MINUTES OF THE Subcommittee of the
senate committee on Taxation
Seventy-First Session
April 3, 2001
The subcommittee of the Senate Committee on Taxationwas called to order by Chairman Dean Rhoads, at 4:42 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 Dean A. Rhoads, Chairman
Senator Randolph J. Townsend
Senator Michael Schneider
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Carole Vilardo, Lobbyist, Nevada Taxpayers Association
Berlyn D. Miller, Lobbyist
Bob Shriver, Executive Director, Division of Economic Development, Commission on Economic Development
Doug Bierman, Lobbyist, Nevada Test Site Development Corporation
Alfredo Alonso, Lobbyist
Dino DiCianno, Deputy Executive Director, Department of Taxation
Alan D. Caldwell, Lobbyist
Chairman Rhoads:
We have two bills on renewable energy and lengthy amendments that change the intent of the bill. We will open the hearing on Senate Bill (S.B.) 227.
SENATE BILL 227: Revises and repeals provisions that exempt certain property from taxation. (BDR 32-892)
Senator Townsend:
Senate Bill 227 is different because renewables encompass solar, wind, geothermal, and biomass. Geothermal is defined in state law as a mineral, which takes it out of this context and puts it in another context. We have to be careful as we move through so that we do not upset the normal tax structure without knowing exactly what we are doing.
Chairman Rhoads:
Is this the amendment for S.B. 227?
Carole Vilardo, Lobbyist, Nevada Taxpayers Association:
You should have two separate documents. There is a one-page document proposing recycling amendments (Exhibit C), which has a different genesis than the 3-page amendment for renewable energy sources (Exhibit D).
The one-page document (Exhibit C) is fairly easy to explain. At my request we went before the Legislative Committee to Study the Distribution Among Local Governments of Revenue from State and Local Taxes (tax distribution committee) regarding the proposed recycling amendments brought to me by the Commission on Economic Development and Mr. Shriver. We checked around and found out there were only two companies using the recycling exemption, and nobody using the old solar tax exemption. In the spirit of 253 (Senate Bill 253 of the Sixty-ninth Session) we were going to get rid of the exemptions.
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)
Ms. Vilardo:
Between that request and this session came an energy crisis. However, on the recycling amendments, something that I was not aware of, if we deleted the recycling, as it was defined in statute, you could still go to the Commission on Economic Development for the exemption because of all the changes we made last year. If you look at the definition in section 4 (Exhibit C) which is being left, ”and this was my error in saying we would remove it,” the commission wanted to make sure we were not bringing in recycled materials from other states to recycle. What you are doing with this one-page amendment is leaving this provision as you see it, with the old definition, that says to get an abatement from recycling at least 50 percent of the material must be generated in Nevada. This parallels what was being deleted from the full provision. We did not need sections 2 and 4 at all because they are covered now in chapter 360 of NRS (Nevada Revised Statutes).
Berlyn Miller, Lobbyist, representing Commission of Economic Development:
We are supportive of the proposal Ms. Vilardo has recommended.
Bob Shriver, Executive Director, Division of Economic Development, Commission on Economic Development:
We are in favor of the proposed amendments as outlined by Ms. Vilardo.
Ms. Vilardo:
Next is the issue of solar energy. There was a concern there should be some sort of tax breaks for solar energy, biomass, geothermal, et cetera. Historically the origin of solar energy was in 1989 and then transformed in 1993 and 1995, and was further amended to consolidate the two solar energy exemptions into one in 1997, and then you find out they are not being used.
One of the problems was there was no controlling point. The assessors had no way of knowing what was or was not a legitimate exemption. If you take it beyond what we are dealing with right now, hopefully only a 2- to 3-year emergency, to get us “on track,” to accelerate, and provide some incentives, these exemptions will be available with a slightly different condition. This is why they all show a section expiring by limitation on June 30, 2005. We took the existing language in chapter 361 of NRS that would be effective after this exemption and made it more specific for these areas in the abatement that would be provided. It parallels what we allow for other businesses right now that qualify under the commission’s rules for being nonpolluting, diversified industry, non-gaming non-retail, etcetera. This parallels it in property tax, as Senator Townsend indicated, because geothermal is a mineral, and could not be included in the property tax exemptions.
Where we have done more for jump-starting is, by paralleling this with the solar property tax, and putting in the controlling point, the economic development commission can approve partial abatement of property taxes. Some of these alternate energy sources will go to rural counties, and it becomes a point of economic development for them. We want to know the companies have stability to them. Putting them in this venue now says, you will have so many employees, and so much of a capital investment. The Department of Taxation knows annually if the exemption is still qualified for, in addition to which, the Department of Taxation does an audit. If any of the conditions are not met, the tax has to be paid back. Following the abatements available for economic development, we extended it to sales tax for 2 years, which before had not been available. It is for the materials necessary to fabricate what you are going to manufacture to and get this alternate energy on-line. It does not include desks, copiers or other normal office furnishings. You still have to pay sales tax on those types of items, and this is only the local portion. It does not include the state portion. If it did, we would be going to a vote of the people.
Ms. Vilardo:
The third element is it turns around and extends the 5-year phase-in of the business tax. Relative to sales tax and business tax, geothermal is included. I would assume the sales tax would be a definite help to geothermal. Even though they miss out on property tax, they are picking up something they may not have otherwise had if we had just left it with solar energy and no control points.
The last part of this bill goes out of the tax section and goes into chapter 231 of NRS, which is the purview of the Commission on Economic Development. What it does is it accelerates the process from the process currently in statute if you were applying normally for these abatements.
Mr. Shriver:
We are in agreement all the way through until the last section. What it is doing, in essence, is saying the project is approved without certification by the commission; all the commission is doing is a pass through. What we are trying to do is make sure there is some accountability as with all of our tax incentives. What we need to say is they will comply with the normal procedures of the Commission on Economic Development.
Chairman Rhoads:
Where would you change the wording?
Ms. Vilardo:
Section 1 would be deleted.
Mr. Shriver:
The new certification of chapter 231 of NRS.
Chairman Rhoads:
Delete that whole sentence of chapter 231 of NRS and also number 1?
Mr. Shriver:
No, you would probably go ahead and include the chapter 231 of NRS certification, but we would eliminate the fact they would apply under the normal circumstance.
Senator Townsend:
The way this is written is intended to be helpful when, in fact, it says no matter who applies they will be certified. That is not what we want to say. We want to say, after they have applied, if they are certified, they will receive these tax benefits.
Ms. Vilardo:
To be as fair, there was another party who has a representative in the audience and that was Tim Carlson and Mike Baughman who did not want to be refused the abatement. That was the reason for chapter 231 of NRS, because without section 1, if you went through the normal process where you first qualify, the commission would have the discretion of approving or denying.
Senator Townsend:
Unless I am misunderstanding one of the goals, prior to the energy issue, was to make sure the commission was the clearinghouse for qualifications for all tax exemptions or abatements. They set the standards. Now the energy issue has become important and unless there is a full public policy debate, the commission would remain at that level as a standard bearer. And, if someone qualified they would get these benefits. We would not change public policy on that.
Mr. Miller:
That is correct and that is our understanding. We want to make sure, at the commission level, whatever application we look at is in the best interest of the state of Nevada. Over the years I have insisted when giving a property tax exemption, for example, we contact the county and get an approval before giving their money away.
Doug Bierman, Lobbyist, Nevada Test Site Development Corporation, representing Lincoln County and City of Caliente:
I am also here on behalf of Mr. Carlson and Mr. Baughman who could not be present today, “and no we would not have a problem with that”.
In the handout just distributed (Exhibit E), we would like to have a couple of items included to S.B. 227: A short preamble as a statement of finding, as far as the philosophy of the approach to the process of determining eligibility for partial abatement of taxes. “There is a number 2 which is lined out. Please disregard number 2 as it appears there.” On page 2 (Exhibit E), the first is to add the following subsections to the new section proposed under the previous item discussed. This allows the Commission on Economic Development to approve an application for a partial abatement by a business producing energy from renewable sources that does not meet the requirements as set forth in the paragraph. This gives them a little more flexibility in making their determinations.
The second part seeks to limit the actions on the part of the Commission on Economic Development in their ability to add additional requirements. That is in addition to what is set forth in the statute.
Senator Townsend:
Does anyone know if we have this type of language anywhere in the statute with regard to an application? Do we have any language where the commission may approve an application for a partial abatement?
Ms. Vilardo:
Abatements are partial, they are time certain and/or partial in percentage.
Senator Townsend:
Is Mr. Bierman talking about a partial of a partial?
Ms. Vilardo:
Yes, if you read the language currently existing that we paralleled this after, the Commission on Economic Development, if a firm qualifies for personal property tax, may exempt up to 50 percent, for up to 10 years. That is the only place within the personal property tax that you can do real property tax on renewable energy. So, within those provisions the commission may reduce up to 50 percent up to 10 years on real property, also.
Senator Townsend:
Mr. Chairman, you are going to possess an awful lot of this in your district. Do you want a partial of a partial, which is the language in the first paragraph?
Chairman Rhoads:
What advantage would the partial abatement be?
Mr. Bierman:
This is in reference to the section on the last two pages, section 3 of NRS 360.750 as where this is referenced. The advantage is to give the Commission on Economic Development additional flexibility if they see need for extending some of the circumstances, they have the specific power to do that.
Senator Rhoads:
Is this language needed? Are we being repetitious?
Mr. Miller:
I do not believe we need the language. In addition, we currently have the authority at the commission level to waive one of the three requirements that the company must meet. We can do that if we think it is in the best interest of the state. We can waive either the wage level, the capital investment or the number of employees. So, we have some flexibility currently under the rules and we think it is sufficient.
Chairman Rhoads:
Is there an advantage to have the preamble?
Senator Townsend:
It speaks to the rural communities and I support that and if that helps the intent, then I am glad to have it in there.
Chairman Rhoads:
Normally, we do not put a preamble in with a bill amending our statutes, do we?
Ms. Vilardo:
Not normally.
Alfredo Alonso, Lobbyist, representing BP Solar:
We discussed one of the possible solutions for some of the issues that have come up and that would be to create an appeals process the commission can follow. That would address some of these concerns over perhaps an arbitrary decision to the contrary, and also protect the commission.
Senator Townsend:
To whom do they appeal?
Mr. Alonso:
To the commission before they go to you. They could create a very simple appeals process as we have in other statutes should a company decide they disagreed with a decision.
Ms. Vilardo:
The appeal procedure is already in place with the appeal to the tax commission.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
The question arose with respect to the ability of a particular party trying to enter into the program for partial abatement; there is an appeal process already in effect, which would be in front of the Nevada Tax Commission.
Chairman Rhoads:
Does that ease your concerns, Mr. Bierman?
Mr. Bierman:
It certainly does on the first part. The second part I do not think we have addressed as far as additional stipulations not specifically laid out by law that the Commission on Economic Development may impose. The intent here is to put everything out for people, especially the investors and the industries looking to come here, so they know specifically what the rules are they have to follow as opposed to down the line being hit with something additional.
Chairman Rhoads:
You are talking about the second paragraph on page 2 (Exhibit E)?
Mr. Bierman:
Yes.
Mr. Miller:
I believe we have that currently, but we say what criteria they have to meet, although we have the ability to waive some of them. So, we give them the strictest criteria to meet and that is the way it should be. I think that gives them enough information up front.
Senator Townsend:
I do not believe the law says the commission is allowed to set additional standards unless it is expressly stated in the law that they can do it, otherwise they are prohibited from doing it. But, the commission is expressly given the authority to waive some standards. I understand Mr. Bierman’s concern but I think it is covered in statute.
Ms. Vilardo:
The change last time that was processed by the tax distribution committee gave the commission the ability to increase or decrease the standards on all, so it covers both of them. My understanding is when some of our members have applied, they have been told by staff what the requirements are going to be for them to present to the commission. If the commission does something they feel is out of line, that is where the appeal process comes into the Department of Taxation to the tax commission.
Chairman Rhoads:
Do you feel comfortable with that Mr. Bierman?
Mr. Bierman:
I would feel more comfortable if they eliminated the provision of making it more stringent as the process goes on.
Mr. Shriver:
I understand, the issue is what is the perception outside of Nevada if someone is making an investment. We have never made the proceedings adversarial whatsoever. In fact our goal is to make it more, “if you qualify, to look you in the eye, find out who you are, what your intentions are.” In light of the fact we are abating local government taxes, in the case of the personal and real property, we want to make sure the local governments understand what is at stake. We have all types of models to make the local governments very comfortable with what is going to happen. Part of it also gives the commission some flexibility down the road. We do not always foresee what kind of company, or what kind of use is going to happen, and if we do not give the commission the flexibility, we run into this black and white barrier in which the proceedings will become quite adversarial and we do not want that. Most states are going to impose a lot of these taxes and we want to make sure it is a friendly environment. The types of people who have been on the commission in the past and are on there now are very thorough in their investigation. They are questioning in advance, we encourage the client contact the commission, and make sure they understand. Our development authorities work very closely interfacing the client with the commission prior to a meeting, on a one-on-one basis, if necessary, to make sure their point of view is understood, particularly if it is a technical issue. These types of operations on the initial construction phase have a great deal of economic impact. Over time, because they do not employ a lot of people, the balancing act is pretty important.
Senator Townsend:
My concern about taking the flexibility away from the commission is in the area of renewables, technology is changing so quickly that the commission would want to investigate the person or company who is coming forward wanting these abatements. This may be the first time it has ever been tried. If the people who are closest to it who are doing it everyday feel if they have to raise the bar over here just a little bit in order to feel comfortable to give them something over here, that is a good policy for now. At least, until we run into a problem that they did not respond appropriately.
Ms. Vilardo:
Most of the conversation right now is that the renewables will locate in rural areas, and, will be self-supporting for those areas. They do not have a problem and hopefully will produce enough energy to be viable enough that we will get some energy on the grid.
We have two problems which have been identified in economic development in rural counties. One is making sure they have the transportation network, and the other is making sure they have the energy. Having been at commission meetings and attended conferences that the commission has put on, the concern of the rurals is getting them economically viable so they have the tax base. I believe the commission will bend over backwards to see these companies are approved because it is not just the energy problem right now; this is a major component of what we need to get our rural counties developed and to come to their potential. If we do this then the next thing we will have to work on will be the transportation network.
Chairman Rhoads:
Mr. Alonso, do you feel more comfortable with this now?
Mr. Alonso:
Yes, I think we have the utmost confidence in the commission. As far as the appeals process, if it exists within taxation we are fine with that, and I think this will benefit the rurals as well as energy in general.
Mr. Bierman:
Our amendments here in no way reflect any kind of dissatisfaction with the Commission on Economic Development or anything else. They have done an excellent job and we continue to look forward to working with them. Our thought is down the line when the commission may change personality or direction.
SENATOR TOWNSEND MOVED TO AMEND S.B. 227 WITH THE PROPOSED LANGUAGE, DRAFT 3, (EXHIBIT D) PREPARED BY THE NEVADA TAXPAYERS ASSOCIATION WITH THE CLARIFICATION ON PAGE 3, THAT THE CERTIFICATION OF RENEWABLE ENERGY SOURCE BUSINESS NOT BE A MANDATE, BUT THAT THE COMMISSION WOULD TAKE THE APPLICATION IN THEIR NORMAL COURSE OF BUSINESS EVENTS AND IF THE APPLICANT QUALIFIED, THEN THEY WOULD RECEIVE THE APPROPRIATE BENEFITS.
SENATOR SCHNEIDER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Rhoads:
We will close the hearing on S.B. 227 and open the hearing on S.B. 273.
SENATE BILL 273: Proposes to exempt from sales and use taxes certain products that use renewable energy resource to generate electricity. (BDR 32-641)
Ms. Vilardo:
Look on page 4 lines 3 to 5 of the bill. What has been deleted is the state 2 percent sales tax portion, which would have gone to a vote of the people on November 5, 2002. The reason for this was in response to another vehicle that would encourage efficient energy purchases by the consumer. We are dealing with “the emergency” that currently exists. We have this in place, the state portion is not affected so it does not have to go to a vote; it can be the analogous taxes which are the local portion of taxes that would go into place on July 1, 2001, allowing regulations to be developed, but for all other purposes it would be October 1, 2001.
This particular exemption to the consumer sunsets in 2 years. The committee would get a report back to see if it was effective. If it was effective, the 2-year date is during the next session and the committee could extend it.
What the devices would be from the way this is identified would be things like solar screens, I do not know if fans would be included, but this is the need for having the department or this committee define specifically what these products are. I noticed Iowa passed an exemption in one of their houses that included energy-efficient appliances and they set what the rating was. This is something that has occurred over the last 24 hours. What the subcommittee might want to do is have the Department of Taxation define by regulation the products that qualify.
Chairman Rhoads:
You mean the definition of certain products.
Ms. Vilardo:
Exactly. I do not know if you want to do that right now. If you allow that to happen, I would suggest the effective date be January 1, 2002, because this is not as simple a regulation as saying to the retailers the exemptions exist, because you are going to have to develop what these products are. That is a policy decision for you. We have narrowed this considerably.
Senator Townsend:
That policy statement you make is more complex than we might think. The reason I am sensitive to this is, is I happened to be walking through an appliance store the other day and on the front of every refrigerator and every dishwasher there is usually a large yellow sticker with black print that says, this appliance saves $400 in energy costs over the life of the appliance. We want to make sure if we decide to do this we do give them the time. You are almost going to have to have somebody go into an appliance store and try to understand the total impact of something on an appliance-by-appliance basis and then you would have to establish what the kilowatt standard would be for the year.
Ms. Vilardo:
On page 3, lines 3 to 16, I still think you need to have those products defined that are available and are known in that 2-year period. Depending on how the Department of Taxation feels you may need to have a later start date for the regulations than this October 1 date.
Mr. DiCianno:
I would concur with Ms. Vilardo’s comments and agree with Senator Townsend’s comments because what would be difficult for us, and probably more difficult for the retailer when they go to report their sales tax, is they are going to have to know which items would qualify and which items would not. It would be very helpful to us if we had some clarification with respect to the types of tangible personal property that would qualify under this provision.
Chairman Rhoads:
There is no definition in statute?
Mr. DiCianno:
Not that I am aware of.
Senator Townsend:
We have a bill in front of us in another committee which deals with the standard that you would meet, and that would change things in your bill. Instead of going appliance by appliance which could be tedious, you would probably have to set a standard, which is going to be difficult, but that is the only way you could even remotely come close to making this work.
Chairman Rhoads:
Could Ms. Vilardo, Mr. DiCianno, and Mr. Welsh draft sample language and we will bring this up again.
Mr. Alonso:
We have Todd Foley (Mr. Todd Foley, Director, External Affairs and Business Development, BP Solar) here for the week and I would like to volunteer him with respect to the new technology and we can help with regulations.
Ms. Vilardo:
The only thing I can come up with is solar screens, maybe a windmill is cheap enough for somebody for a farm, but if you want to do appliances that is a policy issue. We need to further change this language and create another section. It would be helpful to know if you, as the subcommittee, felt comfortable with having us bring you this appliance language on the side.
Senator Townsend:
When you talk about solar panels, I know there is a technology our ranching and farming communities use by putting these small generators or solar panels out in the middle of their larger plots of land for purposes of irrigation and other things, because you cannot run an electric line without a cost. Would those qualify under the current language, because obviously anytime you can take off a base load of some of those sides, we want to try and help them. The people out in the rural communities that are doing this help the utility because they have to run that line which is not cost-efficient for them either.
Chairman Rhoads:
It is getting to be more common practice to do that and you notice the state highway uses them all over the place.
Mr. DiCianno:
Senator Townsend that would be correct. If you read the language on the proposed bill, starting on lines 3-7 through 3-10, it states, “any product designed or adapted to use a renewable energy resource to generate electricity,” would qualify.
Senator Townsend:
It means if we have those things on all the state highways and out in the communities where they cannot run a line, they get a benefit, which is important.
Alan D. Caldwell, Lobbyist, representing Independent Power Corporation:
I concur this is difficult. The definition is perhaps the essence of this statute. In our operation we sell systems and to show you the difficulty, we sell batteries in a typical system, a stand-alone system, we have the solar panels, a charge controller, batteries, an inverter, and we have a back-up generator. It is not our intention or our thought that batteries be exempted of and by themselves, so I would offer my help with this language on the definition. I would like to see the definition generally expanded to include biomass and also micro-hydro. Micro-hydro is a source of electricity in the rural areas of our state. Another aspect of this is solar-thermal. Solar-thermal produces BTUs (British thermal units) but does not produce electricity, but it displaces electricity and I would like to see that included in the definition.
The spokesperson from Sierra Pacific made the point at our last hearing that these systems, if they are to be included, should be at least 75 percent renewable. That could be a dividing line to cover as broad a spectrum as possible.
Chairman Rhoads:
We will have another subcommittee meeting and try to have everything together by next Tuesday, April 10, 2001, upon adjournment of the regular Senate taxation meeting. We are adjourned at 5:30 p.m.