MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
April 12, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:23 p.m., on Thursday, April 12, 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:
Linda Ritter, City Manager, City of Elko
Mark H. Fiorentino, Lobbyist, Hilton Grand Vacations Company
Scott M. Craigie, Lobbyist, American Resort Development Association
Harvey Whittemore, Lobbyist, Nevada Resort Association
Michael A. T. Pagni, Legal Counsel, Reno-Sparks Convention and Visitors Authority
Carole Vilardo, Lobbyist, Nevada Taxpayers Association
Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development
Rose E. McKinney-James, Lobbyist
Raymond Bacon, Lobbyist, Nevada Manufacturers Association
Alfredo Alonso, Lobbyist
Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association
Chairman McGinness:
Let us look at Senate Bill (S.B.) 104.
SENATE BILL 104: Requires secretary of state to include on ballot for next general election advisory questions relating to increase in state license fee on gaming. (BDR S-808)
Joseph (Joe) M. Neal, Jr., Clark County Senatorial District No. 4:
Senate Bill 104 is contingent upon you passing S.B. 105, if you pass S.B. 105 then it makes S.B. 104 mute, if you do not do anything on S.B. 105 then I would prefer the question would be put to the people in terms of what they want to do in increasing the gross gaming taxes. I would like to do S.B. 105 first and then come back to S.B. 104.
SENATE BILL 105: Increases state license fee on gaming. (BDR 41-797)
Senator Neal:
Senate Bill 105 is intended to increase the gaming tax from the present 6.25 percent to 10.25 percent. If the committee has any desire to pass any taxes then I would be amenable to a reduction of that particular figure; understanding we do need money for the various services in the state. As of today it has been indicated we might have about a $150 million hole in the budget. I propose an increase of the tax in this particular area and to reduce the amount to a figure the committee desires. Also couple it with the teacher’s initiative in which they received signatures, and everyone talking about a broad-based business tax. I understand we could include that in an amendment if this committee desires to treat that particular question. We would also have to do something in the gaming area along with what the teachers have proposed. The point being we can get the funds from these two areas. I propose taking it from gaming and the teachers propose taking it from the other businesses that do not presently pay their adequate share of the taxes. I would offer that we would be willing to reduce 2 percent off the gaming proposal bringing it down to 8.25 percent, and add the teacher’s proposal to that in terms of the broad-based business tax.
Senator Coffin:
Have you been part of any meetings that might have been going on the subject of negotiating taxes?
Senator Neal:
No, I have not been part of any discussions. I did have a talk with the teachers and mentioned a willingness to bring their proposal before this committee today, and they agreed. I do not think we can continue to grant these exemptions which take money from school children, and not give money on the other end in support of our children and their education establishment as far as teacher’s salaries, and other individuals, like state employees who are in need of funds. We are still passing laws to keep them here when they get better offers to go elsewhere.
Senator Coffin:
I have a conflict of interest on this as I have on gaming issues. After 32 years in the business I have several casino clients which now form a substantial part of my business. However, I do not feel my vote on this issue would affect that particular group of casinos any differently than any others, so in a sense, I can declare a conflict of interest. Whether or not I vote could depend on you if you feel the ethical thing is to vote or abstain. You tell me which you would prefer because you are an ethical man. Do you think I have a conflict on this?
Senator Neal:
In your particular situation you are going to have to weigh the needs of this state over your own personal needs as to whether or not it is the right thing for you to do. I would think, given the situation we are in, you would tend to support the needs of the state.
Chairman McGinness:
Senator Neal, would you like to make a motion to the 8.25 percent plus the 4 percent?
Senator Neal:
The 4 percent without the conflict with the Nevada Supreme Court would not be included, that would be an occurred situation. We could get an amendment immediately to address that particular situation and move forward. Two years from now when we come back, the problems will be even greater than what they are at the present time. Teachers are still going to be clamoring for increases, school children are still going to be without books, and road projects are still going to be lacking. We have serious problems and this is a means in which we can address them.
Senator Schneider:
I appreciate what Senator Neal is trying to do because I have a bill that would require us to fund education 50 percent from the General Fund. Our children deserve to be funded at 50 percent of the General Fund. The bill carries a large price tag, and will go to finance because it has such a large price tag that it will probably be an exempt bill. The numbers may be $150 million short in the budget, and I am bringing an education bill which could bring a bigger deficit if this body said we should fund education 50 percent from the General Fund. We do not know exactly where we are with the budget or how much we need. Can we hold this bill as an exempt bill until later in the session?
Chairman McGinness:
This is not an exempt bill. We have two exempt bills and they have been passed.
Senator Neal:
If this committee desired to include the teacher’s proposal and vote it out along with any modicum amount of gaming, then the requirement would have to pass over to finance because finance would have to set up the appropriation to enforce the law and be able to collect the taxes under the teacher’s amendment. In that sense it would fall within the exempt category where it would go to finance. I would amend to reduce the amount stated on line 10, section 1, page 1, from “ten” to “eight,” add the teacher’s proposal of 4 percent into the law, which would include the broad‑based business tax exempting the unconstitutional part the Nevada Supreme Court ruled on.
SENATOR NEAL MOVED TO AMEND AND DO PASS S.B. 105.
Senator Schneider:
If we were to pass a bill like this and it goes over to finance, would they send it back to us if they needed an adjustment?
Chairman McGinness:
No, finance could further amend the bill if they so desired.
Senator Neal:
Senator Schneider, if that is troubling you, you also have the option of putting this to some point in time when the taxes come in, then interim finance would handle it. There are many ways you can amend this bill, but right now, as I understand from legal, if we did pass this out, then according to tradition whenever you institute a tax you have to institute some money by which the tax is collected, particularly in this case, where you are creating a new mechanism or new means of taxation. When you talk about the broad-business tax, the other tax in terms of the gaming tax would not be a problem but the broad-business tax pushes this over to where you have to create a mechanism within the tax department to collect it.
Senator Schneider:
Let us say worst‑case scenario; at the end of May finance needed quite a bit of money and we would have to look at the service tax and proceeds tax. Would that be allowed to be put in here if they are sitting on the bill in finance? Would they put it in or would they send that back to us to put in?
Senator Neal:
When the bill goes to the floor, and this committee is still sitting, if you think there is a needed amendment, yes, you can add it on the floor. Any bill is subject to being amended on any portion on second and third reading.
Senator Schneider:
How about 8 percent without the business tax and everything else in it? Do we need a vehicle later on, because, I do not have a number right now? Normally finance tells us they need so much money and we go find it, so we are doing this backwards.
Senator Neal:
It does not take a
rocket scientist to understand if you have a hole in the budget it would equate
to about $150 million. You have state
employees leaving state government because they cannot get adequate pay, you
have teachers who are not coming into the system because they are not being
paid. This indicates you are going to
need a considerable amount of money to bring these types of things up to par so
you do not lose state employees and teachers.
This is very important to Nevada.
If we can pass a bill to build a road to Ely costing
$15 million, then we are going to have to show as much ingenuity in terms
of taking care of our children and state employees.
SENATOR SCHNEIDER SECONDED THE MOTION.
Chairman McGinness:
The motion is to amend, line 10 will read, 8 percent instead of 10.25 and do pass S.B. 105.
THE MOTION FAILED. (SENATORS TOWNSEND, MCGINNESS, RHOADS, O’CONNELL, AND COFFIN VOTED NO.)
*****
Chairman McGinness:
We will discuss S.B. 104.
Senator Neal:
We did not get a vote on either one of the two proposals that were presented. Senate Bill 104 means we would submit the question to the people as to what they want in terms of this particular tax on gaming.
SENATOR NEAL MOVED TO DO PASS S.B. 104.
THE MOTION FAILED FOR LACK OF A SECOND.
*****
Senator Neal:
What does the committee have in mind in terms of dealing with the problems this state is facing in terms of taxation?
Senator O’Connell:
The first thing we have to do is find out the bottom-line cost. Senator Neal and I have spoken about things to do within the current budget, but we do not know the exact amount. My general philosophy is a no-tax philosophy. The problem I have is businesses today are having a difficult time. It is not just businesses, but families in general are having a very difficult time and think they are carrying a pretty high tax load right now. The commerce and labor committee heard there were 35 bankruptcies filed in Nevada last year, which is a pretty high number, 34,000 bankruptcies over the years in our state, and that worries me. We have to do everything we can to encourage business. You mentioned the money is there to fund the road in Needles to help increase our tax base from the money coming from Laughlin. On this particular issue you and I have very diverse feelings as far as our philosophy goes, but my concern right now is for my constituency and their current tax burden. The only way we have money to spend is if we have successful businesses, and the more burden through regulation fees and taxes on business, the less tax money we are going to have coming in. We are going into an economy that is flat, so these are the concerns that I have.
Chairman McGinness:
Let us consider S.B. 122.
SENATE BILL 122: Makes various changes concerning tax imposed on revenues from rental of transient lodging. (BDR 32-125)
Linda Ritter, City Manager, City of Elko:
I also serve on the 253 committee (tax distribution committee).
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. Ritter:
The task of looking at the room tax statutes as they sit right now was given to our committee, which started in August 2000. I chaired a work group of about 30 people from industries as well as local governments. We worked about 5 months to produce S.B. 122. First of all it consolidates all the current statutes having to do with transient lodging taxes so everyone can find the provisions. It provides a few definitions that are missing right now. The bill also gives some guidance to those governments not having local ordinance governing things like promotional packages, but also allows flexibility to the local governments to have their own local ordinances providing further definition and explanation. In looking at the bill it has come to my attention one piece of language was omitted. This was a saving clause which was passed through our committee. If I may I will read that into the record.
The purpose of this legislation is to consolidate where possible existing legislation into a single chapter of the Nevada Revised Statutes. Nothing herein should be construed as repealing or otherwise affecting the operations of existing local acts, including the Carson City Tax on Transient Lodging, the Douglas County Lodgers Tax Law, the Washoe County Taxes on Transient Lodging, and the Tahoe‑Douglas Visitors Authority Act.
Ms. Ritter:
It was not our intent to make any changes to the way transient lodging taxes were being utilized by local governments right now as far as how it is being administered. We wanted to put everything in one place and provide those definitions, including the saving clause, which provides for protection for bond covenants as well as other things that may be in local ordinance. Section 47 has to do with transient lodging on time-shares. There has been discussion there could be problems having to do with the interpretation of what transient lodging can be applied to. Since it is not something in existing statute, we can take the entire section out, which would eliminate confusion.
Chairman McGinness:
We would eliminate all of section 47?
Ms. Ritter:
That was a section we added to provide some guidance to local governments who do not now have time-shares in their local ordinances.
Mark H. Fiorentino, Lobbyist, Hilton Grand Vacations Company:
We have concerns with sections 47 and 48, which is addressed in the proposed amendment (Exhibit C). The way section 47 was originally written it is not a recodification of existing law but an expansion of existing law on how time‑shares can be taxed. We have always paid a lodging tax on when the time-share units are used as hotel rooms. If the room is not being occupied by someone who is part of the time-share plan, who has not already paid for the right to use the unit then they should be taxed as transient lodging. What we were concerned about, however, is the expansion of that and taxing the right to utilize your occupancy in a different week than what you had originally signed up for or for any fees that you might pay for the transfer of one week to another. Our suggestion would be to leave section 47 intact, rather than leaving the issue wide open, it does have some clarification. Section 48 gives local government the right to establish a minimum value for lodging purposes as part of promotional packages. We suggested you add a sentence that says, if they do that the minimum value established by ordinance cannot exceed its actual value.
Chairman McGinness:
Rather than deleting section 47, we should leave this in.
Ms. Ritter:
What we found when we took this through committee and through the work group is anytime we had a disagreement about what should be in the bill especially new language, and there is disagreement then it should not be included. There is no reference to time-shares right now in the current statute and there is some concern this will provide extra limits on local government that do not exist. Our intent was not to put more limits or to give them more abilities, and by eliminating it you take that completely away.
Scott M. Craigie, Lobbyist, American Resort Development Association:
What we are doing is leaving the portion dealing with whenever a person rents or takes the unit as if they were renting any other entity but to the extent they are one of the time-share owners, we are eliminating the tax on the exchange. So, in all cases where these people are renting just like any other transient lodging arrangement the tax remains. Our people have no problem with that, since they do it now. The only thing we are doing is eliminating the tax on the exchange, which I am told by the national association happens nowhere else, where they actually tax the exchange. This would create a negative hit for Nevada because to exchange out of another state and come to Nevada would create a disincentive for people to come here. However, the main reason is consistency with current law.
Harvey Whittemore, Lobbyist, Nevada Resort Association:
I would like to commend Linda Ritter and all of the people that worked on this.
In our discussions there was one overriding concern with respect to the language contained in the text, and that was to make it clear nothing in this bill was to change the ordinances of the local jurisdictions which have already adopted these types of laws. We need to make sure the transitory language given to Ms. Ritter at the outset which she is prepared to take, and we need to work with the legal staff, to make sure this language does not impact any of the bond covenants, the bonding capacity of those entities, the bond payments, the definition of gross receipts, what the periods were, et cetera. We need to assure those existing ordinances with the date of passage remain in effect and are not impacted by this. We also need to make sure this bill creates the glue for those areas which are not discussed in local ordinances, and they are to be ready and in concert. But they do not repeal by implication of repeal by express action of this body those lodging, RSCVA (Reno-Sparks Convention and Visitors Authority), and LVCVA (Las Vegas Convention and Visitors Authority) ordinances which exist in the counties. We had general agreement to make sure that was the intent. We would ask to work with your staff to prepare an appropriate amendment that this committee would add to this bill, if it chooses to process the legislation.
Chairman McGinness:
What is your viewpoint, to leave section 47 in?
Mr. Whittemore:
It is not so much with respect to section 47, it is more of a general text, a textural amendment which both creates a preamble and a transitory language at the end that we could work with Kevin Welsh (Deputy Fiscal Analyst), and we have given some suggested ideas to Ms. Ritter. Again, if the committee decides to process it, we need to make it very clear this was not intended by the proponents to impact those existing laws because if it did, it would have an absolute disastrous effect on those local jurisdictions which already have these types of ordinances in place.
Senator O’Connell:
Ms. Ritter has been outstanding as a member of the technical committee by which she took on this project and by the comments of the gentlemen previously of how cooperative she is. Ms. Ritter has done an outstanding job and I appreciate her very much.
Ms. Ritter:
The other amendment suggested in section 48 (Exhibit C), the next to last sentence, “the minimum value established by a local government pursuant to this section may only be used if the value of the lodging component of a package cannot be readily determined.” If you say the established minimum value may not exceed the actual amount paid for the lodging, if you cannot determine what the lodging component is you cannot set that minimum. I had put this in for my jurisdiction in the city of Elko because we have a unique situation. Our local casinos bring gamers from all over the country, and it is impossible to determine exactly when you look at that package, how much the airfare component is because nobody else flies from Des Moines, Iowa, to Elko. That is why it is in there, and I do not know if the last sentence is really needed.
Senator Schneider:
Are we going to tax the time-share owners that exchange?
Ms. Ritter:
We have not had an opportunity with local governments to find out what is happening because I do not know if current statute prohibits it. What we could do is work through our committee, get the work group together once more, and take a look at this and come to some agreement on what kind of language needs to be in section 47.
Mr. Craigie:
I have talked with Mr. Leavitt, the people in southern Nevada, Incline Village, and Reno, and it is my understanding none of them tax exchangers. It is probably more a function of the way the people run and report time-shares, than anything done specifically in ordinance, but they have nothing in ordinance currently directing them to do so.
Senator Schneider:
It is my understanding we should not do this, those people have deeds, they own property, it is pretty hard to put a transfer tax on those people.
Chairman McGinness:
I am tending to lean with Ms. Ritter and take out section 47 and add your language. Do you think we need that second line, the established minimum value, or do you think that is established?
Mr. Fiorentino:
We think the sentence has some value, but we are willing to work through the process and with Ms. Ritter on deciding whether it needs to say exactly that or anything at all. Our concern is the local governments would set a minimum value exceeding the actual lodging component. I understand Ms. Ritter’s concern that sometimes it may be impossible to figure out.
Chairman McGinness:
Do you think the addition of that language really hurts anything?
Ms. Ritter:
I am not sure it really hurts. I question the need because the minimum value can only be established if the value of the lodging component cannot be determined. There is no way to measure if the minimum exceeds the actual. I am afraid it could lead to some confusion.
Michael A. T. Pagni, Legal Counsel, Reno-Sparks Convention and Visitors Authority:
Regarding your question on section 48, the minimum value would only be used if you could not ascertain the value. The new sentence is contradictory because it says, “the minimum value cannot exceed the actual value”; you would never use the minimum value if you knew what the actual value was.
Chairman McGinness:
Ms. Ritter, your recommendation is to add your language at the top and delete section 47.
SENATOR RHOADS MOVED TO AMEND AND DO PASS AS AMENDED S.B. 122.
SENATOR O’CONNELL SECONDED THE MOTION.
Senator Townsend:
I want to note for the record my family is involved in the time-share business, and this treats all time-shares the same and, therefore, I will be supporting it.
Senator Schneider:
I feel the same as Senator Townsend on the piece of the time-share.
THE MOTION CARRIED. (SENATORS COFFIN AND NEAL WERE ABSENT FOR THE VOTE.)
*****
Chairman McGinness:
Let us look at S.B. 227.
SENATE BILL 227: Revises and repeals provisions that exempt certain property from taxation. (BDR 32-892)
Senator Rhoads:
This particular issue which came to my subcommittee from the tax distribution committee is about abatement of taxes for renewable energy.
Carole Vilardo, Lobbyist, Nevada Taxpayers Association:
Our work last session for economic development abatements was in skeleton form, and the renewable energy and solar exemptions slipped through the cracks. This year when the tax distribution committee decided that neither one was needed. There were only two exemptions granted under the renewable energy from recycled material. No exemptions granted under solar from the time it was put in. Given the concerns of energy, some companies were trying to get a quick start. Some companies felt we should probably use the bill to get in some abatements.
There are two different abatements, one has three pages (Exhibit D) and the other is one page (Exhibit E). In this particular instance (Exhibit E), after the bill was looked at by the Commission on Economic Development, it was realized we had removed a provision that spoke to recycled material. Fifty percent had to be recycled on-site and the commission wanted that language to stay in to make sure we were not importing other people’s material for recycling. The other provision to be defined is because Article 10, section 8, of Nevada’s Constitution had a voter-approved exemption for real property for renewable energy sources. As it turned out you could have this abatement up to 10 years, up to 50 percent for renewable energy from recycled materials, and you could do the same thing for real property. Which is why, from deleting it totally, you have this modified amendment. When the amendment came from legal, we found there were some other procedural changes that should be done. For instance, in the economic development statutes instead of distinguishing that the current exemption is allowed only for “real property,” it says, “property.” You will retain Nevada Revised Statutes (NRS) 361.0685 but you will have consolidated language in the reference back to NRS 360.750.
Chairman McGinness:
Will those changes include, “the local government has the approval”?
Ms. Vilardo:
That is the reference to NRS 360.750, which gets cross-referenced back because there is a procedure to be followed by the Division of Economic Development. Then there are additional authorities given to the Department of Taxation which also cover the next three pages (Exhibit D). The fact the commission approves for abatement a company whether it is in this category of renewables, machinery, or technology company coming in, there is a notification procedure as to when the hearing for discussion will be held. The commissioners will make the determinations and the Department of Taxation normally audits once a year to make sure of compliance with the agreement. For example, if, for whatever reason, we are into the third year of a 5-year agreement on property tax, what would happen is department audits, the company is suddenly gone, closed up, or it is not paying the wages. If that was one of the conditions, the Department of Taxation could look at taxes due because of not having met for that period of time, and get the taxes so that the local government would receive them. In the amendment from legal you will have chapter 351 of NRS, and the difference between what currently appears in statute and this amendment is, right now if you applied you would have the commission to determine what length of time and what percentage you would get. This amendment makes the percentage received from real and personal property an absolute, it is for 10 years, 50 percent on real and personal property. It further defines what a renewable energy source is so there is no question. The reason geothermal does not appear in number 4 is because geothermal is a mineral, and as such, is taxed under net proceeds and does not qualify under the property tax exemptions.
The other commonality on these three pages (Exhibit D) is this section expires on June 30, 2005. It is a finite exemption and after that time, if somebody received the 10-year exemption because this expires in 5 years, you would still have the remaining 5 years. Anybody applying July 1, 2005, would apply under the existing economic development provisions and might not have the full amount. I found out from legal we will not have a new parallel section in chapter 364 of NRS. Legal will add a new subsection because chapter 364A of NRS, the business tax, is very specific. It already specifies you get 80 percent off the first year of your business tax, 40 percent off the second year, and then 60 percent, then 80 percent until the fifth year that you are at 50 percent. What they are going to do to make sure the commission gives the abatement is talk about the resources. What you see in section 3, will become a subsection and there will be a provision within there saying, “and then” this section is repealed June 30, 2005. What you see in the sales tax provision will be added as a separate section, because the commission currently has the ability to grant a sales tax exemption for up to 2 years, this makes it specific to the 2 years. The subcommittee on the third page (Exhibit D) determined we did not need to add a new section to chapter 231 of NRS, so that is deleted.
Senator O’Connell:
Is there any reason why we have two different dates on each amendment, Exhibit D expires June 30, 2005, and Exhibit E expires 2003?
Ms. Vilardo:
In working with the initial set of proponents or opponents to the repeal of solar energy, the people involved with the windmills would have liked the exemption for 8 to 10 years. I would have preferred the exemption for 3 years, which became a compromise. That is your decision of what you would like to do.
Senator O’Connell:
If we process either one of these, we need a commonality in the dates. Is there a percentage at all put in the bill?
Ms. Vilardo:
I remember raising that issue and for some reason it has slipped through the cracks and we did not come back to it.
Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development:
Are you talking about a provision to make sure the resource percentage is available for Nevada resident service providers?
Senator O’Connell:
As a state, we would have to guarantee whoever goes into renewable energy a contract. We would have to put into the electric industries so much of a percentage of their portfolio to be renewable energy. Having done that, we have guaranteed whoever into the renewable market that they have a shot at so much money from Nevada Power Company or whomever it is going to be, which in turn, they have a guarantee of a customer. Now we are not only giving them a guarantee as a customer, but we are also giving them a tax break which might be a little much. We are taking this to a vote of the people anywhere along the line because we have put it in chapter 374 of NRS. We are certainly giving them a big leg up over and above what we give our other businesses and especially a business we are trying to stabilize. So in section 3, when you are talking about renewable energy sources, are we talking about any kind of a percentile?
Mr. Shriver:
At some point we did discuss what that percentage might be and I do not think we came to a conclusion.
Senator O’Connell:
I would think it would be important. When looking at renewable sources, we do not talk about if there is any need at all for any power to help with them. There is a need for power with geothermal and there is a need for power for some time if you are banking anything with solar and wind. On page 2, section 4 (Exhibit D), it says, “means a resource from which electricity is produced, but which it is not consumed or combusted and is naturally regenerated.” At times these need some source of electricity to either help with the banking of those sources. Is it coal power, fuel power, or a straight electric situation in order to keep them going?
Ms. Vilardo:
Section 4 was to define, electric was eliminated, and energy was substituted, because the renewable source is to provide energy, in some cases, with hydrogen fuel cells, which supposedly will need no electricity, but will create energy. This section was supposed to better define a renewable energy.
Senator O’Connell:
If this is a renewable source and this language says it does not consume, and my understanding is that it does take some power in order to keep it going, when we talk about the solar at night or the wind, if we have no wind and it is night, does it not require some banking and some use of power?
Rose E. McKinney-James, Lobbyist:
The point is to distinguish renewables from fossil fuels. Fossil fuels are generally combusted, whereas, there is no consumption with respect to the renewable resources. This bill extends that to measures which are beyond what is currently in statute. What is currently in statute is solar, either through photovoltaic, which is the sun generating heat by hitting something, or solar thermal where a heating element is considered, also wind, biomass, and hydrogen that are not pumped by a fossil fuel. This now includes fuel cells or some other aspect of hydrogen which would be an expansion of the definition of renewables currently in statute. The point is it is a renewable resource which is not fossil-fuel based.
Senator O’Connell:
Is there any time your wind or solar source would need power? Is there some amount of electricity used with solar and wind.
Ms. McKinney-James:
There are instances in which renewable resources are enhanced by a blending of gas or a blending of batteries when it comes to solar, but solar can clearly sustain itself on its own. All of these resources are considered intermittent for one reason or another; sometimes the wind does not blow or the sun does not shine 24 hours a day, but it does not necessarily require the need for a fossil fuel back-up.
Senator O’Connell:
Not necessarily, but if you are going to keep it constant or reliable it would?
Ms. McKinney-James:
It depends on the application. For example, at the heat of day when solar is being operated, it also comes at the peak load need in which you could bank it. You could simply use it all up at that point and continue to use it as the sun comes up and you create this flow of energy. You use the energy at the time it is available then switch to another resource at night, which does not have to be connected to solar, the solar goes to sleep with the sun and then it returns in the morning. If you want to enhance these resources you can blend them, but it is not a necessity.
Senator O’Connell:
If you are only using this as a definition, you are saying this is the pure definition.
Senator Rhoads:
As far as a percentage, do we not already have in state law that the utility companies have to buy 2 percent of renewable energy?
Ms. McKinney-James:
In 1997, consistent with the passage of Assembly Bill (A.B.) 366 of the Sixty-ninth Session, it was amended to include a portfolio standard allowing for 1 percent of all the load to include renewables. Fifty percent was to come from solar and in increments of 0.2 percent every 2 years. This legislative body is considering a couple of measures that would substantially increase that.
ASSEMBLY BILL 366 OF THE SIXTY-NINTH SESSION: Reorganizes public service commission of Nevada and makes various changes concerning regulation of utilities and governmental administration. (BDR 58-1390)
Mr. Shriver:
I believe S.B. 372 has increments and A.B. 418 has something similar. The difference is, there is a penalty attached to the Senate bill and the Assembly bill. There does not seem to be a penalty for not complying for the renewable.
SENATE BILL 372: Revises provisions concerning conservation of energy and use of renewable energy. (BDR 58-287)
ASSEMBLY BILL 418: Revises provisions concerning conservation of energy and use of renewable energy. (BDR 58-1198)
Senator O’Connell:
We know right now we could not get 2 percentile. If we are going to support legislation like this again, and we have no percentile, and we would be giving them a guarantee of a customer, while giving them whatever percentile in an abatement, it would seem to go outside of a vote of the people, so it would be a done deal with the passage of the legislation.
Ms. McKinney-James:
This is not my measure, I have been historically an advocate for renewables. I can only speak to two things and cannot speak to the voting issue. However, there are opportunities to distinguish what this tool might provide from an economic development standpoint. One of the things we use to promote through CSTRR (Corporation for Solar Technology and Renewable Resources) is the hope we would attract manufacturing facilities to this state to actually manufacture the equipment that supports wind, solar, and geothermal. It is obvious geothermal is not involved in this particular measure and will be distinguished from a power plant so those taking advantage of the portfolio standard would be the generators and, hopefully, there would be some manufacturing opportunities taking advantage of the tax exemption.
Ms. Vilardo:
The only exception where geothermal does not appear is in the property tax issue, because it is taxed differently. Geothermal is given the same benefit in the business tax and sales tax where they are one of the identified renewable sources.
Raymond Bacon, Lobbyist, Nevada Manufacturers Association:
To get back to Senator O’Connell’s point, I think if we are going to give a tax abatement to these facilities they should be required, for at least a sizable percentage of the output of those plants, to be consumed in the state of Nevada. There are renewable initiatives that are currently taking place in Arizona, New Mexico, Idaho, and several in California; I do not know about Utah. The renewable market is going to be for people to meet their portfolio standards, and that stuff will be valuable even if it is expensive. There is no reason in the world we should give away a tax abatement only to have our utilities not able to meet the portfolio standard in our state because it is being shipped off to California or someplace else, so there are different standards involved in this. To qualify for the tax abatement I would suggest a requirement be passed down through the CED (Commission on Economic Development) that at least 75 percent of renewable energy has to be sold in the state of Nevada.
Senator Townsend:
Once it goes on the grid then it is first jurisdictional, which is federal, and you have a commerce clause issue.
Mr. Shriver:
In earlier testimony, my idea was by giving them a tax incentive, in essence, we are drawing up a contract by which they must abide. One of the thoughts not put in the bill was the commission could have a clause whereby the local utility service provider must be guaranteed x amount of this energy. You are stating 75 percent and whatever that amount, we did not come to a percentage, but first right of refusal, similar to control. The whole idea is to develop the resource and technology, and also keep it in the state of Nevada. We want to be self-sufficient and whatever excess is generated they would be allowed to go out and sell.
Senator Townsend:
How about we reverse the order. Under the portfolio standard where the local utility contracts with this entity, and once they have the contract then they could apply to the Commission on Economic Development, which encourages them to sell to Nevada Power Company or Sierra Pacific Power Company, because they know they then could apply to these. In other words, you do not get this abatement unless you have a contract with a local utility
Alfredo Alonso, Lobbyist, representing BP Solar:
There may be some defendable attributes to what they discuss with respect to requiring a certain percentage be used in this state. I do not think you violate the commerce clause, the tax exemption is separate, and they would not get the tax exemption if they were using it out of state. The Assembly was looking at this same issue recently and that may be an amendment as well.
Senator Townsend:
In about 12 hours we will be hearing the portfolio standard. I only bring it up because you might totally obfuscate the commerce clause issue in any constitutionality which would also help our local utility. Whatever the percentage we end up with, they contract for it giving both parties an opportunity. Obviously, if Nevada Power Company and Sierra Pacific Power Company know they have an entity who can get a tax break that drives the price down. This means the contract becomes a little more flexible on behalf of the consumer, they are able to meet their portfolio standard, you get the break, and you still control the resource. That would be my recommendation unless there is some legal opinion saying this is not going to carry any weight.
Senator O’Connell:
We need to also investigate whatever percentage we are looking at and what kind of a cost impact it has to the utility, because we are talking about a dramatic cost increase for renewables. We have to be very aware of what we are doing to the utility, especially now, in the fragile position they are in until they can start recouping some of their costs, so the dates could have a heavy impact on them. We have to be aware we are guaranteeing a contract for them and we are also giving them a tax break. That is not what we are doing to our utility who is having a difficult time right now.
Senator Townsend:
The bill we will take up tomorrow, S.B. 372, has those phase-ins. Whether the committee agrees to 15 percent of the phase-in, but deals with 5 percent of the total amount by December 31, 2002, and the utility would have to tell us what percent they currently have, then it says, “It shall increase by 2 percent biannually thereafter up to 15 percent.” There is a mechanism whether those are the right numbers or not, we do not know and will leave that up to tomorrow’s debate, but you cannot say this is what you are going to go out and do and find out it is 25 percent power requirement, that is not the point. The point is to allow them to get a portfolio at a reasonable or competitive rate and this may help them do that without strangling them.
Senator O’Connell:
The dates all need to be the same.
Chairman McGinness:
If we take Senator Townsend’s suggestion, and they get a contract, they can then apply for these abatements, then they would be eligible for this abatement, and to the extent possible, we are going to coordinate all of the dates.
Ms. Vilardo:
The discussion on the date depends on what you do with this particular bill as the dates could go out 10 years. The idea for this abatement was to jump-start companies, if you try matching dates you are going to have this out there much longer than intended. It was to say here is some early seed money because we are not charging you a tax, so we are giving you this abatement to get you started.
Chairman McGinness:
Senator O’Connell, you were talking about coordinating these dates with the next bill.
Senator O’Connell:
As we look at these three different issues we need to be very aware of the dates.
Chairman McGinness:
We will leave these dates as they are.
SENATOR RHOADS MOVED TO AMEND PER EXHIBIT D AND EXHIBIT E, INCLUDING THAT COMPANIES MUST HAVE A CONTRACT WITH A NEVADA UTILITY AND HAVE A RENEWABLE ENERGY SOURCE OF 75 PERCENT, AND DO PASS AS AMENDED S.B. 227.
SENATOR TOWNSEND SECONDED THE MOTION.
Senator O’Connell:
Are we not going to get anything definite on the percentages?
Senator Rhoads:
What would you think would be a reasonable percentage?
Senator Townsend:
You do not need a percentage if you are going to say the only way they can get an abatement is to have a contract with the Nevada utility.
Ms. Vilardo:
You are talking about this portfolio standard and getting the abatement. But, from the question I thought I heard you ask, you can have a system for something, such as the windmills, which are a system, being set up at the test site. We can get 85 kilowatts, 35 kilowatts effectively sustained. We would need an electrical power source if we were to do it constantly. If you build something that uses a renewable source but not totally, or 50 percent of it is not renewable, is that a concern? Could you have 2 percent of a system that is geothermal and the rest of it would use fossil fuel but still qualify under this?
Senator Townsend:
You do not want the local con person to come in to try and get some benefit by simply having a propeller on top of a 4000 square foot warehouse and calls that a renewable source. I do not believe we want to do that.
Senator Rhoads:
The next bill, S.B. 273, says you have to have 75 percent renewable in order to qualify for a tax exemption.
SENATE BILL 273: Proposes to exempt from sales and use taxes certain products that use renewable energy resource to generate electricity. (BDR 32-641)
Senator Townsend:
I think 75 percent would get you your geothermal and biomass. The standard of 75 percent means you are either really serious about renewables or you are just in here trying to con us. Seventy-five percent makes it happen for those serious about renewables.
By having the utility contract for the portfolio standard provides some safety for the Commission on Economic Development.
Senator Rhoads:
I will include the 75 percent renewable in amendments (Exhibit D and Exhibit E).
Chairman McGinness:
The amendment includes Exhibit D and Exhibit E and also Senator Townsend‘s recommendation that companies only get the abatement once they get a contract with a Nevada utility and the renewable source has to be 75 percent for them to get the abatement.
Senator O’Connell:
For how long a period are they going to get this tax break?
Mr. Shriver:
We would like to stay with the jump-start date of June 30, 2005.
Senator O’Connell:
Is it going to be phased down over 4 years or are they going to be guaranteed the full amount over the years?
Mr. Shriver:
The guaranteed amount, in this case, they would get up to 10 years and 50 percent of the personal property tax abatement. Geothermal would not qualify because it is a mineral but they have 2 years to run the sales tax out.
Senator O’Connell:
This would affect all taxes including schools, with the exception of the 2 percent in the sales tax that goes to the state.
Mr. Shriver:
That is correct. We will provide each local government affected with an econometrics model by foregoing the tax up front. What is the payback to that tax? It amounts anywhere from days to months and in some cases, a little longer depending on the size of the operation and the county affected. This goes back to Senator McGinness’ question about local governments and the concept the commission has. We will not, without the endorsement of the locally affected government, do an ongoing personal property tax. We are very uncomfortable as an appointed body to sit here and say no. Mostly what it does is make us and the development authorities, and more importantly the company receiving the benefit, prove to the locally affected government what those payouts are and what the long-term benefit to the community is going to be. That is why we tie such an importance to the wage rates and the capital investment which is so important for them to recover, that is the only way we have to gauge.
Senator O’Connell:
That is under chapter 360 of NRS?
Mr. Shriver:
It is under NRS 360.750. The whole idea is we want to create an indigenous‑resource base energy in Nevada so we are not dependent on importing fuel or generation, and we are hopeful we will have an answer and see how effective this is.
Senator O’Connell:
I would love to say they need to come back and report to us on this, but we cannot do it that way because, if we give them a 4-year guarantee, we cannot say we made a mistake.
Senator Rhoads:
We can always pass another law next session.
Senator O’Connell:
Then, we would have the same situation we have with Nevada Power Company and the Mohave Generation Station right now.
THE MOTION CARRIED. (SENATOR O’CONNELL ABSTAINED FROM THE VOTE.)
*****
Senator Rhoads:
Senate Bill 273 has a four-page amendment (Exhibit F), and the key part of it is starting on page 3, lines 3 to 7, “There are exempted from the taxes imposed by this chapter the gross receipts from the sale of, and the storage, use or other consumption in this state of, any product designed or adapted to use a renewable energy resource to generate electricity,” in other words it is the equipment and so forth that is exempt from the tax.
Gaylyn J. Spriggs, Lobbyist, Nevada Taxpayers Association:
This is for products and systems for residential customers and small businesses who would want to put in this type of system to take some of the load off the state’s power needs. The system is defined as the components part of an integral package without which the system is not complete. The extras do not go with it, just the integral parts of the system and the system has to produce 75 percent of the power from renewable energy to qualify.
Senator O’Connell:
Are we doing this for any specific person or group that has made a presentation before commerce?
Senator Rhoads:
Alan Caldwell (Alan Caldwell, Lobbyist, Green Energy Business Council of Nevada) and others are actually manufacturing small windmills and pieces of equipment, and they need a little incentive to do a lot more.
Senator O’Connell:
Who suggested the 75 percent?
Ms. Spriggs:
I did.
Senator O’Connell:
How did you come up with 75 percent?
Ms. Spriggs:
I figured if it was more than half, then it is a system that will work; but you have to recognize that once in a while you have to have a back-up generator.
Senator O’Connell:
The one group that needs the money, the local school support tax is the one we are exempting.
Senator Rhoads:
The original bill was for sales and use taxes, and would have had to go to a vote of the people, so we had to change it to the local school support tax.
Kevin D. Welsh, Deputy Fiscal Analyst:
What happens is, they mentioned a sales tax to the local school support tax and that has the other taxes all tied to it, so everything but the state 2 percent is affected by this.
SENATOR RHOADS MOVED TO AMEND AND DO PASS S.B. 273.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR O’CONNELL VOTED NO.)
*****
Chairman McGinness:
Let us look at S.B. 527, which is the gray market cigarettes. The amendment (Exhibit G) changed the contraband cigarettes and the definition to “acquired, sold, held, possessed,” et cetera, and added, “violation of state or federal law.” Those changes were made throughout the bill. Section 7 provided for a course of civil action for a person who is injured economically by violations of the statute.
SENATE BILL 527: Revises provisions governing licensing of cigarette dealers and taxation of cigarettes. (BDR 32-1326)
SENATOR RHOADS MOVED TO AMEND PER EXHIBIT G AND DO PASS AS AMENDED S.B. 527.
SENATOR O’CONNELL SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman McGinness:
I adjourn the meeting at 4:09 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: