SENATE COMMITTEE ON TAXATION

MINUTES OF THE

SENATE Committee on Taxation

Seventy-First Session

April 3, 2001

The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:20 p.m., on Tuesday, April 3, 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

COMMITTEE MEMBERS ABSENT:

Senator Michael Schneider (Excused)

STAFF MEMBERS PRESENT:

Kevin D. Welsh, Deputy Fiscal Analyst

Rochelle Trotts, Committee Secretary

OTHERS PRESENT:

Peter D. Krueger, Lobbyist, Cigar Association of America

Dino DiCianno, Deputy Executive Director, Department of Taxation

C. Joseph Guild III, Lobbyist, United States Smokeless Tobacco Company, Nevada Cattlemen’s Association

Jeff B. Knight, Entomologist, Insect Survey and Identification, Bureau of Plant Industry, State Department of Agriculture

Paul J. Iverson, Director, State Department of Agriculture

Dawn L. Rafferty, Invasive Weed Specialist, Division of Plant Industry, State Department of Agriculture

Stephanie Licht, Lobbyist, Elko County Board of Commissioners

Ken Thompson, Concerned Citizen

Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association

Kathy Burke, Recorder, Washoe County

Pat Coward, Lobbyist, Nevada Association of Realtors

Steve Weaver, Chief, Planning and Development, Division of State Parks, State Department of Conservation and Natural Resources

Allen Newbury, Chief of Operations and Maintenance, Division of State Parks, State Department of Conservation and Natural Resources

C. O. Watson, Lobbyist, Nevada Association of Tobacco and Candy Wholesalers

Samuel P. McMullen, Lobbyist, Retail Association of Nevada, and Phillip Morris Management Corporation

John Albrecht, Senior Deputy Attorney General, Tobacco Enforcement Unit, Human Resources Division, Office of the Attorney General

Mary Lau, Lobbyist, Retail Association of Nevada

John P. Sande III, Lobbyist, NewCo

Scott M. Craigie, Lobbyist, Atlantis Hotel Casino, Peppermill Hotel Casino, and John Ascuaga’s Nugget

Mary Henderson, Lobbyist, City of Reno

Chairman McGinness opened the work session for Senate Bill (S.B.) 381.

SENATE BILL 381: Revises definitions of “wholesale dealer” and “wholesale price” for purpose of imposing tax on products made from tobacco, other than cigarettes. (BDR 32-818)

Peter D. Krueger, Lobbyist, Cigar Association of America, testified in favor of S.B 381, which he mentioned was sponsored by Senator Lawrence Jacobsen (Western Nevada Senatorial District). He explained this bill would bring a tighter regulatory focus on tobacco wholesalers and who they are. He said it would also better define tobacco dealers and their responsibilities. He explained the bill provides language that moves the incidence of tax from the point of receipt of product to the point of sale, but it does not change the tax itself. He suggested the committee consider some changes to S.B. 381, and provided these proposed amendments for deliberation (Exhibit C).

Senator O’Connell asked Mr. Krueger if there was an existing problem that prompted this bill. Mr. Krueger affirmed there was. He explained some wholesalers and manufacturers did not realize they had to be licensed in the state to sell tobacco. He said the language in the bill would help clarify this ambiguity.

Dino DiCianno, Deputy Executive Director, Department of Taxation, testified in favor of S.B. 381, agreeing its language would benefit the Tax Commission, the state’s Department of Taxation, and the administration for other tobacco products (OTP), which is mentioned in chapter 370 of the Nevada Revised Statutes (NRS).

Senator O’Connell asked if there were cases before the Tax Commission and not before the courts. Mr. DiCianno affirmed they were. Senator McGinness asked Mr. DiCianno if he was in favor of the proposed amendments given by Mr. Krueger. Mr. DiCianno affirmed he was.

Mr. Krueger continued reading his proposed written amendments. Senator Coffin asked Mr. Krueger what his estimate was on the delay time for the switchover on July 1, 2001, and how that will affect the monthly revenue. Mr. Krueger answered that there would be a gap between changing the point of receipted tax and the time of payment. Mr. Krueger said the amendments had been structured to make that gap a minor concern. Senator Coffin asked Mr. Krueger if this would be an additional length of time to collect the tax if there was a credit sale. Mr. Krueger answered it would not be. Mr. Krueger explained that credit was not a factor, and when a transaction is made, the method of payment does not affect the “due and pay of tax.”

Mr. DiCianno said Mr. Krueger was correct in regard to any payment’s timing.

C. Joseph Guild III, Lobbyist, United States Smokeless Tobacco Company, testified in support of S.B. 381, stating the smokeless tobacco industry does not contest the bill or Mr. Krueger’s proposed amendments.

Chairman McGinness closed the hearing on S.B. 381 and opened the hearing on S.B. 468.

SENATE BILL 468: Imposes additional tax on transfer of real property for certain purpose. (BDR 32-1473)

Senator Dean Rhoads, Northern Nevada Senatorial District, testified in support of S.B. 468, giving a brief overview of the bill to the committee. He informed the committee Nevada is rapidly developing significant problems in the Las Vegas area with invasive species, like Africanized honey bees and imported red fire ants. He explained this new tax would generate approximately $1.6 million annually, which would be allocated to grants for local governments. He said it would also be used to expand the State Department of Agriculture’s program for the control of invasive species statewide. Senator Rhoads pointed out that property values are directly linked to the presence of these species, and real estate prices could suffer if these invasive plants and animals go unchecked.

Jeff B. Knight, Entomologist, Insect Survey and Identification, Bureau of Plant Industry, State Department of Agriculture, testified in support of S.B. 468. He suggested the language in the bill read, “Any living organism that may cause damage to the economy, environment, or public health, and is not native to Nevada.” He provided a written copy of these amendments to the committee (Exhibit D). Mr. Knight explained this language was needed because there are invasive species that are not plants or insects that could be introduced into the state, like plant diseases caused by fungi. Mr. Knight explained the resulting tax funds would be divided and 50 percent would go to the counties. He suggested another amendment which would state, “Fifty percent of the grants go to the counties and other local entities for the control or management of invasive species.”

Senator O’Connell asked Mr. Knight if the 50 percent would go back to the county of the tax’s origin. Mr. Knight answered he did not know.

Paul J. Iverson, Director, State Department of Agriculture, testified he would prefer it if the money was consolidated and the individual counties applied for assistance for their specific invasive species.

Senator O’Connell voiced the concern that Clark County, being the largest county, would end up paying the bulk of this tax. Mr. Iverson said he understood, but reiterated that all counties suffer from different sorts of pests. He pointed out that Las Vegas suffers from an introduced rat population. He said he was not sure how best to divide up the funds, but a straight percentage cut for each county did not seem appropriate.

Senator Rhoads added that some of the rural counties, though sparse in population, have serious noxious weed problems that need to be addressed immediately.

Senator O’Connell asked Mr. Knight how many people this program would employ. Mr. Knight answered the State Department of Agriculture was considering adding one person to each of the specialist teams to help plan and oversee some of the operations. He said hiring seasonal staff was preferable to permanent staff, to take care of the field surveys and the management practices where they would be spraying (intermittently) for biological control. He said the rest of the costs are needed to support those people. Senator O’Connell asked if there are any programs currently in existence that address any of these problems. Mr. Knight answered there are a few programs, such as the Africanized honey bee and red imported fire ant containment jobs that support three seasonal employees in Southern Nevada for 3 or 4 months out of the year. He said he did not know of any county programs in the state.

Senator Neal asked why these noxious weeds have not been a problem before now. Dawn L. Rafferty, Invasive Weed Specialist, Division of Plant Industry, State Department of Agriculture, answered that these weeds have been a problem for a while, but recently the invasive species issue has become a national focus and the awareness of the damage they cause is spreading. Senator Neal asked Ms. Rafferty how these noxious weeds were treated prior to this national focus. Ms. Rafferty replied they were mostly treated as agricultural problems. Senator Neal asked what is the origin of these weeds. Ms. Rafferty answered most of them came from Asia and Europe, either as contaminants or as ornamental introductions. Senator Neal asked if there was a time frame for getting the weed situation under control. Ms. Rafferty answered that some of the weeds can be eradicated, while others are so extensive in distribution and population growth that containment is the best projected result. Senator Neal asked what was involved in a containment process. Ms. Rafferty replied that it varied for each weed. Senator Neal asked if the environment would suffer when some of these weeds are treated with herbicides. Ms. Rafferty answered there would be no harmful results if the herbicides were applied correctly.

Mr. Knight added that should S.B. 468 pass, there would be a better exclusionary system where other species of noxious weeds can be detected and removed before they enter Nevada. He said the weeds already here will have to be fought, but this legislation also deals with the prevention of new species getting footholds.

Senator Neal asked if there were weeds or other invasive species that have yet to be detected that could cause future problems in Nevada. Ms. Rafferty affirmed there are other plants and animals that are imported from other countries every day, whether it is intentional or accidental. Senator Neal asked if these species had any sort of value at all that would make them more useful to the state. Ms. Rafferty answered that no benefits had been discovered regarding any of these species.

Senator Rhoads asked if southern Nevada is experiencing the same weed problems since the housing boom it is experiencing is disturbing the soil. Ms. Rafferty affirmed they do have the same problems as the rest of the state.

Senator O’Connell asked Ms. Rafferty if there are any county programs currently available. Ms. Rafferty answered there are two counties, Churchill and Douglas, that have excellent weed control districts within them. She said no other counties have such programs, which are necessary to enforce weed control on the local level.

Senator Rhoads said what the invasive species program needed was reliable funding. He said funds in the past have been erratic and a steady stream of money is what is required to continually fight these species.

Senator Neal asked Ms. Rafferty why most of these weeds cannot be eradicated completely. Ms. Rafferty explained the weeds are grown in contained experiments to test their hardiness and research is filed in scientific records of population migrations and growth. Senator Neal asked if the chemical makeup of our soil is enabling some of these weeds to withstand the efforts to eliminate them. Ms. Rafferty explained some of these weeds exude certain chemicals through their roots that seep into the soil around them and prevent the growth of native plant life. She said this gives the weeds a great foothold, making elimination very difficult.

Mr. Knight added that aside from being very hardy, most of the species introduced to the Nevada ecosystem have no natural predators here, allowing their populations to grow rampant. He interjected that the chemicals from those certain weeds can also alter the chemical composition of the soil, making it permanently useless to native species and wildlife.

Stephanie Licht, Lobbyist, Elko County Board of Commissioners, testified in favor of S.B. 468.

Ken Thompson, Concerned Citizen, representing the Nye and Esmerelda Counties, testified that creating this fund would not rob Las Vegas of any funds it needed. He explained many Nevadans recreate regularly, and these activities aid the spread of these invasive species. He said these activities make all Nevadans responsible to help contain those invasive plants and animals.

Mr. Guild noted, as president of the Nevada Cattlemen’s Association, he was testifying in support of S.B. 468.

Gaylyn Spriggs, Lobbyist, Nevada Taxpayers Association, testifying on behalf of Carole Vilardo, spoke in opposition to S.B. 468, as written, and would like to participate in working on some amendments. She said since the real property transfer tax is a local tax, the local commissioners should be more involved. She provided written copy of her testimony (Exhibit E).

Kathy Burke, Recorder, Washoe County, testified that she was neutral on the issues in S.B. 468; but, she said, as the Washoe County recorder, she is responsible for collecting taxes. She explained the invasive species tax would be imposed through chapter 375 of the Nevada Revised Statutes (NRS), and a tax already imposed by this chapter, the real property transfer tax, is a very difficult tax to collect. She asked, if this tax is to be collected by the county recorder, that some consideration be given to making it 5 cents per $500 value. She asked why this tax was imposed through the real property transfer tax. She asked how other states collect this tax. She asked if there were any other sources to tax. She also voiced her concerns on how this tax would be distributed through the state once it was collected.

Senator Rhoads said Ms. Burke had brought up some excellent questions and he would research them.

Pat Coward, Lobbyist, Nevada Association of Realtors, testified in opposition to any increase in the real property transfer tax. He said that every time the transfer tax is raised, it has a multiplying effect. He said the larger the tax becomes, the more money individuals must pay to purchase a house. He said the tax is discriminatory, and the money for these problems should come out of the General Fund.

Senator Rhoads explained the tax would equate to $100 on a $100,000 house. He said people who live in noxious weed areas spend well over that much trying to curb the weeds. Senator Rhoads asked if realtors disclose any weed problems or invasive species on properties to prospective buyers. Mr. Coward answered that such items would be listed under the material defects on the disclosure. Senator Rhoads suggested the sales contracts should include a section informing the buyer their new land is free of noxious weeds. Mr. Coward replied that could be a possibility.

Chairman McGinness closed the hearing on S.B. 468 and opened on S.B. 499.

SENATE BILL 499: Revises name of parks marina development fund and expands permissible uses of money in that fund. (BDR 32-1316)

Steve Weaver, Chief of Planning and Development, Division of State Parks, State Department of Conservation and Natural Resources, testified that one-sixth of the Division of State Parks’ operating budget originates from the gas tax, whereas half of the state parks have water-based recreation. He said as long as the wide margin is maintained, any increased accountability will not be imposed as a result of this legislation. He stated he had no objections if this was the case.

Allen Newbury, Chief of Operations and Maintenance, Division of State Parks, State Department of Conservation and Natural Resources, testified that he (and Mr. Weaver) were neutral on this bill, as long as accountability will not be imposed. Mr. Newbury said he did have one request from the Division of Wildlife (of the State Department of Conservation and Natural Resources), and that was to delete the phrase, “on state-owned wildlife management areas,” in line 27 on page 2. He asked that this be done simply to clean up the language.

Senator Coffin asked if this language shifted the money from one place to another, even though S.B. 499 is budget-neutral. Mr. Weaver replied that most of the wording just reiterates what is already stated in the budget.

Senator Neal said the language that the Division of Wildlife wants deleted seemed to limit the intent. Mr. Weaver responded that was the language he had referenced to Senator Coffin. He said section 3, lines 12 to 20, simply reiterated how the money would be used. Senator Neal asked if the Division of State Parks was expanding its jurisdiction. Mr. Weaver answered it was not.

Chairman McGinness closed the hearing on S.B. 499 and opened the hearing on S.B. 527.

SENATE BILL 527: Revises provisions governing licensing of cigarette dealers and taxation of cigarettes. (BDR 32-1326)

C. O. Watson, Lobbyist, Nevada Association of Tobacco and Candy Wholesalers, testified in support of S.B. 527, providing a handout for the committee for its consideration (Exhibit F).

Senator O’Connell asked Mr. Watson what the mechanism is for the design of a revenue stamp and the process a cigarette supplier must go through. Mr. Watson answered the process would be to prohibit the sale of gray market cigarettes in Nevada by wholesalers. Senator O’Connell asked how that would be done, specifically. Chairman McGinness suggested someone else answer that question.

Samuel P. McMullen, Lobbyist, Retail Association of Nevada, and Philip Morris Management Corporation, testified that the problem with gray market cigarettes was that when they are sold, they are not counted into the appropriations or allocations to the state for the purpose of distribution of the (tobacco) settlement funds. He said S.B. 527 would clear up a loophole. He said another problem is there has been overarching federal legislation which governs the whole field. He distributed a list of proposed amendments for the committee’s consideration (Exhibit G).

Senator O’Connell asked Mr. McMullen how this bill would be implemented. Mr. McMullen referred to his handout (Exhibit G). He said a stamp would be designed, and each dealer would have a specific number on that stamp. Senator O’Connell asked if they would know how many cigarettes a supplier would get, since there would be an allotment. Mr. McMullen replied that the word “allotment” was not accurate. He said for purposes of allocation of the tobacco settlement funds, the basis of allocation of those funds to each of the states is the domestic sales. He explained the sales made inside a state are counted for this, but any shipped offshore, like gray market cigarettes, would not be counted and thus not counted for purposes of allocating funds to Nevada.

Mr. Watson stated the state of Florida loses $40 million annually because of gray market cigarettes sold without allocation funds, and California had also suffered.

Senator O’Connell asked what the fiscal note is on the bill. Mr. McMullen replied he did not know, but he did not think one had been requested.

Mr. DiCianno stated he had received a fiscal note and was currently working on it.

Mr. McMullen continued his testimony by reading the proposed amendments (Exhibit G) to the committee.

John Albrecht, Senior Deputy Attorney General, Tobacco Enforcement Unit, Human Resources Division, Office of the Attorney General, testified that Senate Bill 527 would greatly help him in rectifying the gray market cigarette problem. He explained section 2 of the bill was the most important portion because his office would be able to pursue the gray market sellers and force them to sign the master settlement, which is the ultimate goal. He said he would then work with the revenue division of the Department of Taxation to trace these individuals. He noted the proposed amendments to define contraband cigarettes and designating associated penalties should include a reference to chapter 370 of the NRS, which is the only place where it makes such actions misdemeanors. He said it would also allow the private right of action for an injunction, but only between companies. He explained he did not like authorizations of lawsuits against the state, and he said this bill prevents another such suit against Nevada. Private companies can sue each other, he stated, but they cannot sue the state.

Mr. Watson added that in the past, wholesalers and the Department of Taxation have kept gray market cigarettes out of the state because they document all cases.

Mary Lau, Lobbyist, Retail Association of Nevada, also testified in support of S.B. 527, stating the bill and its amendments are acceptable to retailers.

Chairman McGinness closed the hearing on S.B. 527 and called a 5-minute recess. Chairman McGinness resumed the meeting and opened the work session on S.B. 72.

SENATE BILL 72: Revises definition of “basic cost of cigarettes” for purposes of regulation of sales of cigarettes by wholesale dealers. (BDR 32-684)

Senator Rhoads said he understood this was a complex bill, but he said these were necessary changes for the existing law.

SENATOR RHOADS MOVED TO DO PASS S.B. 72.

SENATOR NEAL SECONDED THE MOTION.

THE MOTION CARRIED. (SENATORS MCGINNESS, O’CONNELL, AND TOWNSEND VOTED NO.)

*****

SENATOR COFFIN MOVED FOR RECONSIDERATION OF S.B. 72.

(INAUDIBLE SECOND.)

CHAIRMAN MCGINNESS GRANTED RECONSIDERATION UNTIL THE NEXT SCHEDULED MEETING.

*****

Chairman McGinness opened the work session on S.B. 221.

SENATE BILL 221: Authorizes City Council of City of Reno to increase tax on rental of transient lodging and levy special assessments to pay costs of certain capital improvement projects. (BDR S-916)

John P. Sande III, Lobbyist, NewCo, testified that NewCo (a limited liability company composed of four downtown Reno hotel-casino businesses) had proposed to invest $20 million in a new convention center and downtown improvements in the city of Reno, but the money was supposed to be a loan. He said the opponents to this had preferred NewCo contribute the money as equity rather than as a loan to be repaid with interest. He explained the other concern they raised was the 1.5 percent room tax increase was in excess of what was necessary. He explained that he and Chairman McGinness held a meeting, where they had agreed to restructure the $20 million as equity. He then said they met with their experts and agreed to approve the room tax amount that the experts deemed adequate. He said the lowest percentage agreed upon by the experts was a 1.25 percent room tax. He said he advocated the 1.5 percent, but he was willing to be flexible.

Senator Rhoads asked if the flexibility was acceptable up to 1.5 percent. Mr. Sande reiterated that 1.25 percent was the limit, but the flexibility is needed to ensure a successful project.

Scott M. Craigie, Lobbyist, Atlantis Hotel Casino, Peppermill Hotel Casino, and John Ascuaga’s Nugget, testified on the issue of private sector businesses who have private money invested in facilities having to compete with a publicly-funded facility. He asked the committee to consider a compromise. He distributed a handout (Exhibit H) to the committee. He explained how the downtown properties’ $20 million becomes an equity contribution, which would allow the new facility to built on schedule. He said a .4 percent increase in the room tax assessment is needed for S.B. 221. He said his clients had committed to stay with the deal the downtown properties had made with involved downtown entities, which is to reduce the $1.35 million down to $900,000. He suggested S.B. 221 include a proposal that the room tax bonds be bought down early should these revenues develop at a high level, so the market could respond to the changes. He provided another handout concerning revenues and expenditures (Exhibit I) for the committee.

Senator Rhoads asked what room tax Mr. Craigie was recommending. Mr. Craigie answered his clients wanted a .4 percent increase, as compared to the 1.5 percent increase.

Chairman McGinness mentioned a letter he had received, which was signed by four city council members. He asked if there had been any change in their views. Mary Henderson, Lobbyist, City of Reno, affirmed the letter had been prepared the previous week. She said the council was meeting that very day, and did speak on S.B. 221. She noted this was the first formal vote the council had taken on this issue. She said the council voted unanimously to support the downtown events center, but would like to remain neutral in the discussion of S.B. 221 for several reasons. One reason, she said, was the council’s desire to not split the gaming industry over this issue.

Senator Neal asked which individual represented the public on this issue. Mr. Sande responded that the bill is enabling legislation and only authorizes the city to create a special assessment district, and it also increases the room tax up to 1.5 percent. He said the facility they wanted to create would not be a private facility, but would be a public and private partnership. He pointed out it had the support of all the downtown businesses. He said there would be no project if Mr. Craigie’s position prevailed. Mr. Sande added, the special improvement district (SID) money Mr. Craigie uses to support these bonds instead of the room tax is “dirty money.” He said his experts thought those would be taxable bonds, which have higher interest rates than nontaxable, which increases the cost of the project.

Senator Neal asked Mr. Craigie what the problem was for the City of Reno to make this determination. Mr. Craigie replied his clients were concerned that if they go forward with this program, and the 1.5 percent room tax is increased, they would have maximized their use of room taxes. He said he would have preferred the city staff take a position on what the appropriate funding mechanism would be, and how the funding should be done, in light of other priorities. Mr. Craigie said he would like to have Reno here today to discuss this issue.

Chairman McGinness asked if Mr. Craigie would go before the City of Reno and make the same arguments, should this bill pass. Mr. Craigie affirmed he would, but he said very limited authority is given to city and county governments. Chairman McGinness said he was not comfortable making this decision without Reno present.

Ms. Henderson pointed out that she represented the City of Reno, and she said if the Legislature passes this bill, in whatever form, the council would make a decision as well.

Chairman McGinness asked the committee if it wanted to proceed in light of all of this new information. Senator Townsend said the information presented was valuable, but he did not believe it belonged in this committee and it needed to be considered by the City of Reno.

SENATOR TOWNSEND MOVED TO DO PASS S.B. 221.

SENATOR COFFIN SECONDED THE MOTION.

THE MOTION CARRIED. (SENATOR SCHNEIDER WAS ABSENT FOR THE VOTE. SENATOR RHOADS ABSTAINED FROM THE VOTE.)

*****

Chairman McGinness opened the work session on S.B. 389.

SENATE BILL 389: Revises provision concerning amount paid to Civil Air Patrol account. (BDR 32-1157)

SENATOR RHOADS MOVED TO DO PASS S.B. 389.

SENATOR TOWNSEND SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY. (SENATOR SCHNEIDER VOTED YES WHEN LATER ASKED BY CHAIRMAN MCGINNESS.)

*****

Chairman McGinness reopened the work session on S.B. 381.

SENATOR O’CONNELL MOVED TO AMEND AND DO PASS S.B. 381.

SENATOR TOWNSEND SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY. (SENATOR SCHNEIDER VOTED YES WHEN LATER ASKED BY CHAIRMAN MCGINNESS.)

*****

Chairman McGinness adjourned the meeting at 4:40 p.m.

RESPECTFULLY SUBMITTED:

Heather Miller,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

DATE: