MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
March 27, 2003
The Committee on Taxationwas called to order at 1:38 p.m., on Thursday, March 27, 2003. Chairman David Parks presided in Room 3142 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
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:
Mr. Morse Arberry, Jr.
GUEST LEGISLATORS PRESENT:
Vonne Chowning, District No. 28, Clark County
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
June Rigsby, Committee Secretary
OTHERS PRESENT:
Rossi Ralenkotter, Executive Vice President, Las Vegas Convention and Visitors Authority
Jeff Beckelman, Reno-Sparks Convention and Visitors Authority
Van Heffner, President & CEO, Nevada Hotel and Lodging Association
Dwight Millard, Plaza Motel, Carson City
Stephanie Licht, Legislative Consultant, City of Elko
Ferenc Szony, Sands Regency Hotel and Casino
Chris Scott, Siena Hotel and Casino
John Farahi, Reno Atlantis Hotel and Casino
Michael Silberling, Harrah’s - Reno
Nat Carasali, Peppermill Resort Hotel and Casino
Harvey Whittemore, Nevada Resort Association
Roberta Ross, Ross Manor Residential Hotel and Apartments
Scott Craigie, Alrus Consulting, American Resort Development Association
Karen Dennison, American Resort Development Association
Thomas Bell, American Resort Development Association
David Miller, Northern Nevada Motel Association
Chuck Chinnock, Executive Director, Nevada Department of Taxation
Marcia de Braga, Former Assemblywoman, Bill Sponsor
Chuck Fulkerson, Executive Director, Nevada Office of Veterans’ Services
Gail Utter, Citizen, Austin, Nevada
Ray Williams, Citizen, Austin, Nevada
Ron Gutzman, National Executive Committeeman, The American Legion
Shaun Carey, City Manager, City of Sparks
John Sande, Jones & Vargas, Western Petroleum Association
Mary Henderson, Nevada League of Cities
Larry Berry, Nevada Department of Motor Vehicles
Peter Krueger, Nevada Petroleum Marketers & Convenience Store Association
Daryl Capurro, Nevada Motor Transit Association
Curry Jameson, Nevada Association of Realtors
Michael Veatch, Nevada Association of Realtors
Penny Mayer, Nevada Association of Realtors
Kathy Burke, Washoe County Recorder
Kent Lauer, Nevada Press Association
Chairman Parks called the meeting to order at 1:38 p.m. and requested the roll call. He announced there were four bills scheduled for discussion. Chairman Parks opened the hearing on A.B. 342 and asked the bill sponsor to come forward.
Assembly Bill 342: Imposes occupancy tax on rental of room or space in transient lodging establishment. (BDR 32-314)
Assemblyman Mortenson, representing District No. 42, commenced testimony as the sponsor of A.B. 342. A copy of his presentation (Exhibit C) was distributed to the Committee. Mr. Mortenson explained the inspiration for his proposal had been a recent stay at a New Orleans hotel. A review of the hotel bill revealed an expected 12 percent transient lodging tax, represented by a red arrow on his PowerPoint slide; however, he voiced surprise at an additional room occupancy tax charge of $3 on his hotel bill, as noted by the blue arrow.
Continuing with his presentation, Mr. Mortenson explained that there were 175,390 hotel rooms in the state of Nevada, with 80 percent of those rooms located in Clark County. Although there was no room occupancy tax in Nevada, Mr. Mortenson had plotted statistics for room occupancy and number of rooms and then calculated the projected revenues based upon a $3 room occupancy tax (Exhibit C). Mr. Mortenson contrasted the merits of imposing a flat room tax as opposed to raising the transient lodging tax, and, in his view, the room tax was more stable.
Calling attention to the graph entitled “Comparison of Room Occupancy Tax and Transient Lodging Tax in Clark County,” Mr. Mortenson demonstrated that room occupancy, as depicted by the upper line, was fairly regular, in contrast to the bottom line, the transient lodging tax. In his view, the latter had a “double whammy” in that, when business levels dropped, room rates dropped, causing a decrease in tax revenues. The room occupancy rate in the years 2000 and 2001 had decreased 2.08 percent, resulting in a decrease of 8.42 percent in the transient lodging tax revenues. As such, Mr. Mortenson declared the room occupancy tax four times more stable than the transient lodging tax.
Historically, Mr. Mortenson described the transient lodging tax as “the domain of the Las Vegas Convention and Visitors Authority,” with the revenues being used directly for promotion of the area’s tourism and convention business. In contrast, he viewed the proposed room occupancy tax as a separate revenue source, with all monies being directed to the General Fund. In terms of collecting the tax, Mr. Mortenson encouraged remuneration for the entities charged with that responsibility.
Continuing, Mr. Mortenson explained the revenues from the proposed room occupancy tax would parallel the growth in room occupancy. When room occupancy rates were plotted against population growth in Clark County (Exhibit C), Mr. Mortenson stated the tax was projected to grow slightly faster than the population. He termed it as “growth paying for growth.” Returning to the graph, he noted the consistency and predictability of growth in Clark County over the last 30 years. Despite predictions of an inevitable decline in population growth, Mr. Mortenson said there was never any indication of a reversal in the trend. The growth in room numbers was also consistent and predictable through the years. As such, the proposed room occupancy tax would be stable and predictable.
Returning to his presentation, Mr. Mortenson described the forecasted occupancy tax revenue for the years 2003 through 2011. By multiplying room occupancy by 365 days and by $3, the expected revenue for the Biennium 2003-2005 would be $365 million. For the years 2009-2011, the revenue was projected at $464 million.
The Governor’s Tax Force had utilized several criteria for evaluating the merits of a tax proposal (Exhibit C). In his view, the proposed room charge met all of the criteria. It was predictable, transparent, stable, and uniform. The room charge had ease of compliance and ease of administration. On the subject of economic neutrality, he stated there were “minimum distortions in economic decision-making.” The tax would integrate well with the public revenue architecture. Regarding the final criteria, exportability, Mr. Mortenson stated it would do no harm to constituents. The burden fell upon the tourist industry that produced a burden on the state’s resources and taxation system. Police services, hospitals, and streets were utilized by the tourists, and it would be equitable for tourism to pay for some of that burden to the infrastructure.
Assemblyman Anderson requested clarification on slide number 2, which depicted the increase in room inventory and the natural expectation for increased revenue. The phenomenal increase in rooms had created a unique spike in the past 10 years, a trend that, according to Mr. Anderson, had no guarantee to continue. Assemblyman Mortenson defended the forecast and explained that more than 8,000 rooms would be added in 2003. In his view, that was an impressive figure, and it did not suggest any attenuation in building; however, it was a prediction, and there could be no absolute certainty.
Assemblyman Anderson addressed the mathematical modeling depicted in the slides and asked if consideration was given to how extraordinary and abnormal the growth rate of the last 10 years had been. He asked if room occupancy rates were increased solely because more rooms had been built. In response, Assemblyman Mortenson declared the graphs had captured 30 years of room growth in Las Vegas, described as “enormously consistent.” He recalled attending lectures some years ago presented by a utility in southern Nevada. The utility was appealing for a one-quarter cent sales tax, because they feared the growth rate would decline. At the time, Assemblyman Mortenson questioned the logic of that prediction, and his view remained unaltered. As a 40-year resident of Las Vegas he was aware of pessimistic forecasts, none of which had come to be.
In response, Assemblyman Anderson voiced the hope that Clark County would continue to enjoy room growth as it had in past decades; however, his concern was how the witness had mathematically weighted the number of rooms in the graphs. Mr. Anderson viewed the growth of the last 10 years as unique, and he reiterated his question, “How did you factor that into your equation?” Continuing, he asked if it was based on the supposition that, as population continued to increase, the tourist traffic would also continue to increase.
Assemblyman Mortenson clarified by stating the occupancy rate was factored into the formula, and that rate varied from year to year. It was not the situation where every room was presumed to be occupied; rather, the occupancy fraction was applied and then multiplied by the dollars and the days. Even taking into account the fact that the number of rooms had increased over the years, room occupancy had grown as well, according to Mr. Mortenson.
Assemblyman Anderson requested clarification on the percentage of rooms occupied on a fulltime basis. He asked, “In your study, did you do a comparison of the percentage of rooms available that were occupied during this time period, so that we can see if there was a drop in the percentage of rooms occupied on a full time basis?”
Assemblyman Mortenson explained there was an occupancy rate calculated for each year. That figure was multiplied by the average number of hotel rooms, and, as such, every number of rooms was weighted by that occupancy factor.
Assemblywoman Gibbons asked if A.B. 342 was intended only for Clark County. She voiced concern for northern Nevada where the population growth rate was much less dramatic. Assemblyman Mortenson agreed with her statement; however, he did not view that as a factor. He stated, “If the room rate did not grow, then the amount of taxes paid was less. But you still will benefit from the growth in Clark County, because it all goes into the General Fund.” The entire state of Nevada would benefit, according to Mr. Mortenson.
Continuing, Assemblyman Mortenson addressed his slide on anticipated arguments. He had been advised that many disadvantaged people lived in hotel rooms year-round. It was his intention to apply the existing transient lodging tax exemption to the situation under discussion. If a person rented a room for at least 28 days, that lodger was exempt from the tax. He noted that in Clark County it was 30 days.
Assemblyman Anderson declared that to be a major problem in northern Nevada where there was a population of “week-to-week” transient lodgers. Those residents often had just enough money to pay for one week. As such, they would fail to qualify under the 28-day requirement for continuous lodging. He called attention to page 5 of A.B. 342, Section 12, subsection 3, lines 28-39. In response, Assemblyman Mortenson restated his intent was to ensure uniformity for all exemptions for any county in Nevada that applied for the transient lodging tax. As such, it would also apply to the proposed occupancy tax, and he predicted that uniformity would simplify matters for tax collectors.
Continuing with anticipated arguments, Assemblyman Mortenson cited the criticism that the $3 tax would harm tourism. It was his observation that tourists would drop $3 in a slot machine “in a heartbeat” without giving it a second thought. He seriously doubted if tourists would cancel plans to visit Las Vegas based upon the charge of $3 per hotel room. On the issue of the existing transient lodging tax, Mr. Mortenson described it as very low when compared to most major cities.
Another anticipated argument was that the total taxes charged per room would be too high. In rebuttal, Assemblyman Mortenson viewed the $3 flat tax as insignificant, since it only added 2 percent to the cost of the room. In Las Vegas, the median transient lodging tax for a room was 9 percent. He called attention to a slide (Exhibit C) that compared Las Vegas to other cities in the nation. Rates ranged from 17 percent in Houston to 13.25 percent in New York. The previously cited example of New Orleans, where there was a 12 percent transient lodging tax plus a $3 room tax, did not appear to discourage the tourist business. New Orleans continued to add a tremendous amount of space to its convention center.
In summary, Assemblyman Mortenson stated he would propose the tax and “walk away.” He encouraged the Committee to leave the proposal on the table for further discussion and consideration. Some of the tax proposals that had been received from other sources were, in his judgment, obnoxious. He cited the example of the proposed admissions tax where golf would be exempt; however, a family attending the movies would be charged the tax. Assemblyman Mortenson declared he would never support such an unfair proposal. He encouraged the Committee to give fair consideration to his proposal as they examined the full range of tax bills. He viewed A.B. 342 as a good substitute for other undesirable tax proposals.
Assemblyman Griffin requested clarification on the projected revenues on page 2 of the handout (Exhibit C), a slide that displayed forecasted room occupancy tax revenue. He recalled a recent proposal from the Lieutenant Governor on international marketing, a plan that was generally viewed as expensive and one geared primarily to Asia. Returning to Assemblyman Mortenson’s projections, Mr. Griffin voiced his biggest concern as being the removal of marketing funds that might be utilized for marketing in Asia. He agreed with forecasts for the Twenty-first Century that southern Nevada would see increased competition and higher costs. He asked if the $365 million in projected revenues, as outlined in A.B. 342, would make it more difficult to fill those hotel rooms without a corresponding marketing effort.
Assemblyman Mortenson acknowledged Mr. Griffin’s insights and voiced respect for the Lieutenant Governor’s ideas; however, Nevada’s transient lodging tax rates were still significantly below those of other tourist areas in the nation. He reminded the Committee that the transient lodging tax was principally used by the Convention and Visitors Authority to market Nevada. In downtown Reno, the tax was considered fairly high, albeit temporary. Assemblyman Mortenson defended the addition of the room occupancy tax as proposed in A.B. 342 saying that the total room tax rate would still remain below the rates of many other tourist destinations in the United States. If additional marketing funds were required, the solution would be to raise the transient lodging tax.
Assemblywoman McClain asked if the revenue figures displayed for various resort cities (Exhibit C) were state lodging taxes or if they applied to a combination of state, county and city taxes. She cited an example of a San Antonio hotel where the total combined tax was 23 percent. In response, Assemblyman Mortenson stated it was the total. There was only one tax on rooms, and the city itself did not have a room tax. He added there could be additional taxes in some areas he listed in (Exhibit C), for example a bed tax in Seattle. On the subject of additional charges, Assemblywoman McClain recalled that southern California hotels had charged an energy surcharge. Citing that as a good example of additional room charges, Assemblyman Mortenson reiterated his position that adding a $3 fee to a hotel room could not be disastrous. He had forgotten that many hotels “here in town” had added a $4 energy tax charge, seemingly harmless to the tourism business. Those extra revenues were not released until the events of September 11, 2001.
Assemblywoman Gibbons requested clarification if that tax of $4 was statewide or only charged in Clark County. Assemblyman Mortenson recalled it was a decision made by individual hotels; however, he was not certain.
Chairman Parks offered clarification that there was an energy surcharge implemented by many major hotel chains across the United States. It was not considered a tax, but merely a surcharge.
Rossi Ralenkotter, Executive Vice President, Las Vegas Convention and Visitors Authority (LVCVA), commenced testimony in opposition to A.B. 342. He distributed a booklet (Exhibit D) that outlined the mission and operations of his organization. Mr. Ralenkotter explained the mission of the LVCVA was to expand the visitor base of Clark County and to serve as the destination marketer of Las Vegas throughout the world. All marketing programs were research-driven, which allowed them to follow consumer trends and the marketplace. Research indicated that, with current market conditions and increased competition, the time was not right to increase room taxes or raise any other fee attached to the room rate. The room tax was paid directly by the visitors, and to remain competitive, Mr. Ralenkotter voiced strong opposition to any increase in costs to customers.
Continuing, Mr. Ralenkotter reviewed the impact of September 11, 2001, on tourism statistics. After that date, everything that occurred to that point had to be set aside, and “we were in what we call the new normalcy.” The current war in Iraq was creating a lot of consumer uncertainty and anxiety. There was evidence that travel demand had softened as much as 40 percent in some areas. Since the war in Iraq started, air traffic had declined approximately 10 percent across the United States. Consumer confidence was at the lowest level since the major recession of 1993. Mr. Ralenkotter cited the example of several international air carriers whose service to Las Vegas had declined or ceased to exist.
The national alert system for publicizing the threat of terrorism continued to have an impact on travel plans for tourists to Las Vegas. Mr. Ralenkotter voiced concern that the uncertain economy, unemployment estimated at 5.8 percent, and the volatility of the stock market had exacerbated the problem. In 2002, international travel to Las Vegas had declined 30 percent, compared to the 2000 levels of business. Last-minute bookings by travelers and cancellation of plans on short notice were more commonplace. The airline industry was in turmoil nationwide, with large carriers filing bankruptcy. Mr. Ralenkotter cited the example of National Airlines, once headquartered in Las Vegas, that had ceased to do business. More than 100,000 airline industry jobs had been eliminated, with an anticipated loss of $18 billion at the end of 2003. For Las Vegas that statistic was critical, because 47 percent of all visitors to Las Vegas arrived by air.
Continuing, Mr. Ralenkotter emphasized that there had been a concurrent and significant increase in competition. Other travel destinations had increased their marketing efforts. The cruise line industry was a competitor. There was a rapid increase in the amount of convention space added throughout the United States. In that area, Mr. Ralenkotter emphasized the point of competition was pricing, both on the room rates as well as the convention hall space. The increase in gaming competition was evidenced by the presence of 17 gaming locations within 250 miles of Las Vegas. That trend continued unabated; with the Indian reservations seeking the ability to increase the number of slots and table games in order to directly compete with the state of Nevada.
In over 30 years of marketing Las Vegas, Mr. Ralenkotter recalled one or two similar challenges in the marketplace; however, he had never seen the convergence of multiple challenges that was evidenced today. He predicted that, even when the Gulf War ended, there would still be major concerns of competition, increased prices, and problems with the economy.
Returning to the subject of research, Mr. Ralenkotter explained that his organization gathered information directly from tourists, and he had asked some of those customers to convey their sentiments on proposed taxes directly to the Legislators. His first letter was from Jack Kineval, Executive Vice President of the National Association of Broadcasters. Their national convention, planned for Las Vegas, was predicted to draw an estimated 95,000 visitors to the area. The non-gaming economic impact for that group would be $129 million.
Quoting Mr. Kineval, Mr. Ralenkotter read,
In a general sense, it seems quite illogical to levy a tax in an area that directly supports one of the state’s most important revenue sources, tourism. The characteristic that has always made Las Vegas one of the most attractive destinations in the country is its affordability. To cut into that advantage, at a time when the economy continues to flounder and discretionary spending is being squeezed, would seem to be ill-advised, at the very least. A new tax could further discourage travel to the state at a time when those of us tied to the travel and tourism industries are searching for ways to push travel back to the levels we enjoyed prior to the World Trade Center attacks. From a convention perspective, the positioning of Las Vegas as the most affordable place to hold a major convention is critical to our success. We are already fighting an uphill battle in this regard with the trade show industry as a whole. The cost of trade show-services has been rising steadily. Cost is at the center of the issue. Ultimately, we all lose when our customers perceive that the cost of participating in our shows exceeds the potential return. A new tax will only contribute to the perception that Nevada and Las Vegas are no longer interested in remaining cost-competitive.
Continuing, Mr. Ralenkotter said the next letter was received from Karen Hoffman, a Director with the United Steel Workers of America. In her words,
The hotel and travel industry has felt the impact of September 11, 2001, and now faces the probability of further cuts with our pending war with Iraq. The United Steel Workers of America has selected Las Vegas for its international convention, with few exceptions, over the past 20 years due to the fact that it is a cost-effective and unionized location. The Nevada tax issue and the proposed increase will affect travelers that have so many other options in today’s struggling economy. Not only in the business environment, but also on a personal matter, our members can rate-shop while sitting in the comfort of their homes. I fear that Las Vegas will lose its competitive edge. While we continue to find the best value for our Association meetings, our 650,000 members have the choice of whether to travel at all, both professionally and personally. I would encourage you to vote against the Nevada tax increase at a time when our interests with the industry are of concern.
The next letter, according to Mr. Ralenkotter, was from William Lamokia, Sr., the Chairman of the Mark Travel Corporation, the number one travel wholesaler for Las Vegas. Annually, that firm lured approximately 1.5 million visitors to Las Vegas, and that generated $1 billion in non-gaming economic impact. Reading from the letter he said,
The Mark Travel Corporation works strategically with our Las Vegas hotel properties in achieving creative marketing incentives to attract the traveler to Las Vegas. Travelers are shopping prices as never before. Consumers are more price-sensitive than they ever have been, especially in matters of discretionary income. As a destination, Las Vegas must continue to be perceived as a good value. Increasing taxes on visitors sends the wrong message and provides a disincentive to prospective visitors.
Barbara Esterling, the Secretary-Treasurer with the Communication Workers of America, submitted the final letter read by Mr. Ralenkotter.
We are writing to oppose the tax increase on room rates in Nevada. As you know, we are one of the unions that schedules frequent conventions in Las Vegas. With the downturn in the economy, we must look for reasonable room rates for our attendees. Those cities with high tax rates are no longer given consideration by this organization. We like Las Vegas. It is a good union city. Do not let the Nevada State Legislature prevent us from returning. Increasing room taxes or fees on rooms at this time in Las Vegas and throughout the state will put all of us at a competitive disadvantage. The traveling public is very price-sensitive. In order for Las Vegas to grow as a tourist destination, we need to deliver value and a value message to our customers. Our challenge each year is to expand our visitor base.
To put that in perspective, Mr. Ralenkotter added that there had been reference to the number of rooms being added to the Las Vegas marketplace. By the end of 2005, there would be an additional 7,500 rooms. In order to achieve the pre-September 11 room-occupancy levels for Las Vegas, Mr. Ralenkotter stated there would need to be an increase in the visitor count by four million tourists per year. Restated, Mr. Ralenkotter said it would be essential to increase tourism from the current 35 million visitors to 39 million visitors.
Referring to Assemblyman Mortenson’s slide presentation, Mr. Ralenkotter reiterated that any pre-September 11 analysis was not reliable, given today’s “new normalcy.” The marketplace was too volatile to depend upon those projections as presented in Mr. Mortenson’s graphs (Exhibit C). Mr. Ralenkotter had three concerns with the chart that listed the evaluation criteria for the Governor’s Task Force. The first was “predictability.” The witness voiced concern that the chart assumed two very important facts. In his words, “One, that the rooms are filled and two, that they are filled at the current ADR (average daily rate).”
Continuing, Mr. Ralenkotter voiced disagreement with the criteria of “stability of the tax,” saying that room rates fluctuated. Looking at the invoice for the hotel in New Orleans (Exhibit C), factoring in the flat room charge increased the room rate by 16 percent. Adding a $3 flat rate for Las Vegas, given the current average daily rate (ADR) of $75 and a 9 percent room tax, would increase the effective room tax rate to 13.5 percent. Turning his attention to the chart that showed the transient lodging tax rate (Exhibit C), Mr. Ralenkotter emphasized that one of the competitive advantages of Las Vegas was lower room rates, especially compared to other destinations. Product value for the consumer and convention delegate was critical.
In reference to the utilization of the room tax in Clark County, of the current 9 percent revenue generated, 53 percent was diverted back to the community and to public entities. The industry retained 47 percent of the revenue for marketing and advertising. Clark County transportation efforts received 1 percent, estimated at $26 million per year. The school district received 1.625 percent, estimated at $42 million per year. The Nevada Commission on Tourism received $9.8 million, plus some additional grants.
In summary, Mr. Ralenkotter stated those revenue dollars were working for the citizens of Las Vegas and Clark County because of those portions being re-allocated to the community. The remainder of the 47 percent of revenues was utilized to generate demand for the destination and booking of conventions. He added it was important to note that 60 percent of the employment base of Las Vegas was directly or indirectly dependent upon the visitor counts and the number of conventions. Even though visitors utilized the services provided by Clark County, the tourist base was the engine that drove the economic train for the area.
Mr. Ralenkotter viewed room rates as a competitive tool that was utilized by the resort industry to stimulate current and new demand. Research indicated that value drove visitors to Las Vegas, and that produced value and fostered competitiveness. For those reasons, Mr. Ralenkotter stated emphatically that the LVCVA opposed any increase in room taxes or fees for the resort industry of Nevada.
Assemblywoman Gibbons requested clarification on the statistic that air traffic had declined 10 percent in the United States. She asked what that decline was for Las Vegas. Mr. Ralenkotter explained a slight increase had been evident over the 2002 level; however, the decline was still evident when compared to 2001. Visitor counts followed a similar trend and had not yet returned to the pre-September 11 levels.
Assemblyman Goldwater complimented the witness and the Las Vegas Convention and Visitors Authority (LVCVA) on their successful marketing of Las Vegas. Referring to a comment from the witness that it was not the right time to raise taxes, Assemblyman Goldwater asked the witness when it would be a good time.
In response, Mr. Ralenkotter acknowledged that the question was a good one. Reiterating previous testimony, he stated that when the war was over, Las Vegas would still be faced with multiple competitive challenges. Assemblyman Goldwater offered to clarify and stated that during the 1999 Legislative Session, the country was at the top of an unprecedented economic bubble. He recalled there had been a room tax increase proposal, and that was also judged to “not be the right time.” Assemblyman Goldwater concluded there was no right time for room tax increases.
Mr. Ralenkotter interjected that it was essential to keep room rates competitive, and he added the greater the taxes, the more difficult it was for destinations within Nevada to compete. Assemblyman Goldwater asked if other tourist destinations in other states were decreasing their room rates in order to remain competitive. Mr. Ralenkotter explained that New York City was a good example. Following erosion in their convention business and tourism, New York rolled back their room fees from 22 percent to 17 percent. The other cities in the chart (Exhibit C) revealed higher room rates, and that was precisely why Las Vegas was able to compete against New Orleans. Mr. Ralenkotter emphasized it was essential to create demand for visitors. There was evidence of a decline in first-time visitors to Las Vegas since September 11, 2001.
Assemblywoman Gibbons asked if part of the solution would be a partnership between the state and the hotels. She cited the example of a state-minted coin that could be used in the casinos, with revenues being shared by both parties.
In response, Mr. Ralenkotter stated it was a question better answered by the hotel industry; however, he acknowledged there were many current examples of joint marketing efforts and promotions sponsored with the Nevada Commission on Tourism.
Jeff Beckelman, representing the Reno-Sparks Convention and Visitors Authority (RSCVA), commenced testimony in opposition to A.B. 342. Echoing the words of Assemblywoman Gibbons, Mr. Beckelman stated, with regret, that northern Nevada had not been enjoying the years of economic success that were so evident in Las Vegas. The northern Nevada tourism industry was fighting for its existence, as reflected in poor gaming and room revenue results. The continued proliferation of gaming, especially from Native American casinos, the poor national economy, and the anticipated negative impact from the war were predicted to cause further deterioration of the tourism business.
Continuing, Mr. Beckelman explained that the outlook budgets were currently under scrutiny for the remainder of FY 2003 and were being prepared for FY 2004. They would be submitted to the state in May, with execution to begin July 1, 2003. Mr. Beckelman anticipated further occupancy and revenue reduction as the war continued. Although the impact was unknown, estimates were a 5 percent per month reduction for the remainder of the fiscal year. He assured the Committee that his organization was working hard to develop and implement new marketing strategies for the region, and he was hopeful it would complement gaming and bring customers to the area for expanded experiences. Competition for customers was described by the witness as “fierce.” Mr. Beckelman stated emphatically that some key competitive cities had bed-tax rates that were below those of northern Nevada. He cited examples of San Jose, Portland, and Salt Lake City, among others.
In summary, Mr. Beckelman implored the Committee to carefully explore the negative impacts of A.B. 342. The economics of the northern Nevada tourism business were very fragile. Increased bed taxes could injure the area’s ability to recover from the current tourism recession. In his opinion, it was essential to use the revenues from bed taxes for sales and marketing, since it was the sole source of funding for those activities. Reno-Sparks was considered a value-destination for leisure and convention business. To tax customers further would only exacerbate the problem, according to Mr. Beckelman. An increase in taxes or redirection of those revenues was predicted to have devastating effects on the area.
Assemblywoman Gibbons asked if he knew the percentage decrease in air travel to the northern Nevada area. Mr. Beckelman believed the number was as high as 13 percent. Seventy percent of the current market drove to the Reno-Sparks area, with 59 percent coming from northern California, the Central Valley, and the Bay Area. The increase in the drive market was 19 percent during the past two years, and Mr. Beckelman predicted that trend would continue to increase.
Assemblyman Hettrick commented that he failed to understand why increasing room taxes was not desirable, but other proposals to increase gaming tax, property tax, cigarette tax, and alcohol tax were acceptable. He asked, “When are we going to get a tax the state can benefit from, and do something? We can pay the taxes we want to pay, but we cannot pay the taxes we don’t want to pay.” Assemblyman Hettrick declared the gross receipts tax (GRT) would be added on top of the room charges one way or another. He viewed it as disingenuous to argue that the tax proposed in A.B. 342 should not be imposed.
Van Heffner, President and CEO of the Nevada Hotel and Lodging Association (NHLA) and the Nevada Restaurant Association, as well as a commissioner for the Nevada Commission on Tourism, commenced testimony in opposition to A.B. 342. He distributed a document (Exhibit E) explaining the impact of a room tax increase on the lodging industry. The NHLA represented 182 hotel, motel, and lodging properties throughout Nevada, accounting for a total number of rooms that exceeded 115,000. Mr. Heffner called attention to his document that captured excerpts from a national study on the impact of bed tax increases. In 1982, Mr. Heffner had been commissioned to provide a master plan for Nevada tourism and travel. From that master plan document, the Legislature passed the law that implemented the Nevada Commission on Tourism. The Commission continued to be the strong marketing arm for Nevada and was funded through proceeds from the room tax.
Returning to the national impact study, Mr. Heffner stated it identified scenarios of implementing a hypothetical 2 percent increase to room charges. For a small property, that amount could translate to a 12-16 percent tax increase. Nationally, a 2 percent increase in the bed tax would cost the nation 535,000 jobs and $11.4 billion in wages, as well as $39 billion in sales. Mr. Heffner predicted that the 2 percent increase would actually cause about a 5.1 percent reduction in room sales associated with visitor spending each year. He emphasized that taxes were a separate entity from room rates and were often blocked as separate in negotiations with tour operators and various cities. In fact, jurisdictions such as New York City have reduced their occupancy fees due to competition.
Continuing, Mr. Heffner stated that Nevada had long been regarded as a bargain, and any room tax increase or erosion of marketing dollars from room taxes would have a pervasive negative impact. The Nevada Commission on Tourism data revealed that, without multipliers, for each dollar invested in tourism promotion, there was a return of $121. Each tourism dollar that came to the community rolled through a minimum of seven times. Reduced tourism promotion, compounded by increased competition from worldwide cities, would have a negative effect on convention planners. According to Mr. Heffner, that group was very careful to scrutinize all pieces of the tourism package, and that included room taxes.
Calling the Committee’s attention to the national study (Exhibit E), Mr. Heffner cited the example of Atlanta where the 2 percent bed-tax increase cost over 8,400 jobs and dropped the combined state and local tax collections by over $80,000. There was an inverse correlation, specifically, as the room tax was increased, the revenues decreased. It had the added impact of job loss and further economic downturn.
With the effects of the war on terrorism and the Iraq situation, it became more critical to invest in marketing to bring visitors to the area. Mr. Heffner emphasized it was essential to get more people onto the airplanes to get them to Nevada. Returning to the national study, Mr. Heffner cited legislative action in 1993 when the Arizona Legislature banned discriminatory taxes on the hospitality industry unless the full proceeds went to the promotion of tourism. Mr. Heffner declared Arizona to be a major competitor of Nevada’s. In New York, there was the deletion of the $1 surcharge per room occupant. It equated to a 5 percent reduction, because meeting planners had chosen other sites. Mr. Heffner, in summary, voiced strong opposition to both the occupancy and room tax increases.
Dwight Millard, owner of the Plaza Motel, acknowledged that many legislators were his customers and were on the receiving end of room taxes. Mr. Millard also served as Chairman of the Carson City Visitors and Convention Bureau; however, his testimony generally would represent his personal viewpoint. Mr. Millard believed that A.B. 342 was a new theory in room taxes. Historically, revenue from room taxes had been used directly for marketing efforts to promote tourism. The proposed $3 fee would be deposited in the General Fund, and Mr. Millard anticipated that visitors would not be pleased when they realized that fact. He emphasized it was important for Nevadans to pay for their own needs and not to rely on tourists to pay Nevada’s general fare.
In Carson City, the room tax, until recently, was 8 percent; however, there had been a laborious 6-month process to raise that rate from 8 percent to 10 percent. That entire 2 percent was earmarked for creation of the V&T Railroad from Carson City to Virginia City, designed to draw tourists to the area. Mr. Millard commented that the average daily room rate in Las Vegas was $75, which equated to “4.5 percent tax on them if we charge $3.” On a $150 room, it represented 2 percent, and on a $100 room the extra $3 was a 3 percent increase. As such, cheaper rooms would be assessed as much as 10 percent, making it unfair to those clients who could least afford it. Older motels were increasingly used for extended stay by the underprivileged and poor. Mr. Millard encouraged the Committee to look at another source of taxation.
Stephanie Licht, representing Elko County, commenced testimony in opposition to A.B. 342. She commented that testimony had come from two areas of the state that were doing quite well. In contrast, the rural areas presented a different picture. A well-designed plan for one area would not necessarily work well in another area. Ms. Licht stated she had been in contact with a representative of McClaskie Enterprises that owned 40 percent of the lodging rooms in Elko. In order to stimulate business, that group opened their own airline to deliver customers directly to Elko. That dedicated airline service was facing increased fuel costs, as well as the passenger facility charges for required security measures and higher insurance premiums.
Continuing, Ms. Licht cited the example of the Red Lion Inn, a hotel with 223 rooms. Utilizing an airline providing free tickets, their goal was to maintain 95 percent occupancy. The proposed additional room expense, according to Ms. Licht, invited “customer resistance.” Customers were shopping for better room rates on the Internet site Priceline.com. Even with the incentive of free air travel, it would not offset the competition. The estimated out-of-pocket expense to a small economy like Elko was $400,000. Ms. Licht encouraged the Committee to give very careful consideration to the proposal and urged them not to pass A.B. 342.
Ferenc Szony, President and CEO of the Sands Regent, the parent corporation of the Sands Regency Hotel and Casino in Reno and the Gold Ranch in Verdi, commenced testimony in opposition to A.B. 342. Mr. Szony voiced criticism over portions of previous testimony presented by Clark County witnesses. The situation in southern Nevada was vastly different from that of northern Nevada, according to Mr. Szony.
Using the Sands Hotel as an example, Mr. Szony stated there was a $27 average room rate advertised recently. Adding a $3 fee to that charge equated to more than a 10 percent increase in taxes. Combined with the existing 13 percent room tax, the total tax percent was excessive. Mr. Szony described the area’s market as very competitive. The New Orleans room rate of $170 was only a dream for the Reno area and rural Nevada.
Continuing, Mr. Szony acknowledged that various taxes were being considered for increase by the Legislature, including gaming taxes, lodging taxes, and entertainment taxes. Those taxes would be largely paid by visitors to the area. Because visitors had choices, it was important to convey to them that taxes were a shared burden with the residents of Nevada. In his view, the way to grow the dollar amount of taxes in the tourism arena was not to tax a few tourists at a higher rate. Mr. Szony predicted it would result in a downward spiral of fewer tourists, leaving a larger burden on the remainder. The goal was to increase the number of visitors at a current rate of tax. Regarding cigarette taxes, Mr. Szony stated that higher and higher tax rates might actually cause people to stop smoking, a positive effect. In terms of the tourist base, Mr. Szony stated, “I would much rather see us tax them less and get a lot more of them addicted to coming to Nevada.” He implored the Committee to not pass A.B. 342.
Chairman Parks spoke in defense of Assemblyman Mortenson, and clarified that his colleague’s research had been thorough in the search for a fair solution to the state’s difficult financial situation. He added that it served no useful purpose for Mr. Szony to level personal criticism against Assemblyman Mortenson, whose efforts had been sincere. There was no response from Mr. Szony.
Chris Scott, representing the Siena Hotel in Reno, read from a prepared statement in opposition to A.B. 342. The Siena opened for business in July 2001 and had the distinction of being the first casino to open in the Reno-Sparks area since 1995. Shortly after the Siena opening, the events of September 11, 2001, significantly affected their promise of success. Quoting from the Reno-Sparks Convention and Visitors Authority (RSCVA) January 2003 room statistics, Mr. Scott stated that the hotels in Washoe County had a 64.8 percent level of occupancy compared with a 65.3 percent level in the same period of the preceding year. Even with the lower level of occupancy, the hotels still managed to increase the average cash rate from $51.95 last year to $53.91 during the current year. The year-to-date numbers showed that the cash revenues generated by occupied rooms dipped by a marginal six-tenths of one percent, with the average cash rate falling from $59.26 last year to $57.92 during the current year.
Continuing, Mr. Scott stated it was apparent that the industry was still having difficulty in raising room occupancy rates. The increase in power bills, as well as the increases in almost every other vendor-supplied commodity, served to exacerbate the situation. He assumed the proponents of A.B. 342 expected the tourist industry to merely pass the increase of $3 per night along to the consumer. Mr. Scott voiced concern that it would only make the area less attractive as a gaming destination. He reminded the Committee of the competition on the other side of the Sierra in California.
Historically, the revenues gained from the room taxes had been used by the Convention and Visitors Authorities to better market the community. In Mr. Scott’s judgment, it would be setting a bad precedent to divert any of those revenues to the state’s General Fund. He suggested that the Committee look at the warehousing industry or consider a statewide lottery. Mr. Scott concluded his testimony saying, “For once, leave the gaming industry alone.”
Assemblyman Goldwater asked if Nevada’s room tax rate provided such a competitive advantage, why did the marketing materials for Nevada not reflect the fact there was such a low room tax rate. In response, Mr. Szony replied there was evidence of that point in marketing, especially in advertising room rates, since those rates included room taxes. A large part of the visitation to Nevada was wrapped up in a package that might include the transportation, room charge, and all applicable taxes.
Assemblyman Goldwater requested clarification on the Internet sale of hotel rooms online to wholesalers. Was the tax collected on the wholesale price or on the retail price of the room? Mr. Szony stated it was on the wholesale price. The actual dollar that the facility received was the amount upon which the tax was based. It was possible that the tour operator also had a markup on that. Continuing, Mr. Szony stated a travel agent often took that room rate and applied a percentage for commission purposes. That was in contrast to the practices of the tour operator.
Summarizing, Assemblyman Goldwater stated that the wholesaler was “taking down the room and then marking it up, charging the same room tax rate, but calling it a fee, and keeping that themselves.” In response, Mr. Szony replied, “No, they pay that in addition to the room rate that they pay us. So we collect that.”
Assemblyman Goldwater asked if they collected what the online travel booker collected from their consumers. Mr. Szony replied in the affirmative and added they had to pay both the room rate and the appropriate tax on that rate. Assemblyman Goldwater voiced confusion and offered the example of Expedia.com buying a room from the hotel for $50. He asked if a tax was paid at that point. Mr. Szony clarified that the customer was not buying it directly from the hotel, and he attempted to differentiate between the tour operators that offered room packages that were inclusive of taxes and those that were not. For packages that included the taxes, Mr. Szony stated, “Then we have to back off the amount to it, so that $50 is not a $50 room rate anymore. It was now a $45 or $42 room rate.”
Assemblyman Goldwater cited the example of a recent problem in Clark County that was being remedied through an ordinance. Continuing, he said the online travel bookers were paying room tax at the wholesale rate, what they have exchanged for. The online bookers were then charging a retail rate for whatever they provided the hotel room and the tax collected. Expedia was charging a fee, which was the same number as the tax, but the state or distribution areas were not receiving what the retail collection was online.
Mr. Szony replied he was not familiar with the events in Clark County. Assemblyman Goldwater interjected that it was happening in Washoe County also. He stated the situation reflected the elasticity of demand and where it was being met.
John Farahi, representing the Atlantis Casino Resort in Reno, offered to comment. When a guest purchased a room on the Web, for example, at a rate of $29, the Atlantis charged the guest the tax on the total amount of $29. In Mr. Farahi’s words, “Then we charge the wholesaler or the Web site; for example, they charged $15 for that room. So, the difference is what we get, but the total amount of tax is on the total amount, not what the hotel receives.”
Assemblyman Anderson echoed Chairman Parks’ concern about an earlier statement directed at his colleague, Assemblyman Mortenson. He added that, “Maybe the witness did not understand that we don’t criticize his signs. He doesn’t criticize ours.”
Assemblywoman Gibbons recalled that two years ago, the Legislature enacted a room tax for northern Nevada hotels. She requested clarification from the witness if he was familiar with that tax for Reno area hotels. Mr. Farahi replied in the affirmative and stated the tax was raised by 1.5 percent in order to fund an events center in downtown Reno. Currently, Reno was charging 13.5 percent tax, the rate outside of downtown was 12 percent, and Sparks was charging 11 percent. The issue was relevant for the Atlantis Resort. The proposed $3 equated to an approximate 10 percent increase in some of the rates advertised on the Internet. Mr. Farahi stated, “Basically you are taking 13.5 percent in downtown Reno to 23.5 percent. The consumer feels that they are being gouged.”
Assemblywoman Gibbons asked if there were customers complaining of “bait and switch” tactics when booking hotel rooms. To clarify for the witness, Mrs. Gibbons explained it referred to advertising one rate but charging a higher rate. Mr. Farahi replied that the reality was at least a 23 percent tax. In comparison to the basic charge for the room, it could easily be considered deceptive by the consumer. He cited the example of New York where the room tax was decreased from 22 percent to 17 percent because of the loss of business. He predicted his guests would have trouble accepting 23 percent taxes on the room.
Ferenc Szony offered to clarify and stated that customers did not often make the comment, “Well, I thought it was going to be a $27 or a $28 room rate, but in reality, by the time I pay these taxes, that’s not the case.” Customers from areas such as New York were more comfortable with different rates of tax. In contrast, visitors to Reno and rural Nevada were looking for value, and they did feel concern when the taxes appeared on the bill. Mr. Szony often explained to inquiring customers how the tax dollars were spent.
Assemblywoman Gibbons posed the question, “Are we still considered the nickel-and-dime gambler up north?” In response, Mr. Scott commented that the paradigm had changed, and northern Nevada was now “in pennies.”
Chairman Parks invited formal testimony from John Farahi. Mr. Farahi summarized that the challenge was immense in northern Nevada. The competition from Native American gaming in California, Oregon, and Washington was of growing significance. It was necessary to leave some space in the tax structure so that, if it were absolutely essential to raise rates, there would be room to do so. Raising the tax by $3 removed that space for future expansion. Additionally, that $3 did not contribute to their marketing efforts to bring tourists to the state. The total budget for marketing by the Convention Authority was $3.5 million, an amount that paled in comparison to many areas. Mr. Farahi implored the Committee not to raise room taxes, as it could be a fatal blow to business.
Michael Silberling, representing Harrah’s Reno, offered to comment on the concept of elasticity of demand mentioned by Assemblyman Goldwater. Mr. Silberling agreed the framework for viewing the situation was centered on the elasticity of demand; however, earlier testimony had suggested a supposition of inelasticity of demand, meaning if the room rates were raised by $3, there would be no negative consequences. He reiterated the example of Atlanta where raising room taxes actually had a negative impact.
As the Unit Manager for Harrah’s Reno, Mr. Silberling was emphatic that price elasticity in Reno unfortunately did reflect “a penny market.” Summer room rates in Reno had been as low as $10 at the Reno Hilton, and the witness stated that would only happen “if we did have inelastic demand, unless we had an elastic demand.” It would have a very negative consequence in the competitive situation.
On the subject of competition, Mr. Silberling cited the Placer County market where Station Casinos were planning to open with a 10 percent room tax. In conclusion, he re-stated Harrah’s opposition to A.B. 342.
Nat Carasali, representing the Peppermill Casinos, briefly stated their opposition to raising room taxes as proposed in A.B. 342.
Vice Chairman Goldwater invited the next witness to the table.
Harvey Whittemore, representing the Nevada Resort Association, asked to go on record in opposition to A.B. 342 as introduced by Assemblyman Mortenson. The witness acknowledged that Mr. Mortenson’s intentions were designed to address the very significant needs of Nevada, estimated by Mr. Whittemore as between $600 million and $1 billion. While Assemblyman Mortenson’s efforts were worthy of applause, the witness viewed the room tax as unfairly singling out the resort industry. Historically, the gaming industry was burdened as a single-source revenue system and was being asked to carry an inordinate amount of the tax obligation.
Continuing, Mr. Whittemore addressed Assemblyman Hettrick’s comments that implied the resort industry favored certain taxes. Mr. Whittemore suggested the better way to phrase that sentiment was, “We are taking a responsible position and advance the following proposition: If, in fact, the state does need additional tax revenue, we will participate along with all other businesses in filling those needs in an appropriate way.” The witness added that part of that suggestion was that the resort industry would agree to a gaming tax increase on gross revenues, assuming it was part of a bigger tax policy that required participation by a variety of business types. In summary, Mr. Whittemore stated the record was clear with respect to A.B. 342. There was no question, in the search for additional revenues, that proposal disproportionately singled out the gaming and hotel industries. He encouraged the Committee to explore other proposals that were pending. Mr. Whittemore offered his help in that regard and reiterated his compliments to Assemblyman Mortenson’s efforts.
Assemblyman Mortenson voiced total agreement with the fact that casinos had been paying a fair share, and it was time for the burden to be shared by other industries. In consideration of A.B. 342, Assemblyman Mortenson asked that his proposal not be used as a substitute for a broad-based business tax. He expressed great pride in what the gaming industry had done for Nevada, and his intention was to do no harm. Assemblyman Mortenson viewed the room tax increase as merely a “pass-through.”
Roberta Ross, owner and operator of the Ross Manor Residential Hotel and Apartments in Reno, commenced testimony in opposition to A.B. 342. Her concerns centered on its impact on the daily and weekly rental rate for lodgers who stayed fewer than 28 days. The bill language that would directly affect her transient lodgers was on page 5, Section 13. Reading from that section, Ms. Ross stated, “The occupancy tax must not be collected from a person who, at the time of checking in, provides documentary proof of his continuous stay in a transient lodging establishment in this state for the previous 28 consecutive days. The proof must positively identify the person and must clearly indicate that the 28 days were paid in advance or occupancy tax was charged.”
Continuing, Ms. Ross recalled in the last legislative session that she and Ruth Wheeler had proposed A.B. 655 of the Seventy-first Session. At that time, the Taxation Committee requested that the witnesses take the bill back to the local government for resolution. Ms. Ross stated those recommendations were followed, and the issue was solved locally; however, A.B. 342 threatened to detract from that effort. Regarding the local solution, Ms. Ross explained that the person who rented weekly could sign a 28-day contract and could pay in a manner appropriate for the client. That included daily or weekly payment arrangements. The proposed legislation would require proof of payment in advance of the 28 days. As such, many of her clients would experience financial hardship and would also have difficulty keeping track of the legal documents.
In conclusion, Ms. Ross acknowledged that it was not Assemblyman Mortenson’s intention to create that hardship; however, the language of A.B. 342 would, in actuality, have that effect. The average weekly rate for transient lodging was $100, and in downtown Reno, there was an additional charge of 13.5 percent tax. The proposed addition of $3 per night would increase the tax total by $21 per week, resulting in a weekly charge of $134.50. That equated to a tax rate of 34.5 percent. Ms. Ross implored the Committee to review that Section of the bill and to adjust the language.
Assemblyman Mortenson offered to respond and promised the witness that, if the bill were passed, he would recommend an amendment to capture Ms. Ross’s recommendations. Ms. Ross acknowledged the clarification, and she echoed Mr. Whittemore’s offer to help the Committee.
Scott Craigie, representing the American Resort Development Association, declared his organization was not taking a formal stand on A.B. 342. He was accompanied by Karen Dennison and Thomas Bell. Mr. Craigie stated if the bill moved forward, his group would like to propose an amendment (Exhibit F). He introduced Ms. Dennison.
Karen Dennison, representing the American Resort Development (ARD), commenced testimony. She explained that her organization was the national association for the time-share industry. Although no new tax was welcome, the ARD was present to propose an amendment (Exhibit F). The time-share industry was willing to fairly participate in room taxes charged to the hotel industry for transient lodging. Ms. Dennison stated that the time-share situation included such rentals; however, the ARD wanted to specifically address the situation where a time-share owner exchanged his time-share week with another owner. As such, there was no rent paid between the parties. Ms. Dennison stated that, although the bill probably would not apply to that situation, her proposed amendment would clarify that it would not apply to tax a situation where no rent was paid. A copy of the amendment had been distributed to the Committee members (Exhibit F). In closing, Ms. Dennison stated the change that was proposed was mirrored in the existing law as well. She believed that it was merely a change to clarify that time-share exchanges where no rent was received would not be taxed.
Mr. Craigie interjected that there were a number of bills where the amendment might apply; however, his organization had no intention of testifying on the other bills.
Vice Chairman Goldwater recognized Assemblyman Mortenson.
Assemblyman Mortenson viewed the amendment as friendly and a good clarification. His intention was to impose the same conditions on the proposed tax in A.B. 342 as it would have on the transient lodging that did not collect tax.
Assemblyman Anderson requested clarification on the tax structure in Florida relative to their room rates. He recalled a strong presentation in Clark County that demonstrated how Clark County compared to other areas of the United States. Mr. Anderson asked if, in Florida, 100 percent of the room tax revenues were dedicated to advertising and marketing efforts.
Thomas Bell, representing the American Resort Development, clarified by stating there was a Florida statewide tax plus additional taxes levied by county and local entities. Mr. Anderson questioned if the state’s portion of revenues was utilized for education, road development, and parks. Mr. Bell speculated that the state’s portion was deposited into Florida’s General Fund; however, he was not certain.
David Miller, representing the Northern Nevada Motel Association, commenced testimony in opposition to A.B. 342. His Washoe County organization represented 25 motel properties and 1,500 rooms. Mr. Miller described the motel industry in Washoe County as being on “life support” since September 11, 2001. Any increase in room tax in the unstable market would send the wrong message to their guests. Mr. Miller urged the Committee to vote “no” on A.B. 342.
Vice Chairman Goldwater remarked that testimony had established that September 11, 2001, had caused a downturn in the economy and in room demand, that an increase in room tax would additionally create a softening of demand, and generally that hotel and motel operators were opposed to the increase in room tax.
Chuck Chinnock, Executive Director, Nevada Department of Taxation, affirmed the previous testimony of Assembly Mortenson. In terms of the cost impact to his Department, the current mechanism for collecting the transient room tax was through the cities, counties, and those organizations that represented them. As such, he anticipated a small increase in the effort to implement the increase, specifically one additional tax examiner. Mr. Chinnock stated there were approximately 1,000 accounts in the area of transient room taxation.
Additional statements of opposition to A.B. 342 were received for the record, including:
· A letter from Jack Richards, representing America West Vacations (Exhibit G).
· A letter of opposition from Kenneth Pomerantz, representing MLT Vacations (Exhibit H).
· A letter of opposition from Celeste Allen, representing Certified Vacations Group (Exhibit I).
Ted Zuend, Fiscal Analyst, distributed a bill-explanation document for A.B. 342 (Exhibit J).
Vice Chairman Goldwater closed the hearing on A.B. 342 and opened the hearing on A. B. 366. He noted there were guests in the audience who had traveled from Austin, Nevada.
Assembly Bill 366: Provides exemption from governmental services tax for vehicles registered by resident of Nevada who is in Armed Forces of United States and required to live in another state. (BDR 32-347)
Former Assemblywoman Marcia de Braga, the original sponsor of A.B. 366, commenced testimony in support of the bill. A copy of the revised bill with the proposed amendments to NRS 371 was submitted for the record (Exhibit K). She asked that Assemblywoman Chowning be allowed to present formal testimony. Mrs. de Braga explained that A.B. 366 was written by the Legislative Counsel Bureau (LCB), and they had made a mis-assumption. As such, it had to be completely redrafted. For purposes of the hearing, the LCB suggested that only the amendment be distributed to the Committee.
Mrs. de Braga provided introductory comments about the reason for drafting the legislation. Currently under Nevada law, there was no provision for an exemption from the governmental services tax for active duty military servicemen. There was a provision for veterans to receive a vehicle exemption of $2,000; however, there was no provision for active military personnel. Mrs. de Braga noted that the LCB assumed that the bill sponsors were seeking that $2,000 exemption for active servicemen; Mrs. de Braga said they were not.
Continuing, Mrs. de Braga explained A.B. 366 was designed to give active servicemen an exemption from the governmental services tax entirely for the time that they were on active duty. She noted that the conditions for qualifying were spelled out in the first part of Exhibit K. It would require a signed form from the commanding officer, and the exemption would be validated.
The second purpose of the bill was to modify existing law by removing a portion of NRS 371.103, an explanation of all of the dates during which there were military conflicts or defined times of active service to the country. It would serve all veterans. Mrs. de Braga stated that all dates should be removed from the statute because they overlooked some military actions and service. The bill would remove from statute that particular paragraph that spelled out the dates. If enacted, all veterans would be entitled to apply for that benefit.
Mrs. de Braga explained that the third proposal in the bill allowed a veteran to choose not to receive that exemption, in which case the amount of that exemption went into the Veterans’ Home Account. However, she wanted that language changed that so that the money would go into the Veterans’ Gift Account, which would guarantee that the money would be used for veterans. Otherwise, she noted, if the money was not used it went back to the General Fund.
Chuck Fulkerson, Director of the Office of Veterans’ Services, read from prepared testimony (Exhibit L) in favor of A.B. 366. Mr. Fulkerson judged the proposal to be a “small token of appreciation” that the state could extend to its fellow citizens who served in the active armed forces. Monetarily, it was a small amount that would help balance a tight household budget for those living on military pay. More importantly, Mr. Fulkerson emphasized, it conveyed a strong message of home state support on a daily basis to those serving in every state and in many countries around the world.
Regarding the proposed removal of dates from the statute, Mr. Fulkerson stated that since 1945, there had not been one single day where there had not been a serviceman of the United States in “harm’s way” someplace. He believed it should be a blanket effect.
In conclusion, Mr. Fulkerson stated A.B. 366 would allow military members from Nevada to have an opportunity to keep a connection with Nevada while not paying taxes for services they were unable to use and enjoy. The funds donated to the Veterans’ Home would be used to purchase items to improve the care of its residents.
Assemblywoman Vonne Chowning, District No. 28, Clark County, commenced testimony and voiced her pride over the opportunity to introduce the bill on behalf of former Assemblywoman Marcia de Braga. Ms. Chowning offered strong support for veterans and other active duty personnel and stated they deserved the very best. Their benefits and pay were considered inadequate. As such, the proposal in A.B. 366, especially with the amendment, would be a small way to compensate them. She encouraged the Committee to pass the bill.
Assemblyman Marvel interjected that some veterans would benefit by receiving a $1,000 exemption immediately. He asked if the proposed exemption would only apply to vehicles. He added that he personally chose the veterans exemption on his home.
Mrs. de Braga clarified by saying the exemption being proposed was only for “actives, and there is nothing in statute to give that exemption from the vehicle tax to active servicemen.” She added, “What is already in place for veterans will not change, except for taking out the dates, so that all veterans are entitled to that.”
Chairman Parks called for additional testimony and cautioned the guests that time was limited.
Gail Utter, a resident of Austin, Nevada, shared her personal experience with renewing her son’s vehicle registration last year while he was away on active military duty. At that time she was told there was a form, BR-70, that had been received from the Department of Motor Vehicles (DMV). The document stated there never was a discount available to her son. Her personal research revealed that what was once called a “privilege tax” from the DMV had changed to a “government services tax.” At that time, the military was excluded, as she understood it. She commenced a letter-writing campaign to determine the truth. Mrs. Utter said the situation was so “shameful” that she had to resort to testifying to get resolution.
Ray Williams, Commander of the American Legion Post 45 in Austin, Nevada, commenced testimony in support of A.B. 366. He voiced his appreciation to the Committee and to former Assemblywoman Marcia de Braga for following up on her promise. Mr. Williams stated his organization was the recipient of the complaint that came forward. He forwarded the letter to the appropriate agencies in Nevada. As a career military man, he felt strongly that the bill would demonstrate silent support to servicemen.
Ron Gutzman, representing the American Legion in Austin, Nevada, voiced strong support for A.B. 366. Given the current sacrifices being made by our military, Mr. Gutzman viewed the benefit as small but necessary.
Seeing no questions, Chairman Parks closed the hearing on A.B. 366, and headded “No action will be taken on the bill today.” The hearing on A.B. 364 was opened.
Assembly Bill 364: Authorizes imposition of additional tax on motor vehicle fuel by cities and counties. (BDR 32-1119)
Assemblyman Marvel, representing Assembly District No. 32, commenced testimony as the sponsor of A.B. 364. The legislation had been requested by the city of Sparks, and, although the timing was not ideal, Mr. Marvel believed it was important to get the proposal on the books for future consideration. He noted that there were areas in northern Nevada where there was significant deterioration of the infrastructure. He introduced Shaun Carey, City Manager, city of Sparks.
Shaun Carey read from a prepared statement (Exhibit M) and testified that A.B. 364 provided a solution to the problem of rapid growth in Nevada. Those problems included the loss of quality of life as evidenced by a burdened transportation system and high-volume roads that were not designed to carry high volumes of vehicles through neighborhoods. The result was blight and disinvestment in the affected areas. Mr. Carey voiced confidence that transportation issues were being addressed by a number of bills that had been introduced.
Mr. Carey explained that in Nevada there was good utilization of impact fees to offset the effects of rapid growth; however, what was missing was attention to quality of life for those neighborhoods that received the brunt of the traffic. Mr. Carey cited the example of McCarran Boulevard, built in the 1970s as a four-lane road, with homes as close as 20 feet from the edge of the traffic lanes. The volume of traffic far exceeded predictions, as was the case in many areas throughout the state of Nevada.
Continuing, Mr. Carey explained he had worked in four states in the area of transportation issues, and he viewed A.B. 364 as a fair approach to building quality of life in affected areas. Those improvements included pedestrian sidewalks along major roadways, crosswalk safety aids, and sound walls. The tool that was missing was one that would limit those funds to a focus on quality of life and to integrate transportation with neighborhoods. Mr. Carey viewed the bill as simple in that it provided a tool to restore the quality of life in older neighborhoods, as well as to utilize impact fees to deal with capacity. Additionally, it would allow the use of the development process to build the right size infrastructure and preserve the quality of life for the future.
Assemblywoman Gibbons requested clarification if A.B. 364 was enabling legislation and if it would allow Sparks to receive more federal funds. Mr. Carey replied in the affirmative and said that federal funds earmarked for Nevada often went untapped due to the lack of the required local match in funds. Even with the passage of Washoe County’s transportation bill, there was still a gap. The widening of Sparks Boulevard to four lanes would require Sparks to pay for the sound walls.
Assemblyman Marvel requested that John Sande be allowed to comment on his concerns over A.B. 364, specifically the omission of appropriate language for the collection mechanism.
John Sande, representing the Western States Petroleum Association, stated his concern with the bill was not the enabling of the local option; however, the collection of the tax was an issue. As written, the bill would require collection of motor vehicle fuel taxes “at the rack,” and there were three “racks” in the state of Nevada. The tax could also be collected by the distributors, if they were registered with the state of Nevada. They were the middlemen, also called “jobbers.”
Continuing, Mr. Sande stated the problem was that, today, everything was automated. As such, if Chevron sold at the rack, they automatically paid. Mr. Sande argued the bill created a manual payment process because it would require the oil company to get a signed statement from the jobber. That document would have to be kept by Chevron for tax filing in the future. Mr. Sande viewed that manual paperwork as a significant problem and expense.
Another problem, according to Mr. Sande, was that the jobbers did not like to report the fuel delivery location because there was a concern with competition from other distributors. In way of a solution, Mr. Sande suggested that the bill be amended to allow the county to impose the tax and distribute the proceeds to local entities. There already existed a local tax option of nine cents per gallon. An alternative solution was to follow Arizona’s approach, namely to collect the tax when the fuel was delivered to the retailer. Mr. Sande concluded by saying his organization was not opposed to taxes if they were needed on a “cents-per-gallon basis.”
Assemblyman Grady asked the witness what would happen to his proposal if the city of Sparks asked Washoe County to propose the tax and Washoe County refused. Mr. Grady recalled that had happened in the past with the optional 5-cent tax.
Mr. Sande acknowledged the difficulty; however, on behalf of the oil industry, he stated that “if you are going to leave it the way it is, then you are going to have to address the tremendous additional increase, and you may have to change the way you collect the tax.” He encouraged the Committee to look at Arizona’s methods, and he reiterated the jobbers would be unwilling to disclose their delivery locations.
Mary Henderson, representing the Nevada League of Cities, commenced testimony in support of A.B. 364. Although the membership had not taken a formal position on the bill, she voiced support for the concept of enabling tools for local government. Looking back several legislative sessions, she recalled the proposal of landscape and maintenance districts for new development. Although that was a helpful solution, it was not enough. The area of enhancements to older roadways had not been addressed sufficiently, resulting in quality-of-life issues. Ms. Henderson viewed the bill as one more tool to achieve that goal.
Continuing, Ms. Henderson called attention to roadway enhancements that were “buried at the bottom of the bill,” which included traffic calming devices and crosswalks. Multiple requests were received by the city from citizens asking for safer neighborhoods, for example, speed bumps and roundabouts. Finding funds for those efforts was difficult, and she viewed A.B. 364 as a tool to address citizen requests. Ms. Henderson added that passage of the bill would allow increased partnerships with the state on roadway construction programs.
Larry Berry, representing the Nevada Department of Motor Vehicles, declared a neutral position on A.B. 364. He added that a fiscal note had been submitted on the bill; however, Chairman Parks remarked the fiscal note had not yet been received.
Peter Krueger, representing the Nevada Petroleum Marketers and the Convenience Store Association, commenced testimony in opposition to A.B. 364. The current federal, state, and local gas taxes represented one-quarter of the price of a gallon of gas and equated to 54 cents per gallon. To add another penny, in addition to the automatic increase of 4.5 cents assessed by the Washoe County Regional Transportation Agency, would surpass the ability and patience of citizens to pay the taxes.
Mr. Krueger stated that, beyond that issue, customers were visibly unhappy with the ever-growing price of gasoline approaching $2 per gallon. The timing of the proposed legislation was poor, and the approach was wrong for improving the quality of life. Mr. Krueger voiced concern with the structure of the tax and echoed Mr. Sande’s testimony that most distributors would be very reluctant to reveal the delivery destinations. For most rural deliveries, it was going into central storage in Battle Mountain and then distributed from that point as demand required.
Mr. Krueger expressed additional concerns with the current law, specifically with supplier-to-supplier, non-taxable transactions. In his words, “Many of our members buy from the major oil companies without paying the tax and only collect the tax at a time when they sell the fuel. So, it would not be, under the provisions of this law or this proposal, collected at the rack.”
In conclusion, Mr. Krueger stated that his Association was absolutely opposed to A.B. 364 in any form. It would be devastating to move the collection point back to the retail level where it was eight years ago when it was moved to the rack. He acknowledged the needs of Sparks, but he asked them to look elsewhere to fund quality-of-life improvements.
Voicing disagreement, Assemblyman Marvel observed that it probably was not the right time to impose the tax; however, A.B. 364 was entirely enabling legislation and designed to be utilized by communities in the future.
Daryl Capurro, representing the Nevada Motor Transport Association, declared his opposition to A.B. 364. It created multiple problems. The first issue was the destination of the tax revenue. Currently, none of the fuel taxes on gasoline or diesel was earmarked for specific purposes; rather, that revenue was allocated based on the state’s three-year or ten-year plan.
The second issue, according to Mr. Capurro, was the creation of an administrative problem for the Department of Motor Vehicles (DMV). He voiced his agreement that there should be a fiscal note attached to the bill. Gathering the information from the supplier and then distributing that money to the appropriate governmental entity would be difficult for the DMV. Mr. Capurro stated there were several other bills under consideration that also would deal with fuel tax increases.
Mr. Capurro noted that his Association had just received notification that the Alaska Legislature was proposing a 7.2-cent increase in diesel tax and a 5.4‑cent increase in gasoline tax, effective October 1, 2003. The biggest problem, according to Mr. Capurro, was the allocation of the revenues and determination of which entity was entitled to receive the funds. Currently, a one-cent tax was imposed, with revenues going to the county. The proposed tax was very different in that regard.
Chairman Parks commented the problems with implementing the tax were almost insurmountable.
A letter of opposition to A.B. 364 (Exhibit N) was received from Bob Hadfield, representing the National Association of Counties. His letter stated, “We support additional revenue; however, this changes the intracounty distribution. These distribution issues are under study by the S.B. 557 Technical Committee. We oppose the change without using this process. We are concerned that this bill would set a precedent in conflict with current S.B. 557 efforts.”
Seeing no additional witnesses, the hearing on A.B. 364 was closed.
It was suggested that the meeting be adjourned; however, Chairman Parks was notified that a group of realtors in the audience had been waiting for three hours to testify. Although the quorum was lost, Chairman Parks asked Assemblyman Goldwater to make opening remarks on A.B. 387. Time would be allowed for limited testimony from members of the audience. Chairman Parks declared his intention to put the bill into a subcommittee for further review.
Assembly Bill 387: Makes various changes to provisions governing taxation. (BDR 32-173)
Assemblyman David Goldwater, Assembly District No. 10, Clark County, co-sponsor of A.B. 387, commenced testimony. A package of documents (Exhibit O) was distributed to the Committee. Assemblyman Goldwater announced that the bill was co-sponsored by Assemblyman Griffin.
Mr. Goldwater stated that one of the most onerous taxes paid directly by constituents was the Motor Vehicle Privilege Tax, also known as the Government Services Tax. The tax was levied on automobiles in lieu of the personal property tax. According to Mr. Goldwater, “It was 4 cents on every dollar of the value of the vehicle, and 1 cent optional, and ends up being about 35 percent of the manufacturer’s suggested retail price.” He added that the assessed value of the vehicle was depreciated to 85 percent of the manufacturer’s suggested retail price the first year and continued to drop until it reached 5 percent by the ninth year. Mr. Goldwater explained the tax was required at the time of vehicle registration and was a substantial figure for many citizens.
There were three destinations for the distribution of the motor vehicle privilege tax: the Highway Fund, the School Account, and the statutory distribution to local governments. Mr. Goldwater emphasized it was important not to shortchange the recipients of those tax revenues. Because of the 120-day session, the bills being considered were not perfect, and A.B. 387 was no exception.
Assemblyman Goldwater called the Committee’s attention to his handouts (Exhibit O). It included a compilation of 1999 State Motor Vehicle License Tax for the 50 states. In the category of revenues on a per-capita basis, Nevada ranked number 12. Based on $100 worth of income, Nevada ranked number 20. Assemblyman Goldwater judged that to be a “pretty high tax.” The proposal to decrease the motor vehicle privilege tax by half was described by the witness as a “basket of taxes” that resulted from his brainstorming. That list included a one-eighth increase in the gross gaming tax, a one percent increase in the room tax, a small increase in the real estate transfer tax, repeal of the home office tax credit for two insurance companies in Nevada, and repeal of the tax exemption on newspapers and their component parts.
Echoing the testimony of Assemblyman Mortenson, Mr. Goldwater was neither in favor of nor against any of those taxes. He voiced his willingness to cooperate with his colleagues to achieve the goal of tax reduction for their constituents. On the important issue of changing Nevada’s tax structure and moving away from dependence on cyclical taxes, Mr. Goldwater urged the Committee to send a message to constituents. That message should include the promise of tax relief for ordinary working people.
Continuing, Assemblyman Goldwater cited a list of taxing options (Exhibit O) that should be taken into consideration. Not on the list was a “value of commercial lease tax,” which could be an option. Also contained in the package of handouts were the following reports: “Revenue Generated From Increase In Rates of Selected Taxes” and “Sales and Use Tax Exemptions.”
Concluding, Mr. Goldwater stated the goal of A.B. 387 was to reduce taxes for ordinary working people and businesses. In comparing what businesses paid in government services taxes with the proposals contained in most broad-based business taxes, the burden of the government services tax was far greater in several instances.
Chairman Parks called for witnesses to testify on A.B. 387.
Curry Jameson, representing the 11,000 members of the Nevada Association of Realtors, acknowledged Assemblyman Goldwater’s concern for taxpayer relief, especially for the ordinary working people. Affordability for buyers of entry-level homes was of great concern to Mr. Jameson and his Association. Because a portion of A.B. 387 dealt with the real property transfer tax, the Nevada Association of Realtors was opposed to the bill. There were multiple reasons for that opposition.
Mr. Jameson explained that the real property transfer tax was imposed on each recorded transaction that involved a transfer of residential or commercial real property and was levied on the assessed value of the property as it changed hands. Based on law passed during the 1999 Legislative Session, both the buyer and the seller were “jointly and severally liable” for the payment of that tax. As such, the item, in theory, was negotiable. The rates varied by county and generally were set at 65 cents per $500 or $1.30 per $1,000 of assessed value. In Clark County, the rate was $2.50 per $1,000, and in Washoe County the rate was $1.50 per $1,000. Most of the revenues were utilized by local governments and local school districts to fund their respective activities; however, 10 cents of each dollar were diverted to the state of Nevada to fund the state’s low-income housing.
Under A.B. 387, Mr. Jameson explained that, while the transfer tax rate in each county would increase by $1 per $1,000 of property values, the funds would be allocated to the state of Nevada for non-housing related needs. While his Association was fundamentally opposed to any increase in the real property transfer tax rate, Mr. Jameson emphasized it was bad public policy to utilize the transfer tax for non-housing needs.
He urged the Committee to remember that several proposals before the Legislature already had impact on the consumers. In the real estate arena, it would substantially affect the property tax rate, and that would be compounded at the time of sale with an increase in the transfer tax. Continuing, Mr. Jameson stated that, in addition to A.B. 387, the Assembly was also considering other measures that would substantially increase that rate. One proposal would increase the rate by over 300 percent.
As residents of their communities, realtors understood the need for additional revenues, and there was a willingness to participate in solutions. Mr. Jameson stated the Association of Realtors was on record in support of an increase in property taxes, as well as the concept of a broad-based structure for taxation. The real property transfer tax had a tendency to be narrow. In reviewing statistics of the past year, real estate sales had risen dramatically; however, real estate business was cyclic, and A.B. 387 would not answer the problems.
Michael Veatch, representing the Sierra Nevada Association of Realtors (SNAR), commenced testimony on the impact of changing the real property transfer tax. By its nature, that tax was regressive, and it placed a greater burden on families who could least afford it. It was especially true for first-time homebuyers. Prospective homebuyers were challenged by affordability in two areas: the down payment and the monthly mortgage payments. The down payment was usually dependent upon the buyer’s savings, while the maximum monthly mortgage payment was determined by the buyer’s income.
Increases in the transfer tax, according to Mr. Veatch, would affect the buyer’s ability to make the down payment. As such, the lower and middle-income buyer would be unfairly burdened. In Nevada, the average family income was between $30,000 and $40,000 per year, with approximately 56 percent of Nevada families earning less than $50,000 per year. In order to afford a $100,000 home, a family was required to have an income of approximately $31,000 to qualify.
Statistics for Carson City real estate sales revealed an average home price of $204,000 for the first half of 2003. At the current tax rate of $1.35, the transfer tax would be $275; however, under Section 7 of A.B. 387 the proposed increase in the transfer tax would raise the transfer tax bill to $469. That represented an increase of 70 percent, considered more burdensome to the lower-income family.
Assemblyman Goldwater clarified that A.B. 387 reduced the motor vehicle privilege tax by half for that same group. He asked the witness if that family would have more money in their pockets by reducing the motor vehicle tax every year or would they benefit more by a one-time reduction at the time of home purchase.
Mr. Veatch commended the efforts to reduce the motor vehicle tax. It was a broad-based tax that affected many more Nevada residents than did the real estate transfer tax. Mr. Veatch quoted a recent study published by the Real Estate Studies Department at UNLV. The report revealed a “crowding-out effect” from home ownership on families in Nevada as a result of down payment constraints on homebuyers. That study estimated that each additional increase of $1,000 in down payment requirements would preclude 2,400 families from buying a home. Additionally, the research confirmed that the down payment on a home was the single biggest obstacle to home ownership. Mr. Veatch reiterated previous testimony and stated the transfer tax was cyclical, and therefore subject to great swings in direction.
Assemblyman Goldwater asked the witness who paid the real estate transfer tax, the buyer or the seller. Mr. Veatch replied it was negotiable between the buyer and the seller; however, it was more commonly the seller, especially in a resale situation. The selling price was built with that expectation.
Mr. Jameson interjected with a clarification on the notion that when “the raise occurs, that can be a negotiable item and financiable. That is not true.” Unless it was classified as a buyer’s cost, under lenders’ rulings, that was the only way it could be financiable by the lender. Additionally, as the Housing and Urban Development (HUD) representative for northern Nevada, Mr. Jameson stated emphatically that HUD would not allow that to be paid by the buyer. It therefore became a non-negotiable item in many senses. As a result, the increases would add to the base price of the house. Typically, when a home was listed for sale, the seller’s first question was, “How much money am I going to make?” A proceeds sheet was drafted, and when the seller saw a tax increase as proposed, the seller’s most likely response was, “I need more money. I need to raise the price.” Mr. Jameson voiced concern over that anticipated reaction of home sellers.
Penny Mayer, the broker-owner of Mayer and Associates, Sparks, Nevada, made introductory remarks regarding A.B. 387. As a real estate practitioner, she did not regard the tax as “broad-based.” In her judgment, it was targeted exclusively at the real estate industry and the consumer. The tax discriminated against real estate because investors of stocks and bonds avoided the tax. Home ownership had historically been a key attraction for families choosing Nevada as a home.
On the subject of exemptions, Ms. Mayer stated there were 16 exemptions to the tax in NRS 375.090. While each of the exemptions had a sound economic base, the end result was a narrow tax base made even narrower. Washoe County records revealed 1,694 deeds in one month. Of those, 757 paid no tax because they fell under the list of exemptions. Continuing, Ms. Mayer explained that most exemptions related to commercial transactions rather than residential. She cited the example of the sale of the MGM Hotel to Bally’s where no transfer tax was owed. That was attributed to the nature of the sale, namely a stock transfer and one of the 16 exemptions on the list. Ms. Mayer reiterated how burdensome the tax was for the smaller consumer in residential real estate.
Continuing, Ms. Mayer predicted that, as commercial transactions became more complex, it would become more difficult to administer the tax. It was paid at the point of recording the deed, and the deed could not be recorded without payment of the tax. Ms. Mayer stated there was always pressure to close escrow, but she emphasized escrow could not close until the tax was paid. Delays in the escrow process carried with it the threat of loan expiration and an increase in interest rates. Failure to pay the transfer tax in a timely manner interrupted the close of escrow. Ms. Mayer noted that it put additional pressure on county recorder offices.
In summary, Ms. Mayer stated the primary payer of the tax was not Nevada’s businesses that often escaped paying the tax through the exemption process; rather, it was Nevada families that bore the burden for tax payment. The tax had a narrow base from which to collect, and the real estate industry clearly supported a broad-based tax. Ms. Mayer explained that more than 80 percent of the land in Nevada was owned or controlled by the federal, state, or local governments. Less than 10 percent was held in private hands, and a small percentage of that group paid the tax after exemptions were utilized. Additionally, the transfer tax was not a stable source of revenue, because the real estate business was subject to economic highs and lows. Ms. Mayer stated the high degree of volatility generated great fluctuations in revenue yield.
Ms. Mayer added that in Elko County, the real estate market was so soft that residents were actually abandoning their properties. As such, there was no sale and no transfer tax paid. In the economic recession of the 1980s, the real estate market declined by over 50 percent. In the 1990s, as the economy spiraled downward, home sales fell by 20 percent. Although Nevada showed a robust real estate market for a number of years, more difficult times were anticipated.
In conclusion, Ms. Mayer stated that the taxes collected in each of the 17 counties of Nevada were subject to inconsistent implementation and interpretation.
Assemblyman Griffin agreed with the language in A.B. 387 that would reduce the motor vehicle fee, even though he had some concerns with how that revenue would be replaced. Mr. Griffin disclosed that his mother was a licensed realtor in Nevada, and that he was a long-time acquaintance of Curry Jameson. In looking at other states, Mr. Griffin stated that Nevada was comparatively low in taxes. He asked if the real estate tax ever adjusted to some level.
In response, Mr. Jameson explained that nationwide, the prevailing sentiment was it was not only a bad tax, but it was a regressive tax. The real estate markets were negatively affected as it continued to be increased by various legislatures. He cited the example of New Jersey where the increase in tax had hurt the real estate market in all home price ranges. The realtor associations in most states were actively seeking funds and strategy to fight increases in the real estate transfer tax.
Assemblyman Griffin voiced his concern on the “regressivity” of the tax, specifically on the common practice of replacing the first home and moving up to a more expensive home. He commented there might be a way to exempt some FHA loans in the entry-level home market, and he did not believe there would be a significant decrease in the tax revenue. Mr. Griffin suggested that part of the solution would be to examine the impact on entry-level home purchasers. On the issue of the MGM-Bally real estate exchange, Mr. Griffin suggested that it might be time to revisit those exemptions.
Mr. Jameson interjected that the Nevada Association of Realtors had sponsored a recent videoconference for purposes of discussing solutions. On behalf of his organization, he offered to participate with legislators to develop a tax solution that was not regressive.
Assemblyman Mortenson asked whether most commercial transfers were exempt, compared to residential transactions. Ms. Mayer replied that they were exempt if there was a stock transfer, as exemplified in the MGM-Bally’s sale. Mr. Mortenson asked if other states required the payment of transfer taxes on stock exchange deals. Ms. Mayer was uncertain; however, various members of the audience were heard to say, “yes.” Mr. Mortenson suggested that situation should be addressed at some point. Ms. Mayer added that there were a few exemptions that could be better explained by the county recorder. Some exemptions were probably immune from removal.
Assemblyman Goldwater offered to address the subject of stock exchanges. In defense of that process, he explained there was a plethora of fees on the transfer of stock that would be comparable to a real estate transfer tax. There was no state levy; however, there was a significant bite taken out of the total. He voiced his appreciation to the real estate profession for attempting to safeguard the ordinary working family, as well as offering their insights on the volatility of the real estate market. Mr. Goldwater stated his Committee was anxious to talk about a non-regressive tax that everybody could support. He asked the witness, “What is more burdensome on the low and moderate income people - the motor vehicle privilege tax or the real estate transfer tax?”
Mr. Jameson declared the real estate transfer tax was a greater burden because it affected the down payment affordability, the first step in home purchase decision-making.
Kathy Burke, Washoe County Recorder, voiced her support in any effort to find solutions, including participation in the subcommittee hearing. As the administrators of the tax, the input of county recorders was essential.
Chairman Parks extended an invitation to the subcommittee hearing on A.B. 387, to be chaired by Assemblyman Goldwater with the assistance of Assemblyman Griffin.
Kent Lauer, representing the Nevada Press Association, offered to save his testimony for the subcommittee hearing. Seeing no additional witnesses, Chairman Parks closed the hearing on A.B. 387.
A work session document (Exhibit P) was distributed by Ted Zuend, Fiscal Analyst. The meeting was adjourned at 4:49 p.m.
RESPECTFULLY SUBMITTED:
June Rigsby
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: