were certain taxes the cities previously received the county was not going to be a part of, this is a variation on that. We essentially take some money that would otherwise be available in this fund and put it to a dedicated purpose, which I think is a mistake because we are back to this dedicated revenue without an annual look at it. You have heard Ms. Carole Vilardo speak about special improvement districts and how they get an allocation of money. Once they get the money, it never ends, regardless of the legitimate cost of the function.
Senator Neal:
I gather from your statement, you are not opposed to the tax, you are opposed to the method of where the tax would go, rather than the general fund of a county or a partial back out, in terms of budgetary action.
Mr. Leavitt:
I am opposed to both, the 5 percent and putting into the fund. A county assessor’s purpose is to assess property, which eventually ends up in a collection. The county treasurer’s purpose is to collect the property taxes. We also have a county levying a property tax throughout the entire county, as well as getting a portion of the consolidated tax. The reason they levy the tax throughout the entire county and the reason they get a portion of the consolidated tax, as a county, is to fund functions that are countywide. The county does a number of things cities do; they have a district attorney who handles felonies, they have recorders, assessors, treasurers that do property taxes, and they have the whole court system. All these things, cities do not do. Counties can levy a property tax countywide and get money based on a countywide distribution from the consolidated tax. These monies are used to fund unique functions of counties. I think that is where it should be funded and it is a mistake to fund it differently, or to allocate that, specifically, back to a particular function.
Senator Neal:
As I understand it, in section 41 of S.B. 238, the language would permit the county recorder to retain an amount equal to 5 percent of the proceeds collected from the transfer of real property. Is that what this says, and are you opposed to that?
Mr. Leavitt:
That is correct. It would essentially be in the nature of a collection allowance. I think the function of collecting the tax is a function of the recorder’s office in such, they need to go to their board of county commissioners to get an allocation from the county to fund the function, like any other county department does. I do not think this should be an offset against the tax anymore than there should be an offset against the property tax for the treasurer collecting it.
Senator Neal:
What you are saying, it is the tax collector’s job to do this anyway and they should not be collecting a fee for doing this?
Mr. Leavitt:
That is correct.
Colleen Wilson-Pappa, Lobbyist, Clark County:
Clark County concurs with Mr. Leavitt. We believe the recorder’s office should go before the board of county commissioners and through the same budgetary process as all other departments, as well as the departments run by other elected officials.
Pat A. Zamora, CPA, CGFM, Director, Accounting department, Business and Finance Services Division, Clark County School District:
(Ms. Zamora presented her written testimony [Exhibit C] and summarized its contents.) The Clark County School District is opposed to S.B. 238. The total impact of the reduction of 5 percent of the real property transfer tax over 20 years, which, currently we are issuing bonds over 20 years, is $22 million. That essentially, equates to two new elementary schools at today’s cost. I have spoken to our bond counsel and per NRS 350.610, we believe an imposition of a percent fee would impair the pledged revenue of the real property tax we (have already) pledged to repay the principal and interest on these bonds.
Senator Neal:
If you have a transfer tax or cost that would be collected anyway, what about the individual who does not pay, which becomes an added cost on the person collecting the tax?
Mr. Zamora:
I would think that would also generate an added benefit to the county because they receive money from the distribution of the funded-tax account. Not only does it benefit the school district, it also benefits the state.
Senator Neal:
You would not have to have additional money, for those people who are not paying, in order to go after them.
Mr. Zamora:
I agree with Mr. Leavitt’s comments. They should go through the budget process of the county and assign a priority, and if enforcement is one priority, more money would generate for the county itself.
Senator Neal:
That authority, I gather from what Mr. Leavitt said, should shift to the treasurer to collect?
Mr. Leavitt:
What I had mentioned in my testimony is, the treasurer collects the property tax. I made a comparison between the fact that the treasurer collects the property tax but it is part of their function. One of the reasons they exist is to do that. There is a consequence, the cost of operating the treasurer’s office comes out of the general county budget and they are not charging a fee for doing this, in other words, it is their governmental function to do this. In regards to the last person who testified, when someone issues bonds in accordance with law that exists at the time, there is a pledge, by even the legislature and everyone concerned, they will not do anything that will later impair this bond issue and the ability of the local government of whoever issues them to later repay those bonds. We are talking about an impairment of bonds; and if it appears the Legislature has done something that would impair the contract between the school district or any governmental entity and its bond holders, then we have done something that causes rating agencies and everyone else to look at the governmental operation of the State, because it appears we are doing something financially improper.
Thomas J. Grady, Lobbyist, Executive Director, Nevada League of Cities and Municipalities:
We agree with Mr. Leavitt’s testimony. We were involved with the 253 Committee (Senate Bill 253 of the Sixty-ninth Session) on consolidated taxes.
SENATE BILL 253 OF THE SIXTY-NINTH SESSION: Creates legislative committee to study distribution among local governments of revenue from state and local taxes. (BDR 17-193)
Mr. Grady:
Under Senate Bill 254 of the Sixty-ninth Session, as Mr. Leavitt stated, this was one of the areas in which the cities gave up money, where two or more cities in a county put the money into the general collection. We feel that was proper, and to come back with section 41 is not something we could support.
SENATE BILL 254 OF THE SIXTY-NINTH SESSION: Makes various changes to formulas for distribution of certain taxes. (BDR 32-314)
Stephanie D. Garcia, Lobbyist, City of Henderson:
We concur with previous speakers and Mr. Leavitt regarding section 41. We do not feel it is an appropriate addition to the bill.
Senator Neal:
Is the bill okay without section 41?
Mr. Zamora:
We would have no opposition without that section.
Dave Evans, Concerned Citizen:
I am representing Nevada Land Title Association. On page 13, line 19, a mortgage instrument is also a deed of trust. This term is more commonly used in the western states and, if that is true, it is fine. Our main concern is the definition of value starting on page 13, line 35 where there is a “consideration.” We have an escrow and there is a transfer, we know what the price is, we use that price and pay the real property transfer tax on it. In the case of a gift, where there is no consideration, then we have to somehow pay on the value of the real property. In the past, the only concrete method we had of determining that was to go to the county assessor’s office, get the appraised value they put on the real property, and pay transfer tax on that appraised value. That way, we had a concrete, substantiated amount to pay transfer tax on. What they have done here is, now they have said, “When I gift the piece of property to my uncle, I have to pay transfer tax on the value.” It puts a real burden on it now. If you read it, in the case of a gift or a deed with nominal consideration or without stated consideration, we have to base it on the estimated fair market value of the property, which is defined as the estimated price the real property would bring on the open market. How am I to know that? It goes on and says, “in a sale between a willing buyer and a willing seller,” it “may be derived from the assessor’s appraised value,” which is what we have used in the past, “the purchase price,” we do not have a purchase price, in this instance; “the amount able to be borrowed against the property without reserve for construction or improvements,” I have no idea what that amount is without going to three or four lenders and asking them how much they would loan on the property; “or an independent appraiser, whichever is highest.” I have to go to all three sources, just to convey a piece of real property as a gift, and somehow ascertain all these different methods and pay on the highest amount. It would cost people a fortune in time, effort, and appraisal fees just to come up with a value, to give a piece of property to someone. On page 15, line 24, and maybe this is put in another section, but we have always relied on this subsection and it seemed pretty clear to us: we pay real property transfer tax on conveyances of real property, not, in fact, on using real property as collateral for a loan. Before, that is the way we had interpreted this exception they struck, any transaction wherein an interest in real property is encumbered for the purpose of securing a debt. If we take that out and, in fact, have to pay real property transfer tax when we borrow money and secure it with real property, are you going to pay twice? Are you going to pay on the value of the real property, then pay again on the amount of the mortgage on the real property? It was our understanding that was the reason for the exemption, we do not pay when we borrow money and secure it with the deed of trust.
Mr. Evans:
On page 15, line 40, under the trust provision it seemed clear to us, if you are deeding to or from a trust it was if there is no consideration or money transferring hands. Apparently they are alluding people did abuse this, possibly, so then it needs to be redrafted. They took out “from” a trust. In other words, if I have a family trust and I want to deed it to myself, which most lenders require in order to borrow money, if you hold property in a trust, a lot of the lenders will not loan to the trust, they require you deed from the trust to yourself, individually, which was the reason for the trust. Then, you borrow the money and most people put it back into the trust mechanism. This tells me, if I had a trust and I had to deed to myself to borrow money, I would have to pay transfer tax on that. It also says and is made “to or from,” it struck “or from” above and put back “or from” below, I am not sure that is not inconsistent.
Senator Neal:
If you have a trust and put money or property in that trust and subsequently want to take the money out, why should you not be taxed according to chapter 375 of NRS? If you have something in the trust, people know it is there, but if you take it out, then it does not say where it is going.
Mr. Evans:
True, but most trust mechanisms are held to alleviate probate, in other words, you deed to yourself as trustee and you have all the rights as an individual for the benefit of your children.
Senator Neal:
That is when you put it in the trust, once you take it out of the trust, you do not have a trust.
Mr. Evans:
If you take it out of the trust and deed directly back to you, you have complete control over all of the assets of the trust until you are deceased. It is one in the same. You are not deeding to another entity. In other words, if you deed to your wife and yourself, as trustees of your trust, to hold for your benefit during your life, the trust comes into play upon your death and then there are taxes associated with that. For all intents and purposes you have complete control over that property, the same as if you owned it yourselves, other than to alleviate the probate penalties.
Senator Neal:
Are you saying the language beginning on line 44 does not take care of that?
Mr. Evans:
No, it is very confusing, because it is trying to say we can go to a trust but we cannot come out of a trust, with the way they have changed it. We used to be able to come out of a trust back to the principles of the trust, being you and your wife, for instance. They are striking that and then they are saying, if you go to a trust, a transfer of title to a trust is made from a person related to the trustor in the first degree of consanguinity. A trust is not a person, it is a fiduciary entity. Someone is holding as trustee for the benefit of someone. I do not know what it means when it says, to a person related to the trustor. Are we talking about the beneficiaries under the trust? What if I wanted to put something in trust for the benefit of my kids and I was getting ill and hired the B of A (Bank of America) trust department and deeded to a Bank of America trustee for the benefit of my kids. That is not in the first degree of this word, but it is for the benefit of my kids and my kids are in this first degree. I think it needs to be clarified of what we are talking about. Are we talking about deeding to the trustee of the trust, which is not fair to the beneficiaries under the trust, possibly that would work to alleviate the abuse that has caused the change.
On page 8, section 21, the county clerk can enter into a judgment without any hearing or due process of law or any court or judge determining that both sides have been heard. This gives them the right to enter a judgment and execute. On page 5, line 19, it says a county recorder may not require the taxpayer to pay delinquent taxes. Up above, it says, “if a person proves to the satisfaction of the county that he has . . . remitted taxes . . . in reliance upon written advice provided by an officer, agent or employee of the county recorder, an opinion of the district attorney or attorney general, or the written results of an audit of his records . . . then the county may not require . . . him “to pay . . .” Should that not say, “shall not require him to pay?” I do not know what else anyone could do, other than rely on written instructions. If you get a written instruction from any one of these authorities of what to do, then it says the recorder may not require you to pay penalties and such.
Melody Luetkehans, Lobbyist, Nevada Association of Realtors:
We are here today at the direction of the association members because our association is strongly opposed to certain elements in this bill already brought to your attention. One area of concern is on page 13, line 34, which strikes “excluding the amount of any lien or liens assumed.” We have a great variety of people who purchase homes and many times they do not have the ability to purchase homes based on going out and getting new financing. One of the common financing elements or documents used are wraparound deeds, which are assumable deeds. Many times, with this because of our philosophical stance, we try to keep property as affordable as possible. This does create a burden and we believe it creates a chilling effect on alternate financing documents for the transfer of property. Our suggestion would be, you reinstate that, so a person who purchases property with an assumable loan can have as low a tax burden as possible. We also have concerns with the language on page 15, which is ambiguous. It says you will get taxed if you transfer “from a trust,” but then down below it says, “to or from.” We believe if they are going to leave that in there, have LCB (Legislative Counsel Bureau) clean up the language because at this point it, as it reads, does not make sense.
Renny Ashleman, Lobbyist, Nevada Government Relations, Clark County:
Section 42, which has been touched on by other testifiers, but I want to point out a typical construction transaction involving the home builders or other people who are building on properties. You actually have more than one loan. You have loans when you acquire the property, a loan when you take out your construction loan for a year or two to build upon the property or to improve the property, and the final, permanent loan that takes you out of the construction loan when you are complete. Anybody in the construction business or buying from them, will, in effect, have paid three or four taxes on what is essentially the same transaction on the same piece of ground. I do not believe we intended to do that, and doubt very much if the people who brought this intended such. I am afraid the language may be doing that and I think we want to be very careful.
Mr. DiCianno:
The Department of Taxation has no position with respect to this bill, however, after conversation with David Pursell, Executive Director, Department of Taxation, and Barbara Smith Campbell, Chairman, Nevada Tax Commission, with respect to section 15, since this initiates an appeal procedure to the Nevada Tax Commission, I think it needs to be understood this would create, potentially, another program for the department. What would occur is, a particular party wishes to appeal a recorder’s findings with respect to the tax, the department has not had any purview or review with respect to the facts of that particular case. Based on the comments directed to Mr. Pursell and myself, from Ms. Campbell, Ms. Campbell would like to have the staff have the opportunity to review, so we could make a recommendation one way or another to the tax commission.
Senator Neal:
Mr. Glover mentioned that section should be deleted?
Mr. DiCianno:
I do not believe that was the section to which he referred.
Chairman McGinness:
Yes, it was. By deleting that section, they wanted it to go straight to the tax commission and that would affect them. It would take out the hearing officer.
Mr. DiCianno:
We are not objecting to the portion that refers to the hearing officer being deleted. Our only concern is, section 15 would create a new program for the department and could potentially impact our budget with respect to that work.
Chairman McGinness:
I have asked Senator Rhoads, along with Senator Neal and Senator Coffin, to put together a subcommittee for S.B. 238. I close the hearing on S.B. 238 and open the hearing on S.B. 227.
SENATE BILL 227: Revises and repeals provisions that exempt certain property from taxation. (BDR 32-892)
Senator O’Connell:
It seems to me this was a bill that Ms. Vilardo had requested because it was an exemption we put into law and it never materialized.
Bob Shriver, Executive Director, Division of Economic Development, Commission on economic Development:
We tried 2 years ago to craft all of our tax incentives into an assemblage of order and meaning, instead of flipping back and forth. Unfortunately, in the process, we forgot one of ours when we combined out of the 253 committee 3 years ago and have been trying to correct that incident. When going over the bill with Ms. Vilardo and LCB legal counsel, we found we still need some amendments to make it cleaner. I did not directly address the exemption for solar energy and felt it is an issue Senator Townsend has that he wanted to address, as well. In that area, I think we have an opportunity now the renewable issue is before us. It is wise to look at it now and make it a part of this whole package, rather than, since it has not been used, to throw it out. I have copies of our proposal for you (Exhibit D), which does govern the way the commission handles incentives. In that sense, we are trying to address four different sections, with the help of Mr. DiCianno and his folks this year, crafting our regulations under NRS 360.750. We forgot the recycling portion, which deals with real property exemptions, and we need to tie that in. It is important it is identified as real property under our Nevada Constitution, there are only a few areas in which an exemption is allowed and one of them is for recycling.
Chairman McGinness:
Are you asking the solar exemption for solar property be placed back in?
Mr. Shriver:
Correct. I have language that would bring in and define renewables or alternative energy. I am not sure which statute uses and defines under chapter 704 of NRS, we could use those definitions. If we are going to use it, we might as well add some future things down the road that have to do with zero pollutants and energy related to that. The idea is to bring NRS 361.0785 more into right, now it is stuck out there, no one manages, or regulates, or approves it. No one has been qualified and none of the county assessors have recorded anybody asking for this exemption. If we do it like the other ones, they would come before the commission and qualify for this, just like any other exemption to our sales, personal, and real property taxes. The reason why we had to put in NRS 361.068 is to stipulate an investment of $15 million (in the state) for the recycling exemption. Currently, under our statutes, businesses and manufacturers only need not have a capital investment of $1 million. If they are going to receive a real property exemption, they need to have a significant investment. The other also ties up the time line of the exemptions, no more than 10 years and up to 50 percent of the personal and real property tax, and provides consistency with our other exemptions.
Chairman McGinness:
This is not new language, it is moving it from one place to the other?
Mr. Shriver:
Correct. That was the intent 2 years ago. This one got left behind and we would like to bring it forward. My intent with the solar energy issue, in light of what is going on now. No one would have predicted last summer when we were going through this, the need of that type of exemption right now. It tracks with Senator Rhoads’ bill, to allow the vote of the people on the whole renewable exemption. I would be happy to provide what we would like to see to the commission, if we do administer it.
Chairman McGinness:
What about the other repealed section, talking about energy production as well?
Mr. Shriver:
We would tie that back into the other. That energy also has to do with recyclables. We want to make sure we keep that as well.
Alfredo Alonso, Lobbyist:
I am representing BP Solar (a subsidiary of British Petroleum p.l.c.). Regarding the testimonies just heard, I would like to work with the commission to look at their language. It is extremely important, with respect to the energy problems we have had, that solar be looked at. Incentives of this type are being brought across the Western United States. Considering the growth of solar and the strides in technology that have come about in the last 10 years, it is now becoming very viable. I think this is not only good energy but good public policy to take a look at. Obviously, we would be opposed to removing the exemption, but are willing to sit down with the commission and bring forth something that works for everybody.
Marion I. Barritt, Vice President, Sunrise Sustainable Resources Group:
I am a member of a nonprofit consumer group concerned about renewable energy and sustainability. Mr. Shriver has realized where we are going in our state, to keep incentives on is positive and perhaps streamlines the way we need to be doing them. It would be nice to see residential incentives as well.
Joseph L. Johnson, Lobbyist, Toiyabe Chapter, Sierra Club:
We are a local chapter, statewide, with a small group in California. I support the concept of the amendments proposed. Regarding NRS 361.0785, subsection 4, paragraph (a), where residential property is exempted from this credit, I would like to see that exclusion removed in the future. There will be net-metering legislation coming before the Legislature which certainly will generate significantly more interest. I have been asked how many units for which we are using this property tax. Patagonia Incorporated is one of the few commercial ventures that have a solar net metering. The present metering law is extremely limited because of the small size we allow the facility. It would be important, also, to address NRS 361.079, subsection 1, paragraph (a), which has a description of solar devices, “not thermally insulated,” as well as solar and photovoltaic systems.
Senator McGinness:
When Ms. Vilardo returns, please collaborate with Mr. Alonso to make sure everyone is on the same page. The meeting is adjourned at 3:39 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: