MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
March 6, 2003
The Committee on Taxationwas called to order at 1:39 p.m., on Thursday, March 6, 2003. Chairman David Parks presided in Room 4100 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. David Parks, Chairman
Mr. David Goldwater, Vice Chairman
Mr. Bernie Anderson
Mr. Morse Arberry Jr.
Mrs. Dawn Gibbons
Mr. Tom Grady
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
Ms. Peggy Pierce
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
Assemblyman Pete Goicoechea, District No. 35
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Mary Garcia, Committee Secretary
June Rigsby, Committee Secretary
OTHERS PRESENT:
Mr. Dino DiCianno, Deputy Director of Compliance, Nevada Department of Taxation
Mr. Sam McMullen, Business Representatives Group
Mr. Ray Bacon, Nevada Manufacturers
Ms. Mary Lau, Executive Director, Retail Association of Nevada
Ms. Christina Dugan, Las Vegas Chamber of Commerce
Mr. Peter D. Krueger, State Executive, Nevada Petroleum Marketers & Convenience Store Association
Mr. Mike Zunini, Berry-Hinkley Industries
Mr. Michael Pennington, Public Policy Director, Reno-Sparks Chamber of Commerce
Mr. Larry Osborne, Carson City Chamber of Commerce
Ms. Carol Vilardo, Nevada Taxpayers Association
Ms. Lucille Lusk, Co-Chairman, Nevada Concerned Citizens
Mr. John Wagner, Nevada Republican Assembly
Ms. June Burton, taxpayer
Ms. Jan Gilbert, PLAN
Ms. Bonnie Parnell, League of Women Voters
Mr. Alfredo Alonso, RJ Reynolds
Ms. Elisa P.C. Maser, Project Associate, MIG, representing the Nevada Tobacco Prevention Coalition
Ms. Paula Berkley, Paula Berkley and Associates Public Relations and Lobbying
Ms. Buffy Gail Martin, Government Relations Director—Nevada, American Cancer Society
Mr. Daniel Meyer, Gaming Route, Comstock Gaming, Incorporated
Mr. Jim Avance, Consultant/Lobbyist
Ms. Bobbie Gang, Lobbyist, Nevada Women’s Lobby
Chairman Parks called the meeting to order at 1:39 p.m. and opened the hearing on A.B. 208. [See Exhibit M for bill explanation.]
Assembly Bill 208: Authorizes imposition of sales and use tax in certain counties for operation and maintenance of county swimming pool. (BDR 32-805)
Assemblyman Goicoechea came to the witness table to introduce A.B. 208. The bill would provide for a 0.25 percent sales tax increase in counties with a population of less than 15,000 for the purpose of operating and maintaining a county swimming pool. He stated that the citizens of White Pine County had voted in November 2002 to support a request for legislation authorizing such an increase (see Exhibit C). Chairman Parks asked Mr. Goicoechea if he knew of any other counties that used sales tax revenue to fund pools or other recreational facilities. Mr. Goicoechea replied that he did not, and that, since he was elected on the same day the measure was passed in White Pine County, he had very little involvement in the matter except for having agreed to bring it before the Legislature. Assemblyman Grady stated that some counties had swimming pool districts that received a penny or two off the tax roll. Chairman Parks pointed out that that money came from property tax. He also observed that Clark County had levies for transportation and flood control that were from voter-approved increases to the sales and use tax. Mr. Goicoechea observed that property tax in White Pine County was already at the cap.
Dino DiCianno, Deputy Director of Compliance, Department of Taxation, stated that the Department did not have a position either for or against the bill, but that it did recommend a technical correction. In Section 6 of the bill, the Department requested that the effective date of the bill be changed to July 1. He explained that the Department had quarterly reporters as well as monthly reporters, and that in order to capture the quarterly reporters, it would be necessary to provide White Pine County retailers enough time to make the change on the quarterly filing. Chairman Parks asked how much lead time would be needed in order to put the measure in place. Mr. DiCianno answered that the necessary lead time would be 90 days.
As there were no other questions or testimony on the matter, Chairman Parks closed the hearing on A.B. 208 and opened the hearing on A.B. 204. [See Exhibit N for bill explanation].
Assembly Bill 204: Provides revenue in support of state budget. (BDR 32-1210)
Chairman Parks stated that the Committee had previously heard a presentation on A.B. 204 during joint hearings with the Senate Committee on Taxation. He announced that he wanted to hear any additional comments from anyone from the Department of Administration who might be in the audience. Since no one came forward, Chairman Parks said he wanted to go through the bill section by section. He opened the discussion on Section 1, which dealt with the business activity tax (BAT).
Sam McMullen, representing the Business Representatives Group, a large group of business interests throughout the business community, rose in support of Section 1 of A.B. 204. He introduced Mr. Ray Bacon of the Nevada Manufacturers Association, Ms. Christina Dugan of the Las Vegas Chamber of Commerce, and Ms. Mary Lau, Executive Director of the Retail Association of Nevada, who were sitting at the witness table with him. He also introduced Mr. Daryl Capurro of the Nevada Motor Transport Association and Mr. Wayne Frediani of the Nevada Franchised Auto Dealers Association, who could not come to the table with them, as there were only four chairs at the table. Mr. McMullen acknowledged that the Committee had at least two decisions to make concerning A.B. 204. First, he noted, was the issue of cash flow through June 30, including any policy decisions that had to be made related to those issues clearly presented by the bill. He admitted that his group could not offer much help regarding those questions, but said they could help with a second set of questions regarding the need for additional revenue from the BAT. Mr. McMullen described the group as a broad-based group of businesses that had made a commitment during the previous legislative session to analyze the fiscal and revenue issues facing Nevada in the future. He stated that the group had held at least a dozen three- to four-hour meetings from December 2001 to December 2002 in an effort to develop a plan and make a commitment to be a part of the future funding of the state. He asked Mr. Bacon to detail the processes the group had used in formulating its plan.
Ray Bacon, Nevada Manufacturers Association, stated that at one time the group had had 30 to 35 different tax items on its agenda, keeping its focus on taxes that were broad-based and business-focused. These, he said, were not taxes that would be paid by the consumer or by other entities not involved in the coalition. He noted that, as a result, there were tax issues that the group did not address, including the “sin taxes.” He explained that although there was initially strong resistance to an increase in the business license tax, such a tax was broad-based, easy to comply with, and by far the most stable tax in Nevada. By July 2002, he said, the group had believed that increasing the business license tax at least enough to compensate for inflation during the ten years it had been in place was totally appropriate, and that the group was committed to at least doubling that tax. He claimed that theirs was probably the first, and perhaps only, group to decide that if the state had a need for a revenue increase, the business license tax was the easiest tax to change, due to the facts that changing the rate would involve no additional overhead cost, the change could be done quickly, and it would bring in roughly an additional $20 million. He noted that this information was included in the group’s formal position that had come out in Fall 2002.
Assemblyman Anderson expressed concern with other sections of A.B. 204, and said he hoped that Ms. Lau’s testimony would address those concerns. He said he would wait to ask questions until he had heard the testimony of all four people at the witness table.
Mary Lau, Executive Director, Retail Association of Nevada, commented that she had not been present for discussion earlier in the day and would be more comfortable letting Mr. McMullen address some issues. She said she would be available to answer questions.
Mr. McMullen concurred with Mr. Bacon that the broadest based business tax in Nevada at that time was the business license tax. He stated that there was a high degree of acceptance in the group for an increase in that tax. He emphasized that the most the group was comfortable with was a 100 percent increase, and that a higher increase might be inappropriate. He announced that the group had come up with a plan for long-term funding, and that group members were trying to be responsible and pay their fair share as businesses. He added that they would continue to participate in the Committee’s future discussions related to other bills. Mr. McMullen further stated that if the Committee decided there was a need for short-term funding, the group could support accelerated increases in the business license tax for the fourth quarter of the current fiscal year. He offered to answer questions.
Assemblywoman McClain asked Mr. Bacon if the $20 million dollars quoted as revenue from the increase in the business license tax was only for the last quarter of that fiscal year. Mr. Bacon replied that she was correct; the Economic Forum had arrived at that figure, he said, but it was a rough number and would depend upon the actual headcount. In response to Ms. McClain’s question of whether or not the group members were comfortable with that, Mr. Bacon replied that he had not said that. He said the group members had agreed to support the plan, but that there were members who would prefer to see no taxes. He added that the business license tax was the easiest tax for employers to comply with. He did point out that it might not be a perfectly fair and equitable tax, but it was a tax that could be changed quickly.
Assemblyman Anderson commented he should have asked his question when he first had the opportunity. He asked for clarification on whether or not the group would be addressing the “sin taxes.” Mr. McMullen’s answer was that the group had not thought it appropriate to talk about increasing taxes that the members, as businesses, would not be paying, but had dealt strictly with broad-based business taxes. Mr. Anderson stated he was concerned with short-term needs and that the “sin taxes” were clearly in the best interests of business as a whole. He said they perhaps provided an equitable way to move forward. He thanked the group members for their willingness to come forward on the issue, although taxes were never a popular subject with businesses. He expressed hope that some clarity might be achieved on the subject of cigarettes and alcohol.
Mr. McMullen introduced Christina Dugan from the Las Vegas Chamber of Commerce. Ms. Dugan asked the Committee to consider the impact of the business license tax on the smallest businesses. She declared that small businesses represented more than 85 percent of the membership of the Chamber of Commerce. She said the Chamber of Commerce felt that relief should be provided for small business. She added that the Chamber had quite a few ideas for measures that could be taken to accommodate these businesses, and that she looked forward to working with the Committee to make that happen.
Chairman Parks asked Mr. Capurro and Mr. Frediani if they had any comments they wished to make. Neither of them had any comments.
Peter Krueger, Petroleum Marketers & Convenience Store Association, a statewide trade association representing independent convenience stores throughout Nevada, introduced himself and Mike Zunini, Convenience Store Operations Manager with Winner’s Corner, one of the larger convenience store chains in northern Nevada. He announced that his association would support the recommendations of the Governor’s Task Force on Tax Policy regarding a 40 percent increase in the business license tax, which the members thought was a fair and equitable way to broaden the base of the taxes. He asked Mr. Zunini to address the employee side of the convenience store issue.
Mike Zunini, Berry-Hinkley Industries, Reno, Nevada, introduced himself as the operations manager for a chain of 33 convenience stores across northern Nevada. He listed the locations of a few of the stores. He described a typical convenience store as having 8 to 12 employees, with a store manager and an assistant manager who covered for the manager on weekends and evenings, and entry-level cashier positions. He noted that, due to the low wages they had to pay, there was a high turnover rate, and approximately 80 to 85 percent of the employees worked full-time in an attempt by the stores to develop long‑term employees.
Chairman Parks asked Mr. Krueger if he supported the increase in the business license tax from $100 to $140. He observed that A.B. 204 would triple that tax, and asked for clarification of Mr. Krueger’s position. Mr. Krueger responded that his group took a slightly different tack than some of the other groups in that they were not in favor of the language in A.B. 204, but recognized that they had a stake in Nevada. He remarked that convenience stores were very labor-intensive, and that a doubling of the tax would make continued operation of marginal stores questionable.
Chairman Parks asked Mr. Zunini if the 8 to 12 employees he had cited were full-time equivalents. Mr. Zunini answered that if he understood correctly, and 36 hours per week was considered to be the equivalent of a full-time employee, the answer was yes. He explained that the convenience stores were open 24 hours per day unless a situation forced them to close for a shift, as had happened recently in their store in Hawthorne. He went on to say that the chain tried to use full-time employees, as it was difficult to find the right type of people to work in their stores. Chairman Parks speculated that each store must be paying roughly $1000 per year, and asked if Mr. Zunini had the actual numbers for the business activity tax. Mr. Zunini’s response was that the chain had a total of about 315 employees, and the total BAT would be that number times $100.
Michael Pennington, representing the Reno-Sparks Chamber of Commerce (RSCC), rose in opposition to A.B. 204 on behalf of the Board of Directors and its members. He introduced Harry York, Chief Executive Officer, Reno-Sparks Chamber of Commerce, who had come to the table with him. Mr. Pennington announced that, given the state of the national and state economy and the information presented by the Governor’s office the previous Tuesday, the 2100 members of the Reno-Sparks Chamber of Commerce believed it was imprudent to place undue burdens on the business community at the current time by tripling the business activity tax. He maintained that the Rainy Day Fund was created to assist taxpayers and working families during critical times such as those that were currently being experienced, and said the RSCC recommended the Committee look at restructuring the tax system in one package for a long-term perspective. He said those he represented understood the hardships Nevada was facing, and affirmed that they stood ready to lend their support for a credible long-term solution to the structural deficit. He said that in order to accomplish that mission, however, it was critical for the business community to understand and know the amount of the deficit so that they might become part of the solution. He offered to answer questions.
Assemblyman Marvel asked if Mr. Pennington and those he represented were opposed to any increase in the business activity tax. Mr. Pennington replied that the RSCC Board of Directors could not support any increase in the business activity tax, but that they were looking at what their options might be for long-term solutions. Mr. Marvel asked again if they had precluded an increase in the business activity tax, and Mr. Pennington reaffirmed that they had at that time, yes.
Larry Osborne rose in opposition to A.B. 204, particularly Section 1. He introduced himself as Chief Executive Officer of the Carson City Area Chamber of Commerce, which had approximately 1000 members, 80 percent of whom were very small businesses with 5 or fewer employees. He stated that the American economy was very tenuous throughout the community, the state, and the nation. He said that the unemployment rate in Carson City was currently about 5.2 percent, slightly higher than the state average. He said local businesses were very concerned with what was happening, and that a tripling of the “head tax” would have a negative impact on the state’s economy. Mr. Osborne expressed the feeling of the Chamber that the tripling of any tax would be unjustified. He said they supported the recommendation of the Governor’s Task Force for a 40 percent increase to $140. He added that the Carson City business community was also prepared to accept other ideas and alternatives on how to share in the state’s growing need for revenue. He speculated that many of those ideas had yet to be presented. He stressed that Carson City businesses would be willing to step forward and help contribute their share in the needs of the state, but that they did not support A.B. 204 as written.
Chairman Parks remarked that inflation had eroded the purchasing power of every dollar of revenue, and that increasing the business license tax from $100 to $140 would, in effect, be keeping pace with inflation. Mr. Osborne stated that he did not necessarily concur with the Chairman’s assessment. He conceded that it might be so, but said he did not have those numbers in front of him. He said he did not know if that was the basis of the Task Force’s recommendation.
Carole Vilardo, representing the Nevada Taxpayers Association, stepped forward to oppose A.B. 204 for numerous reasons. First, she said, was that in 1991, at the request of the Association, two bills were put through on expenditure reform, one of which was the Rainy Day Fund. She stated that addressing a short-term solution requiring tax increases before using the Rainy Day Fund was premature. She commented that she would have expected to see a resolution the first week of session since there had been concern about cash flow and revenue. She asserted that the purpose of the Rainy Day Fund, which currently had $136 million in it, was to carry the state and maintain a base level of support for the services that had to be provided. That was, she said, the key basis for her opposition, as she saw an obligation to use the Rainy Day Fund before resorting to raising taxes. Ms. Vilardo said that if any short-term fixes had to be done, she was not sure how much money would be needed once the amount that had been used from the Fund was calculated in.
Ms. Vilardo then went on to talk about the cigarette tax in Section 5 of A.B. 204. She stated that it was unrealistic to project how much revenue would be generated in one quarter. One reason for this, she said, was that the text of the bill was available to the public and, she added, if she were a distributor or wholesaler of cigarettes, she would have gone the week before and bought as many tax stamps as she could possibly afford, enough to carry her through the end of the fiscal year. As the tax stamps were the state’s source of revenue, she stated that she did not believe Nevada would actually see any additional revenue from a short-term increase in the cigarette tax. The second reason she thought revenue projections were unrealistic was that even if tax stamps were not bought in advance, Internet sales would have to be taken into account. She explained that there had been discussion about getting revenue from Internet sales, and there was, in fact, a streamlined, simplified tax procedure in the works that was designed to accomplish just that. She commented that Nevada was fortunate that Indian reservations in the state were not selling cigarettes online, so people buying cigarettes at a tribal smoke shop would pay a price comparable to that at any other outlet. However, she added, tribes in other states were selling online, and it was very easy to go on the Internet and purchase cigarettes from them. She referred to the increase of the cigarette tax as a problematic issue, saying that it was possible that it would not realize the same amount or revenue as was projected for the alcoholic beverage tax.
Chairman Parks interrupted Ms. Vilardo to inform her that the Committee was taking testimony on A.B. 204 section by section. She apologized, but Chairman Parks observed that she had not been in the room when he had made that announcement.
Chairman Parks asked Ms. Vilardo for her comments on Section 1. Ms. Vilardo declared that she thought the rate was entirely too high, that it was “very chilling,” and that if the bill were passed there were a number of construction contracts and public works contracts that did not have escalating clauses. Tripling the business license tax, she said, would have an impact on their bids, preventing them from receiving the money they had anticipated. She pointed out the state normally provided exceptions to firms that had non-escalating clause contracts, but that A.B. 204 did not contain that provision.
Ms. Vilardo apologized again for speaking out of turn about the cigarette and liquor taxes, but added that it was very difficult when both houses had committees hearing the same bill at the same time. Chairman Parks sympathized and thanked her for her testimony.
Assemblyman Anderson expressed concern about draining the Rainy Day Fund. He reminded Ms. Vilardo that if the opportunity to replenish the Fund was missed, the cycle of decline continued, and the Fund was exhausted, the Legislature would not meet again until 2005 to put more money into it. He asked if the Committee would not be well advised to make an effort to at least put some money into the Fund. He worried what the state would do if the Fund ran dry. He envisioned schools closing and other services shutting down entirely.
Ms. Vilardo replied that the purpose of the Rainy Day Fund was to cover the shortfall. She added that A.B. 204 would provide a short-term fix for a three‑month period. She stated that a replacement was calculated within the revenues from the other tax bills, which would start as early as July 1. She explained that $50 million was allocated within the budget each year to replenish the fund. Her suggestion was take the opportunity to adjust the numbers in the immediate fixes contained in the long-term bill to make sure they would replenish the Rainy Day Fund if it became apparent that the Economic Forum’s projections were incorrect. She stated that the purpose of the Rainy Day Fund, in the opinion of the Nevada Taxpayers Association, and as such funds were used in other states, was to be the first point of coverage before raising taxes. She added that the opportunity was there to put more money in over the next biennium.
Assemblyman Anderson responded that he did not want to debate the issue with Ms. Vilardo, but that their views on how the Rainy Day Fund would be used and the potential for refilling it, should revenue fail to live up to expectations, differed greatly. He reiterated his concern that the Fund could run completely dry, and said that much depended on what the Committee on Ways and Means did with the budget. He stressed that he was concerned about abandoning the Rainy Day Fund and letting it run completely dry before considering raising taxes to replenish it. He stated that he found the other choices very scary in terms of loss of services. He said the Legislature could fix it now, but that they would be gone in another 83 or 84 days.
Ms. Vilardo was reluctant to belabor the point, but said she wanted to visit more with Mr. Anderson on the subject.
Assemblyman Griffin noted that Ms. Vilardo had been opposed to tripling the business license tax and asked if she had any comments about Mr. Krueger’s support for raising the business activity tax to $140 annually, or an increase of $10 per full-time employee for the quarter. Ms. Vilardo replied that the Nevada Taxpayers Association had made a formal presentation to the Task Force supporting just such an increase. She observed that there would always be those who were opposed to taxes, even within the Taxpayers Association, but that the Association board agreed to accept a raise that was within a normal range. She said that inflation since the $100 business activity tax had been established had been 38 percent, and that had been the basis for the Task Force’s proposed $40 increase to meet needs. She expressed a possible willingness to accept a temporary doubling of the BAT, followed by a return to the $140 figure.
Lucille Lusk, Cochairman, Nevada Concerned Citizens (NCC), rose in opposition to A.B. 204. Ms. Lusk said her remarks regarding A.B. 204 were more general in nature, being more focused on the impact of tripling the BAT (Exhibit D). Nevada Concerned Citizens, she noted, felt that speculation about the need for an immediate “bridge” tax had been laid to rest in the joint taxation meeting the previous Tuesday. She stated that there was not a deficit projected through the end of the fiscal year. The state, she said, could use money from the Rainy Day Fund and still have $106 million left at the end of the fiscal year, which was $6 million more than was required by law. She said they felt the Rainy Day Fund could be replenished as part of the long-term plan, which there was adequate time to address.
Ms. Lusk stressed that it was important to note that the Governor’s request for immediate revenue seemed to be based on the fear that another incident like the terrorist destruction of the World Trade Center on September 11, 2001, or a war with Iraq could reduce revenue further. She pointed out that if a greater need arose to provide for such an eventuality, the NCC would urge the Governor and the Legislature to include a larger end-fund balance with serious protections in the long-term plan, to be used only in the event of such a disaster. Ms. Lusk claimed that the most important thing to recognize was that if such a disaster were to happen, the people of Nevada would also be in very precarious financial circumstances. She said there would be lay-offs of workers, business bankruptcies, and people who were really struggling. She stated that the people’s needs had to be considered as well as those of the state. She said she did realize that the Legislature was considering people’s needs, but merely wished to point out that there were needs that could be met by government and needs that were met by individual work, and that both needed to be considered in balance. The NCC was quite relieved, she noted, that the need for revenue was not so severe that the Legislature was forced to rush to judgment on the matter, but that there were a couple of months available in which to work it out the details. Ms. Lusk encouraged the Committee to proceed very cautiously on the bridge tax bills, as the NCC did not feel that a case had been made showing a need for them.
Ms. Lusk pointed out that her handout listed seven strategies for economizing. Number five, she said, was to require school districts to spend a minimum of 65 to 70 cents of every education dollar directly in the classroom. She stated that many teachers and parents who had attended a meeting at the Clark County School District the previous night had made it very clear that they considered the proliferation of specialists, consultants, and mid-level administrators to be impeding, rather than improving, education. She went on to say that a great many people would rather see cuts made in those positions than in high profile, student-centered programs that were valuable to students, such as sports, the arts, and programs for the academically talented. She said the Legislature could require that that money go directly to the classroom.
Ms. Lusk assured Committee members that Nevada Concerned Citizens would work with them to develop long-term tax increases if, after considering the strategies outlined in the handout, the Committee still felt that they were needed. She reemphasized that tax increases should not have an impact on the necessities of life for citizens during times of economic downturn. Referring to the tripling of the BAT included in A.B. 204, Ms. Lusk pointed out that any tax on business would ultimately be handed down to families either through higher prices, lost jobs, or lower salaries. She noted that the casinos were in support of increasing the BAT, but that they were attempting to make their cases by pointing out national and regional pricing structures of large corporations. She asked the Committee to remember that small and medium-sized businesses were the backbone of Nevada and of the country, and that Nevada-based businesses would not be able to spread the increased tax burden out over a regional pricing structure and would be the ones most seriously affected. She claimed that if these businesses raised their prices, Nevada families would bear the burden. She emphasized that if small businesses were not able to raise their prices due to competition from regional and national corporations, they would be driven out of business, leaving Nevadans with fewer choices and a weakened economic structure. NCC, she said, urged the Legislature not pass the bridge tax bill, but instead to consider balancing economizing in state and local governments with the minimum essential taxes.
John Wagner, representing two groups, the Burke Consortium of Carson City and a volunteer group called the Nevada Republican Assembly, said both groups, particularly the Burke Consortium, felt the Governor had not made a case for his Budget, much less for his tax packages. He said they felt the budget had not been cut to bare bones, and that cuts should be addressed before new taxes and tax increases were discussed. He stressed that the BAT tax was a hard tax to take, especially for small businesses. He said he hoped businesses would be out hiring people, not having to wonder if they could afford to, given the high business activity tax. He stated that out of all the taxes, he would prefer to see the BAT done away with.
Chairman Parks remarked that the Committee was constantly told that there were many places to cut the budget, but that they were not given such specifics as where to cut or how much. He asked Mr. Wagner if he had looked at the Governor’s Budget to locate areas of “fat” that he would recommend cutting. Mr. Wagner cited a recent newspaper article that listed some programs, including a breastfeeding support group, the Wee Sing and Play music group, baby calming up to four months old, and mothers of multiples support groups, which were all part of the Family-to-Family Connection program. That program, he said, included roughly 150 people and cost about $1.5 million. He stated that he was a parent and a grandparent, and that he and his parents had raised children without having anything like that program. He said people had come up saying what a wonderful program it was, but that he could not see how anyone could need such a program, especially a breastfeeding support group. Pediatricians in the hospitals, he claimed, would show how to breastfeed if it was needed. He commented that he considered spending $1.5 million per year on the program a joke, and that the program was his pet peeve and should be discontinued.
Chairman Parks asked Mr. Wagner if he had compiled an extensive list of cuts throughout the budget. Mr. Wagner said that he had briefly been watching some of the ones that Assemblyman Bob Beers had listed on his Web site, but that he had not put together a long list. He mentioned that perhaps the state could farm out the maintenance on state-owned vehicles to companies that paid taxes, rather than doing it themselves. He stated that there were others, but that he had not had a chance to research them.
Chairman Parks thanked Mr. Wagner and asked if there were any further questions for him.
Assemblywoman McClain said she had a problem with the figures that Mr. Bacon had handed out at the previous meeting and with the figures that had been presented at the current meeting. She quoted Mr. Bacon as having said that tripling the BAT would yield an additional $26 million, but said his handout showed the same increase yielding an additional $41 million. Today, she said, Mr. Bacon had said that doubling the BAT would yield an additional $20 million. She said that even if tripling it would yield another $40 million, it appeared to her, by doing quick mental arithmetic without a calculator, that doubling it would yield only an additional $13 million. She asked for assistance with the arithmetic.
Ted Zuend observed that the current BAT raised about $80 million per year or $20 million per quarter, so doubling it should yield an additional $20 million per quarter, and tripling it should yield an additional $40 million. He agreed with Ms. McClain that the $26 million figure they had been given at the earlier meeting had been incorrect.
June Burton came to the witness table in opposition to A.B. 204. She stated that she and her husband had an auto repair business with 2-5 employees. She said that tripling the business activity tax would have quite an impact on their business. She added that they currently struggled to provide health care for their employees, and that tripling the BAT could place an additional $1,000 burden on them. She stressed that it would make it very difficult, if not impossible, to provide health care for employees or to give anyone a raise. She asked if there was any possibility of an exemption for small businesses like theirs with fewer than ten employees. She stated that the tax increase would not hurt big corporations with hundreds of employees, but that it would have a great impact on businesses with only two or three employees.
Assemblyman Mortenson stressed that he was simply looking for information and asked Ms. Burton not to infer from his question that he was for or against the bill. He asked the average annual wage of her employees. Ms. Burton replied that it was around $10 per hour, or approximately $20,000 per year. Mr. Mortenson pointed out that the $75 she would have to pay per employee was only 0.3 percent of an employee’s salary, which, he said, was not a lot. Ms. Burton conceded that it was not a lot, but said that when the business was already struggling week to week trying to give someone a $50 advance or coping with the rising price of gasoline, even $5 could make an amazing impact.
Assemblyman Goldwater stated that he was not necessarily in favor of the bill. He asked Ms. Burton where her employees went when they got sick. She replied that they went to the emergency room and ran up bills. Mr. Goldwater asked if they had any employees that had children. Ms. Burton replied that most of the time they did not, but that they occasionally had an employee or two with children. Mr. Goldwater then asked if the children were in school. Ms. Burton replied that they usually were not. She added that she and her husband had children, and that her family had no health care, either. She commented that she thought that one of their current employees had a family. Mr. Goldwater asked if their employees were full- or part-time. She replied that they were full-time. She added that the wife of one of them had health care through her employer. Mr. Goldwater stated that his point was that the public was paying for the employees and their families, and that the question was what would be the fairest means of paying for them in the long run.
Chairman Parks asked if anyone else wished to speak on Section 1 of the bill. As no one did, he moved the discussion to Sections 2 and 3, which both dealt with the liquor tax. He invited anyone who wished to speak on those sections to come forward.
Jan Gilbert, representing the Progressive Leadership Alliance of Nevada (PLAN), said she was supporting the whole bill. She stated that PLAN believed that the current period of emergency called for drastic measures. She said she realized A.B. 204 was only a three‑month bill, and while it could create a difficult period for small businesses, the need existed to create a base for any emergency that should arise. She pointed out that some measures in the works at the federal level could cause serious complications for the state of Nevada, possibly within the next three months, including partially funded mandates. She commented that caseloads had increased in programs that served poor people, and that those caseloads did not rebound immediately with a rebound in the economy, but that there was a certain lag time. She said PLAN had some serious concerns about Nevada’s needs, and they felt A.B. 204 was the right thing to do. She noted that the liquor tax had not been raised in 18 years; the cigarette tax had not been increased in more than 14 years; and although a broader-based business tax was preferred for the long term, the proposed “bridge tax” was the way to go for the three-month period. She urged the Committee to support A.B. 204. She distributed a handout from the American Heart Association (Exhibit E).
Bonnie Parnell, speaking on behalf of the League of Women Voters of Nevada, rose in support of A.B. 204. She praised the Governor’s Task Force on Tax Policy, Governor Guinn, and the Senate and Assembly Committees on Taxation for taking on the sensitive issue of tax reform. She explained that the League’s tax policy had been arrived at by attending every Task Force meeting, debating, drafting and redrafting fiscal policy, and having all members accept the policy. She claimed that the League was a nonpartisan, nonprofit organization concerned with the prosperity and fiscal integrity of the state.
Ms. Parnell offered support from the League of Women Voters for certain provisions of A.B. 204. Ms. Parnell stated that the League supported increasing liquor and cigarette taxes, the business license tax, corporate registration fees, and property taxes that were allocated to the state, and appropriating funds for revenue collection. She commented that, in gauging the vulnerability of the Rainy Day Fund, more issues had to be considered than simply more terrorist attacks such as the one that destroyed the World Trade Center, issues such as geopolitical affairs, the world economy, and the stock market. She said that actions taken by the Legislature during the current session would have a dramatic affect on local government entities, such as Washoe County School District having to make cuts and Carson City’s ending fund balance being wiped out. She asked the Committee to consider decisions made on a greater-than-state level and their impacts on local governments. She remarked that the League anticipated that legislation would be modified after lengthy debate and negotiation and therefore the League was prepared to support new initiatives that included the above-mentioned tax increases. She expressed hope that the League’s support would be of help to the Committee in meeting its current challenge.
Alfredo Alonso, Lionel, Sawyer & Collins, representing R.J. Reynolds and the Nevada Beer Wholesalers Association, stated that he wanted to put on the record that those he represented understood the need for considering the issue of raising liquor and cigarette taxes. He added that if the Legislature determined that there was a need for additional revenue, it was important that they look at amounts of anticipated revenue in the light of diminishing returns. With cigarettes and liquor, he said, Internet and across-the-border sales could actually create a situation in which revenues could actually decrease. He invited questions from the Committee.
Assemblyman Anderson asked Mr. Alonso if R.J. Reynolds would be willing see an increase in the cigarette tax. Mr. Alonso replied that they were willing to see a tax increase if the need was there, but that they did not want to see such a high increase that the state, the company, and their employees would lose because people would go elsewhere to buy cigarettes. He stated that they wanted to be part of the debate.
No one else wished to speak on Sections 2 and 3 of A.B. 204, so Chairman Parks opened discussion on Sections 4, 5, and 6. Those sections, he pointed out, dealt with increasing the cigarette tax.
Assemblywoman McClain expressed a wish that the person representing the convenience stores were still around, because she felt that, with the liquor tax and the cigarette tax, the convenience stores were getting a “triple whammy.” Chairman Parks remarked that if they also had restricted slots, they could be hit with a “quadruple slam.”
Ms. Vilardo explained that some people had gone down to speak before the Senate Committee on Taxation, but that someone would return. She voiced her opposition to the level of increase in the cigarette tax proposed in A.B. 204. She stated that increasing the tax to stop people from smoking was punitive taxation, and a tripling of the tax was starting to become punitive taxation. She said it was wrong, though, to then turn around and project additional revenue. She said Nevada could not eat its cake and have it, too. She pointed out that other committees were considering legislation that would restrict where people could smoke, which could also have an impact on the same issue.
Ms. Vilardo added that raising liquor and cigarette tax to the point of diminishing returns would also have an impact on the amount of sales tax received, because cigarette and liquor taxes were excise taxes, and the sales tax went on top of them. She stated that the last time the cigarette tax was increased, it took two years for revenues to rise to projected levels. Ms. Vilardo stated that that demonstrated the law of diminishing returns. She added that at that time there had been no Internet sales. She emphasized that whether it was part of the bridge tax or part of the long-term solution, the proposed increase was entirely too high.
She said she could send the Committee the report done by the Nevada Taxpayers Association on how that tax increase could result in revenue losses, rather than the projected increases. She reiterated that the tax increase could have a negative impact on sales tax revenues. She commented that that was problematic. She said the increase in the cigarette tax would also hit low‑income economic groups hardest.
Assemblyman Griffin recalled that Ms. Vilardo had mentioned cigarette dealers rushing out to buy tax stamps at current rates. He asked at what point that would be done. He added that he did not understand exactly how that tax was collected. He asked if a run on cigarette tax stamps would result in a brief period of increased revenue.
Ms. Vilardo affirmed that a run on tax stamps would, indeed, cause a sudden increase in revenues followed by a lag until dealers needed to buy more stamps again. She commented that Dino DiCianno from the Department of Taxation would clarify that point shortly. Mr. Griffin asked how long that lag time might be. Ms. Vilardo responded that she would rather get that information for Mr. DiCianno rather than rely on her memory.
Dino DiCianno, Deputy Director of the Department of Taxation, disagreed with Ms. Vilardo’s statement that there would a mad rush to purchase tax stamps. He said the Department had not experienced that, and it would be virtually impossible for that to happen, as the Department was budgeted for only a certain number of dollars for the purchase of cigarette stamps within a budget year. He explained that even if a company came forward requesting a huge number of stamps, they simply would not be available.
Ms. Vilardo said she recalled that the last cigarette tax increase had caused a spike in tax stamp purchases. She noted that someone might not be able to purchase all the stamps they wanted, but that purchases could be accelerated until the Department ran out of stamps. Mr. DiCianno agreed that she was correct.
Elisa Maser, representing the Nevada Tobacco Prevention Coalition, stated that the Coalition supported the increase in the cigarette tax for three reasons. The first reason, she said, was public health. She claimed that every state that had significantly raised its cigarette tax had seen decreased tobacco use, which helped the budget in the long term through savings in health costs. She noted that specific figures could be found in her handout (Exhibit F). She claimed that the people most likely to quit smoking, smoke less, or not start smoking because of the higher cost were young people, low-income families, minorities, and pregnant women.
Ms. Maser maintained that although tobacco use declined due to an increase in the cigarette tax, revenues still went up because the tax increase was so high. She said this had been occurring on a national level; although tobacco usage had declined following 62 percent federal tax increases since 2000, she noted that revenues had risen more than 75 percent. California, she said, had just increased its cigarette tax by 50 cents and was contemplating raising it another $1 or $2, having found that only 5 percent of those who continued to smoke switched to buying in smoke shops, on the Internet, or in Nevada.
Finally, she said, the cigarette tax increase was supported by 70 percent of all Nevadans, especially if part of that tax was used for tobacco prevention programs. She stated that a majority of Nevadans in every part of Nevada supported such an increase, more than any other type of increase or program cuts. She invited questions from the Committee.
Assemblywoman Gibbons asked if the Coalition had worked with the Governor’s Office regarding using part of the cigarette tax revenue to help smokers quit. Ms. Maser responded that Nevada currently spent $4 million on tobacco prevention. She said they had not worked directly with the Governor, but that a tax increase was the most effective way to get people to stop smoking and avoid the issue of it being a punitive situation.
Assemblyman Griffin asked if the studies cited by Ms. Maser were genuine population studies of how many Nevadans were smoking, or if the numbers could have been driven by people from elsewhere buying cigarettes in the state. Ms. Maser said that the studies were part of the Centers for Disease Control’s programs, and that she was not sure if they were based on tax or consumption, but that the declines reported were consumption declines as opposed to purchase changes. She pointed out that the studies did not include Nevada, as they were studies involving states that had recently increased their cigarette taxes, and Nevada had not increased its cigarette tax in 14 years.
Mary Lau, Executive Director, Retail Association of Nevada, rose in opposition to the proposed increased in the cigarette tax. She stressed that the Retail Association was opposed to any bridge tax. About increasing the cigarette tax in particular, she stated that the Retail Association had very strong concerns about Nevada remaining competitive in the market and about cross-border sales. She said that “sticker shock” would set in following a large cigarette tax increase, and revenues would drop. She added that revenues would stabilize eventually, but that Nevada had a large cross-border market from other states. When people came to visit from other states with higher taxes, she said, they would often buy cigarettes for themselves, their families, and friends.
Ms. Lau stated that the Retail Association had initially decided that 20 cents more per pack was as high as the cigarette tax could go, but that they had later looked at 35 cents as the highest the increase could be without problems of diminishing returns. She offered to share large packets of documentation with any interested Committee members. She commented that the Retail Association supported the proposed liquor tax increase included in the Governor’s large tax package, but reiterated that the Association opposed the bridge tax bill.
Chairman Parks remarked that the cigarette tax in Arizona was currently $1.18 per pack. If Nevada’s tax were tripled, he said, it would still be competitive with Arizona. He added that Idaho had the lowest cigarette tax at $0.28 per pack. He asked Ms. Lau if she could imagine a run to Idaho to buy cigarettes if Nevada’s tax were raised to $1.05. Ms. Lau said she did not anticipate a run to Idaho, but commented that there was an entire philosophy of marketing concerning what people did and when, and noted that Nevada had other attractions to draw visitors across the border where they could then buy their cigarettes.
Ms. Lau stated that it was important for Nevada to maintain that edge and remain a good shopping place for a good bargain. She said that most people did not stop smoking, and that if anyone wanted an explanation for a decline in consumption, they often only had to look at neighboring states. Ms. Lau went on to say that Internet sales were not currently a big problem in Nevada, but added that there were simple legal fixes available if they did become a problem. She said that according to every indicator available to the Association, tripling the cigarette tax was too much.
Peter Krueger, State Executive, Nevada Petroleum Marketers & Convenience Store Association, and Mike Zunini, Convenience Store Operations Manager, Berry-Hinckley Industries, came to the witness table. Mr. Zunini stated that he managed a chain of 33 Winner’s Corner convenience stores across northern Nevada, employing approximately 350 people. He said that two of his biggest daily concerns were employee safety in the stores and theft within the stores. One issue that had not been addressed in regard to tobacco, he said, was that due to increased taxes on tobacco over the years, cigarettes were becoming a commodity comparable to gold. He clarified this by pointing out that two trailers full of cigarettes had been stolen recently in northern Nevada. Mr. Zunini commented that beer and cigarettes comprised 50 percent of the convenience stores’ inside sales. He expressed concern that increasing taxes on cigarettes would result in more armed robberies in the stores, more trailer hijackings, and a dramatic increase in “theft shrink.” He said it would eventually come down to the convenience store chain having to make a decision as to whether or not to stay in business at particular locations. He said that there were very profitable stores in the chain, as well as marginal stores in some neighborhoods. He observed that they were being hit with “sin taxes” and proposed fuel taxes, and that there was a good chance that the marginal stores, especially those in rural areas, would be taxed out of existence.
Assemblyman Arberry asked if it was illegal to break down a pack of cigarettes and sell the cigarettes individually. Mr. Zunini answered in the affirmative. Mr. Arberry asked how that could be controlled if it got started. Mr. Zunini asked for clarification. Mr. Arberry stated that raising cigarette taxes could put them out of the price range of some people, and that stores might not be aware that packs were being broken down to sell individual cigarettes to those who could only afford to buy one or two at a time. Mr. Zunini replied that that issue would fall under the heading of “shrink,” and that a store would address the issue and possibly terminate the employee involved.
Assemblywoman McClain expressed surprise that beer and cigarettes accounted for 50 percent of convenience store inside sales. Mr. Zunini responded that those were typically the two biggest sellers across the country. He said that they also sold a lot of gasoline, but that, contrary to popular belief, they did not make significant money on gasoline sales. He commented that sometimes, because of pressure from competition, they were forced to sell gasoline below their cost. In response to Ms. McClain’s question about the restricted slot tax, Mr. Zunini said that tax would also affect convenience stores. He explained that some of the stores had a few slot machines, which were handled by a separate company, and the proposed tax would affect those stores.
Peter Krueger referred Committee members to a handout from California’s counterpart to the Legislative Counsel Bureau (Exhibit G). He observed that tax evasion rates in California had changed very little while taxes had remained steady, but that a 50 percent increase in the tobacco excise tax, together with the increased product price following the national tobacco settlement, had resulted in a doubling of the tobacco tax evasion rate in California. He stated that California’s Board of Equalization had found that, in the past ten years, that rate had risen to where tobacco tax evasion currently accounted for 21 percent of tobacco sales in California. Mr. Krueger stressed that the 9.1 percent increase in Nevada’s cigarette tax revenue during the past year was felt to be due largely to increased taxes in neighboring states. He stated that sales volumes in Washington, Utah, and Oregon had decreased as much as 18.6 percent during that same time period. Even Hawaii’s sales, he added, had dropped by 10.6 percent.
Mr. Krueger pointed out that at any given time, the inventory in a convenience store was worth roughly $3,000, making the amount in the till rather insignificant in comparison to the value of the cigarettes in stock. He added that, should the proposed cigarette tax increase pass, Internet sales would also become a problem. He observed that the liquor tax increase in A.B. 204 was based on inflation since the last increase, making it, in effect, an ad valorem tax rather than a unit-based tax. He claimed that the application of the same standard to cigarettes would result in not quite a doubling of the current tax. He reaffirmed his opposition to the cigarette tax increase proposed in A.B. 204. He emphasized that it could become a real small-business issue, and that people in many rural areas relied on convenience stores for all their convenience items.
Assemblyman Mortenson noted that he had understood Ms. Vilardo to say that it had taken nearly two years after the previous cigarette tax increase for revenue to reach the predicted level. He asked Mr. Krueger to reconcile the difference between Ms. Vilardo’s statement and Mr. Krueger’s claim that sales had dropped. Mr. Krueger stated that he had not been present to hear Ms. Vilardo’s testimony, and he requested that Ms. Vilardo explain her position first, and that he be allowed to respond afterward.
Ms. Vilardo explained to Mr. Mortenson that both things had, in fact, happened. She stated that the first thing projected to happen with a tax increase was an equal increase in revenue. With the last cigarette tax increase, she said, that did not happen for two years. Separate from that, she went on, sales of cigarettes at tribal smoke shops in Nevada rose from 11 percent of total sales to 22 percent by 1990. She offered to provide the Committee with all pertinent facts and figures. She added that per capita consumption had dropped from 135 packs in 1996 to 99 packs in 2000.
Assemblyman Mortenson said he had been told that cigarettes sold in tribal smoke shops were subject to the same tax as cigarettes sold elsewhere, and asked why sales in smoke shops had increased. Ms. Vilardo replied that she thought it was due to rebellion and the perception that, because it was an Indian smoke shop, the price might be less. She pointed out that a person purchasing cigarettes at a grocery store would pay premium price, while the price in a smoke shop was comparable to that of a cigarette dealer or a discount price. She stressed that she saw Internet sales as an even bigger problem. She commented that sales at Indian smoke shops were currently down to only 12 or 13 percent of the market.
Assemblyman Grady commented that Yerington had a Winner’s Corner, and that from 10:00 p.m. till 6:00 a.m., that was often the only place to purchase gasoline between Carson City and Tonopah, or possibly even the Clark County area. He cautioned that taxing convenience stores out of business could have a dramatic impact on rural areas. He emphasized that that should be a real concern.
Paula Berkley, representing the Reno-Sparks Indian Colony, offered to answer some of the previous questions concerning tribal smoke shops. She stated that before the tax increase, discount cigarette sellers, no matter who they were, including the smoke shops, got discounts from the manufacturer; that was why it had been much cheaper to purchase from a discount seller. She related that convenience stores had then gone to the manufacturers and demanded the same discount prices as the discount sellers were paying. Manufacturers, she said, had capitulated, which resulted in a decline in the smoke shops’ market share coupled with an increase in the market share of the convenience stores. She referred the Committee to her handout (Exhibit H).
Ms. Berkley declared that it was, indeed, illegal to sell individual cigarettes, as Assemblyman Arberry had suggested. She added that regressiveness was an issue. She pointed out that generic cigarettes were currently selling for the same price that Marlboros had been selling for 15 years earlier, and that developing generics had been one smart move made by the tobacco companies in dealing with higher taxes and prices and keeping their customers smoking. Another smart move they had made, according to Ms. Berkley, was to give continued discounts on brand-name cigarettes in order to offset the $2.9 billion in taxes that had been added in the past year. She mentioned that cigarette manufacturers had raised their prices to wholesalers by $14.95 per carton since 1994, ostensibly to pay for the negotiated settlement. She stated that her testimony was for informational purposes only and that her position on A.B. 204 was neutral.
Buffy Martin, representing the American Cancer Society, came forward in support of the tobacco tax increase proposed in A.B. 204. She read from her prepared testimony and referred to the attached handouts (Exhibit I). She claimed that some of the benefits of Governor Guinn’s proposed $0.70 per pack tax increase would be:
Ms. Martin stated that health care costs in Nevada that were directly related to tobacco were estimated at $440 million per year, and that those costs in Medicaid programs alone were $96 million annually. She pointed out that those Medicaid costs alone were $34.8 million more than Nevada’s $61.2 million in annual tobacco tax revenue. Ms. Martin observed that increasing the tobacco tax was common sense, and that voters overwhelmingly supported such an increase. She urged the Committee to support the tobacco excise tax increase.
Chairman Parks asked if anyone else wished to speak on Sections 5 and 6 of A.B. 204. As no one wished to, he moved the discussion to Section 7.
Daniel Meyer, Owner, Comstock Games, Incorporated, moved forward to the witness table in opposition to Section 7 of the bill. He stated that his company was a small slot route in the Reno area. He apologized for not having any handouts, as he had passed them all out at the Senate hearing, but he promised to provide them later (Exhibit J).
Mr. Meyer noted that the Governor had proposed a 33 percent increase on all restricted slot accounts regardless of size or ability to pay. He stressed that he believed any such across-the-board increase to be regressive.
Mr. Meyer stated that the number of slot route businesses had changed little over the past 20 years, but that the largest companies had expanded to 8,000 to 10,000 machines. The large companies’ control of supply and demand by product manipulation and price control, he said, had reduced the competitive nature of the business. The large companies, he stated, had the advantage in that they were able to eliminate competition by offering larger accounts, such as Scolari’s and Raley’s, a 90:10 split of the winnings generated by their games. Mr. Meyer noted that smaller slot route operators had a much higher cost of operation and had to work harder for less, and so were not able to offer the same deals. He pointed out that small slot route operators were important because they provided added revenue for small businesses in Nevada, allowing them to survive in the marketplace.
Mr. Meyer claimed that the few largest slot operations controlled manufacturing and distribution. He said they had recently notified the smaller slot route operators that products only a few years old, except for those supplied to their casino clients, would no longer be supported, leaving the smaller operators to fend for themselves. He further claimed that the large slot operations had also helped push the Indian gaming movement, thus weakening Nevada’s position in the marketplace. He asserted that the large slot operations should be ruled and taxed as casinos. However, he added, treating small slot route operators the same way would inhibit their ability to operate and provide needed revenue for small businesses.
Mr. Meyer proposed a three-tiered system based on the number of slots in operation during any quarter in a fiscal year. The highest tier would include any operation having 1,250 or more games in operation, which was considered as a casino rather than a slot route, with monthly revenues taxed at a 6.26 percent rate. The second tier, which would consist of those routes with 750-1,249 machines in operation, would be taxed $10 more per machine per quarter, plus $50 for their annual tax.
The third tier would be those operations with fewer than 750 machines operating. The only increase Mr. Meyer proposed for the third tier was a $25 increase in the annual tax. He commented that the third tier would comprise a lion’s share of the slot route operators in the state. He stated that he believed his proposal would bring more revenue to the state, and on a more regular basis. He claimed that his proposal would also require fewer regulations. He added that his three-tier system would allow the “little guy” slightly more room in which to work. He would still have to buy his equipment from his competition, he said, which was difficult to do. He stated that United Coin, the operational arm of Bally Gaming, was operating multi-denominational machines in 7-Eleven stores, but he could not even buy those machines. He said he could not buy ticketless machines like the ones they used, either. He claimed that in order to get those machines, he had to enter into an agreement with his competition and pay $600 per month. All these things, he said, were problems and expenses that he had to deal with, but that his big competitors did not. He stated that he also had to deal with lower-volume accounts, and simply did not have the revenue or buying power that his competitors had. He stressed that those were serious considerations.
Mr. Meyer noted that times had changed, and many of the state’s regulations were outdated and ineffective. He stated that it was time to reevaluate Nevada’s policies and regulations. Common practice, he said, had led to increased regulations and a corresponding lack of competitiveness. He mentioned that there was currently a five-day waiting period to purchase antique slot machines, which could not be operated on the floor, while the consumer could cross the California border into Truckee and buy one without any paperwork.
Mr. Meyer announced that Governor Guinn had not touched on the cumulative effective the proposed taxes would have. He commented that the current economic slowdown and the added cost brought on by previous tax and fee increases had already taken their toll. He predicted that the proposed taxes and tax increases would affect small businesses more adversely than larger businesses. He stated that he resented talk about businesses not paying their fair share, and that the ones who were paying their fair share were the ones not placing demands on the system. Large corporations, he pointed out, had billing and accounts receivable departments outside Nevada, and could avoid paying a state gross receipts tax. He maintained that, through the use of technology, electronically funded transactions, and other accounting methods, large businesses would continue to place demands on the system while avoiding the true cost.
Mr. Meyer concluded by reminding the Committee that the casino industry did not have a gross receipts tax. He said he had enclosed the yearly and monthly tax burden that casinos paid. He stated that both current means of taxation benefited the casinos by decreasing the tax on a per-machine basis while lowering the percentage tax during low-volume months. He claimed that the tax being based on gross win allowed casinos to write off 80-85 percent of their gross revenue. He predicted that the increased competition and high debt loads the casinos had burdened themselves with would make it increasingly difficult for the casinos to maintain their profitability. He speculated that the casinos were preparing to leave Nevada to operate new Indian casinos. He stressed that the Governor’s tax proposal in A.B. 204 would further weaken the only part of the state’s economy that was growing. He said he agreed with Assemblyman Beers that Nevada’s current growth had sustained the state. He stated that it was the $1 billion in new spending that had brought Nevada’s economy to its current crisis, and that the state would benefit from self-evaluation and restructuring. He added that Nevada would continue to grow and diversify as long as it avoided the trap of increasing taxes.
Assemblyman Anderson asked Mr. Meyer if he intended to leave a copy of his presentation for the Committee. Mr. Meyer replied that he would, but that it was not the entire package that he had left with the Senate. Mr. Anderson requested that the record be left open so that Mr. Meyer’s entire packet could be included. He said that the problems of small slot route operators had come up several times in another committee. Mr. Meyer stated that he had learned, through conversations with Bill Bible, that the proposal in A.B. 204 had been geared toward supermarkets, which were primarily International Gaming Technology’s (IGT) and Bally’s routes.
Jim Avance came forward representing the Nevada Retail Gaming Association, which was the slot route operators. A slot route operator, he said, put gaming machines on someone else’s premises under an economic arrangement. He stated that there were currently 61 licensed slot route operators in Nevada, and 2,150 restricted locations. As of October 2002, he said, there were 192,498 non-restricted gaming machines in Nevada, which meant there were more than 15 machines at each location, or the equivalent of a casino. At the same time, he went on, there were 19,999 restricted gaming machines. He agreed with the Committee’s assessment of the tax proposal as a restricted gaming machine tax rather than a slot route tax. Restricted machines, he noted, amounted to roughly 10 percent of the total number of machines, and added that that percentage had been the same 10 or even 20 years ago. What the proposal addressed, he said, were small locations such as bars, convenience stores, and grocery stores. Restricted meant, he remarked, restricted as to number and location. He noted that some were owned by the location.
Mr. Avance stated that, prior to A.B. 204, the slot route operators had adopted a proactive attitude toward taxes. He said they knew they would be facing a tax, and they analyzed what they could do. As good corporate citizens who knew that the Governor’s commitment to education would necessitate additional taxes, the Association had made some comparisons. He pointed out that at that time health insurance had not gone up dramatically and gasoline prices had not risen to current levels. He claimed that all the factors that were causing government to need more money were also happening to businesses.
Mr. Avance stated that slot route operators had gaming machines in small locations throughout Nevada. On a typical day, he said, 100 service personnel drove from location to location, repairing machines, collecting coins, and paying off jackpots. Unlike casinos where, if a machine broke down or someone hit a jackpot, an employee would come and take care of it, or security personnel and a manager would go around every morning to collect the coins, he pointed out that slot routes had to have people drive to the various locations, usually during the day when the businesses were open, and so had the added expense of time and travel. He added that the Gaming Control Board licensed each location independently, and each had to go through a 120-day licensing process.
He said the only way to get more machines on a location was for a new location to be built, and that once it was built, a license had to be applied for. Mr. Avance pointed out that with the Carson City K-Mart closing, 15 machines would have to be taken out and could not be licensed anywhere else until the Gaming Control Board issued a new address-specific license. He said change people would be put out of work, but that, with luck, they would be working in a new location soon.
The tax increase proposed by the Governor in A.B. 204, Mr. Avance said, was aimed directly at restricted locations and route operators. He noted that most of the machines went into places that sold cigarettes and liquor. He stated that convenience stores and bars would be hit hard, as would small slot route operators. He pointed out that when the slot route operators had gotten together a year earlier to decide how much they could pay, they had assumed that the other conditions in their business would remain constant. He made the comment that if legislation that was currently before another committee passed, banning smoking in gaming areas, it would make it very difficult for the slot route operators to pay their increased taxes.
Mr. Avance expressed the belief that there was no such thing as a temporary tax. He noted that voters in Clark County had voted to establish a room tax to finance the building of a convention center in 1961. The tax was supposed to be discontinued as soon as the convention center was paid for, but he said the tax was still in place. He claimed that the taxes in A.B. 204 would likely be very similar. The last gaming tax increase was in 1993, he said, which was different from what the Committee had been told by the Governor’s staff. That tax, he said, had applied only to restricted slot machines. At that time, he said, the slot route operators had agreed to the increase in order to balance the budget. The slot route operators, he went on, had paid their fair share and still did, and were the only ones who were hit with a tax increase in 1993. Mr. Avance stated that when the Association had met during the current session, the members had agreed that they would be willing to pay a 25 percent increase. Looking at the Consumer Price Index, he said, they had calculated that the increase might be as high as 33 percent. After discussion, he added, members decided they could handle the 33 percent. He said they had presented that figure to the Governor’s Task Force on Tax Policy and that, after hearing how that figure had been arrived at, the Task Force had agreed to accept it.
Mr. Avance voiced concern about the many proposed tax increases that would affect the slot route operators. He said they were willing, however, to meet their commitment in the long term, and even in the interim if need be, up to 33 percent. He referred the Committee to his two handouts (Exhibit K), which showed 1987 legislation that increased the license fee for restricted gaming operations and listed 1993 as the last time there had been such an increase; that was what A.B. 204 was building on. He reiterated that it had only been ten years since slot route operators had been subject to a tax increase, and that they were the only people who had been. He added that he had told the Committee what the Association’s bottom line was, and expressed hope that they would not have to reach it.
Chairman Parks asked if it was correct that licensing fees for restricted gaming operations had gone from $35 to $45 in 1987, and then were increased to $61 per slot machine in 1993. Mr. Avance said that was true for small locations with five or fewer machines. Chairman Parks asked if it had gone from $55 to $225 and then to $305 in larger locations. Mr. Avance verified those figures.
Assemblyman Marvel asked if Winner’s Corner owned their machines or if a route operator supplied them. Mr. Avance stated that he believed they owned their machines, but added that he was not certain of that.
Assemblyman Arberry commended Mr. Avance and the Nevada Retail Gaming Association for “stepping up to the plate” in years past when no one else would, and for stepping up to the plate again now to show their commitment to the state. Mr. Avance thanked him.
No one else wished to speak on Section 7 of A.B. 204, so Chairman Parks asked if anyone wished to address the bill as a whole. Ms. Bobby Gang, representing the Nevada Women’s Lobby and the National Association of Social Workers, Nevada Chapter, came forward in support of the bill. She distributed what she said was a copy of what would have been her testimony if she had had more time (Exhibit L). What it basically boiled down to, she said, was that the two groups she represented believed that the state had cut most programs to the bone, and they were very concerned about the rest of the year. She stated they would like to make sure there were funds available for those services necessary for Nevada citizens. She said she understood that there had been talk of borrowing from other state funds, and that the two groups had no objection to that if such action were, in fact, possible. If it were not possible, she urged the Committee to put measures in place so that people did not suffer.
Chairman Parks thanked Ms. Gang and asked if anyone had any questions for her. No one did. No one else came forward to offer testimony regarding A.B. 204. Chairman Parks noted, for the record, that members of the Administration were present, as was Mrs. Guinn, First Lady of Nevada.
Chairman Parks then closed the hearing on A.B. 204 and adjourned the meeting at 4:13 p.m.
[Prior to the start of the meeting, Ted Zuend distributed Bill Explanations for A.B. 208 and A.B. 204 (Exhibit M and Exhibit N, respectively).]
RESPECTFULLY SUBMITTED:
Mary Garcia
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: