MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
April 1, 2003
The Committee on Taxationwas called to order at 1:30 p.m., on Tuesday, April 1, 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.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
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:
Assemblyman Chad Christensen, District No. 13
Assemblyman John Carpenter, District No. 33
STAFF MEMBERS PRESENT:
Ted Zuend, Deputy Fiscal Analyst
June Rigsby, Committee Secretary
OTHERS PRESENT:
Harvey Whittemore, Southern Wine and Spirits
Bruce Guttman, Attorney, Los Angeles, California, Chateau Vegas Wines
Dino DiCianno, Deputy Executive Director, Department of Taxation
Joe Aguirre, Elko County Assessor
Dave Dawley, Carson City Assessor
Jeff Johnson, Humboldt County Assessor and President of the Nevada Assessors’ Association
Doug Sonnemann, Douglas County Assessor
Gaylyn Spriggs, Nevada Taxpayers Association
Ray Bacon, Nevada Manufacturers Association
Christina Dugan, Las Vegas Chamber of Commerce
Mary Lau, Executive Director, Retailers Association of Nevada
Michael Pennington, Reno-Sparks Chamber of Commerce
David Howard, City of Reno
Chairman Parks:
Good afternoon. I would like to call the Assembly Committee on Taxation to order. [Roll called.] We have a number of bills today. Assemblyman Carpenter is in a Transportation meeting, so we will move forward to A.B. 437 and Assemblyman Christensen.
Assembly Bill 437: Revises definition of "supplier" for purposes of tax on and sale of liquor. (BDR 32-1161)
Assemblyman Chad Christensen, District No. 13:
I am here as sponsor of A.B. 437. It is an act relating to taxation and revising the definition of supplier as it relates to the tax on the sale of liquor. The bill has four particular points. The first is that it ensures the tax on liquor sales in Nevada is properly collected. It also protects Nevada’s consumers against counterfeit liquor, which is definitely an issue. It also protects supplier and brand integrity. It further protects Nevada-owned and operated wholesalers, especially those who do play by the rules and follow the channels set forth by the law.
Harvey Whittemore, Southern Wine and Spirits:
As Assemblyman Christensen has indicated, A.B. 437 is designed to effectuate some cleanup language to make it very clear that the policy that has been established in the state of Nevada for over 30 years is consistently applied with respect to the regulation of the wine and spirits industry. There are those who will suggest that this bill would change the existing law; however, it really does not. The Tax Commission and the Department of Taxation, for over 30 years, have taken a very consistent view of the interrelationship of [NRS] Chapter 369 and Chapter 597 with respect to the importation and taxation of liquor. If a loophole in the law exists and is being used, it could create a very serious disaster to other products which are subjected to taxation. That product could be as simple as a beer product. We believe that would create absolute confusion as to the responsibility for a number of items.
Let me explain the circumstances covered by the bill and assure this Committee that the language clarifies the effectiveness of the three-tier system that worked so well in Nevada. A brewer, distiller, or vintner in another country presently designates an importer in the United States or in Nevada to become the importer of that product into the state. That importer either sells it or designates an importer in Nevada, who is then the wholesaler who delivers that product to the retail store. The retailer could be the resort hotel, the liquor store, or a number of other institutions that sell that product. That channel [of distribution] is very well-regulated under existing Nevada law by having the brewer, distiller, or vintner designate the importer on legal forms required by the state of Nevada.
We have come across a situation involving a product with an existing importer and designated agent in the state of Nevada. People are buying this product on the gray market outside of the United States, designating an affiliated entity within the U.S., who imports the product and bypasses the legal channels of distribution.
Why is this bad for the state of Nevada? There will be those who say it is just a question of competition; however, it is not. The person who is going to sue over a bad bottle of Dom Perignon is going to look to the official wholesaler in the state of Nevada who was designated by the original manufacturer of the product. They are not going to look to the gray market wholesaler. They will simply assume that the bottle of Dom Perignon had to be brought in by X, Y, and Z [company], even though it may not have been the case.
More importantly, if there is no control over the chain of product from the manufacturer level to the importer level, how will you be sure that the taxes the wholesaler is paying reflects the actual number of bottles imported? It is a scary thought to think that someone could simply say they have sold 250 cases of this particular product in the state of Nevada when, in fact, they have sold 5,000 cases of a particular product. From an audit perspective, how many did you bring in from your affiliated and controlled importer? They simply show an invoice that says 250. What happened with the other ones? No retailer is subject to audit because that is not the level where the tax level is determined. With the vast amount of liquor, wine, and other products, it is a very serious issue.
[Mr. Whittemore, continued] Again, the language in A.B. 437 cleans up, what apparently some people are suggesting is, confusion between Chapter 369 and Chapter 597. We do not believe that there is [confusion], and I want to make that point very clear. The rest of the wholesalers do not think there is a problem. Out of an abundance of caution, we have presented this to make sure that our existing three-tier system remains sacrosanct, that we do not have the problems, and we can collect the taxes due with respect to these particular types of products.
On behalf of Southern Wine and Spirits and its Managing Director, Larry Ruvo, we would strongly urge the Committee to “Do Pass” A.B. 437. I would be happy to answer any questions regarding the circumstances surrounding this.
Assemblyman Marvel:
Is this a pretty common practice?
Harvey Whittemore:
Apparently it is becoming more common in that we see more counterfeit products. We see very specialized bottles of wine in many of our fine hotels that are clearly not produced by the vintner. I can assure you that the Somalians try to do a great job, but we are seeing more and more of this. There are those who approach a retailer who has no capacity to determine whether that particular label or that particular vintage was, in fact, properly handled. When buying a very expensive bottle of wine, you want to make sure you are getting what you pay for. I would not say it is common; however, it is a concern. There are some people who are trying to take advantage of the loophole, but I do not want to suggest it is a common practice currently. We had a situation in England involving gray market liquor sales of the brand Johnny Walker, which, in fact, was not Johnny Walker. It was a bad product that put over 600 people in England in the hospital. It is something about which wholesalers and retailers have to be concerned.
Let me give the example of the resort industry patron who went to Picasso’s Restaurant and had a bottle of wine that was bad. Who are they going to look to? They will look to the supplier, the importer/wholesaler who is designated by the manufacturer of that product, when, in fact, that bottle may not have been brought in by that particular wholesaler. I do not think that it is rampant yet, but it is of sufficient concern that people are saying we need to take care of the problem.
Assemblyman Marvel:
Is this similar to what we have with the cigarette gray market?
Harvey Whittemore:
Absolutely.
Assemblywoman Gibbons:
Where was that incident in England?
Harvey Whittemore:
That was in London, and I can get you the report of the article describing what had happened.
Assemblywoman Pierce:
You mentioned two parts of NRS, one being 369. What was the other number?
Harvey Whittemore:
It was Chapter 597, which has to do with the definitions of supplier, wholesaler, and importer, which does not apparently have the same problem.
Chairman Parks:
How much tax avoidance do you see in this situation?
Harvey Whittemore:
It could be somewhere in the nature of 5 to 10 percent of the entire tax burden that is being avoided by not having the proper channels in compliance. If this were not to be addressed, the potential for abuse would be significant. I can assure you that there would be lots of enterprising people and businesses that would go out and form a Nevada importer [business] and get the product somewhere outside the [legal] chain of title, and bring it into the U.S. by simply clearing U.S. Customs. The importer would then designate a wholesaler in the state and simply have that wholesaler go around and offer the product at 50 percent less than the true cost of the product. They would be in and out and do that on four to ten times per year and make very significant profits. That is the scary part, because I do not think that is what the state of Nevada wants. Most importantly, because this is an area that has been vested entirely with the state of Nevada under the Twenty-first Amendment, it is something we have to, from a state perspective, control very significantly.
Chairman Parks:
Do we have anybody else who would like to speak in favor of A.B. 437? Speaking in opposition to A.B. 437 is Mr. Bruce Guttman.
Bruce Guttman, Attorney, Los Angeles, California, Chateau Vegas Wines:
Ladies and gentlemen. I am an attorney for Chateau Vegas Wines, a small Nevada importer of fine wine and champagne located in Las Vegas. Although I do not represent other state importers, I have had discussions with numerous other state importers of wine and champagne. I can tell you that they all have quite a bit of concern about the passage of this bill. I would like to take a few minutes to address some of the issues put forth by Mr. Whittemore.
There seems to be some confusion as to what are and what are not gray market goods. Gray market is not good for anybody, if it is the gray market that Mr. Whittemore is talking about. That is the type of gray market which is not authentic. If Dom Perignon, as the producer, the vintner, the bottler, and the supplier, makes a product, and they put it in a bottle and ship it all over the world, and if that is the genuine product, the same substance, from the same manufacturer, the same bottler, [then] it is a genuine product. It is not a gray market product. If someone in Hong Kong copies that bottle and scientifically tries to create the same product, and it looks the same and perhaps it tastes the same, but it is not the authentic product, then that is not authentic. That is not genuine.
We have laws to protect the consumer, laws [that are enforced] by the United States Customs Service. I can assure you that those products will not legitimately come into the state of Nevada, because they have to first clear a port of entry. The United States Customs Service laws provide that, before any foreign product comes into this country, it has to be authenticated with a certificate of origin that specifies this is the genuine product. It is not a copycat, it is not counterfeit, and it is the genuine product.
What Mr. Whittemore is talking about is Dom Perignon, produced by the manufacturer in France, that will go to a society and then it will be distributed to various brokers in Europe. Perhaps they have a load that they have not been able to sell, and they can find an American buyer for that product who is a United States licensed importer, perhaps also a state importer. That person can buy that product, bring it into this country, and bring it to whatever state where they have a license to sell it on the competitive open market. That may be classified as gray market, but there is certainly not anything wrong with it. It does not have an adverse impact upon the state economy, because the state economy picks up the taxes on that product. I can assure you that every product that comes into Nevada legally, meaning you have to be a state importer and licensed through the Department of Taxation, must have a monthly accounting to the Department of Taxation. Those taxes are paid.
[Mr. Guttman, continued] I understand and can appreciate Mr. Whittemore’s position since he not only represents one of the largest importers in the state, but virtually the largest importer and distributor in the United States, Southern Wine and Spirits. If we talk about the importation of gray market, Southern Wine and Spirits has had a history of importing foreign-manufactured wine and champagne directly from Europe. They have gone outside of the exclusive importer to bring that in. Why have they done that? They realize that being such a giant in the industry, they have a special market for that. They can control the market by doing that.
I have a prepared statement (Exhibit C) to read to you and afterwards, if you have any questions, I would be happy to take questions.
My name is Bruce J. Guttman, and I am an attorney for Chateau Vegas Wines, a small Nevada importer of fine wines and champagne located in Las Vegas. We opposed the passage of this bill for the following reasons: A.B. 437, if passed, will be an economic disaster for state importers and wholesalers of wine. It will also have a substantial negative impact on consumers. The passage of this bill will enable the largest U.S. importer and wholesaler, Southern Wine and Spirits, to virtually control the Nevada state wholesale and retail market without competition from the numerous other state importers.
Prior to the amendment of NRS 369 in 1999, a Nevada State importer of a foreign-made wine had to obtain authority from the supplier, which was defined under NRS 369.111 as the person or entity who first owned the product upon its importation into the United States, or, in other words, the U.S. importer. This was required before the Nevada importer was allowed to import the product and distribute it through its own or other wholesale markets. This continued relationship between the supplier and the state importer provided quality control of the product while at the same time offered the retailer and the consumer a product at a competitive price.
The 1999 amendment (NRS 369.486) allowed a foreign bottler of a product, wine or champagne, to specifically designate a state importer to import their product. Under this 1999 amendment, only that designated state importer could import the product into the state of Nevada.
A.B. 437 broadens the scope of this restrictive measure by redefining the term supplier under [NRS] 369.111 to include the foreign bottler or his designated agent. Under A.B. 437 a wholesaler may only purchase from a state importer who has been designated by the supplier, meaning the foreign bottler or its designated agent, whether that agent be in the state of Nevada, the United States, or in another country for that matter.
The effect of this proposed bill would be to virtually assure the largest U.S. importer and distributor, Southern Wine and Spirits, the dominance over the largest state importer and distributor, Deluca, and the other smaller state importers and distributors of foreign produced wines. This dominance will result in an artificial inflation of pricing against the interest of the retailer and consumer.
A passage of A.B. 437 would enable Southern Wine and Spirits to set its own price controls over interstate sales of wine coming into Nevada, and the consumer would suffer from lack of competition. Moreover, Southern Wine and Spirits, with control over Nevada sales, would be able to expand its practice of requiring retailers to purchase products it does not need in order to be able to purchase the products it needs for its inventory.
There are many in the retail industry who are afraid of openly contesting this bill for fear that their primary supplier, Southern Wine and Spirits, will restrict their purchase of needed inventory.
This bill has a pernicious effect on the American tradition of free enterprise in the highly competitive market of wine distribution within the state of Nevada. Moreover, there is a total lack of any redeeming value in its enactment, except for the fact that it will restrain trade and create a monopoly in favor of the largest importer and distributor in the United States, Southern Wine and Spirits.
Therefore, if this bill [A.B 437] is passed, it will cause substantial economic harm to other state importers, distributors, retailers, and ultimately the consumers of this state. Therefore, I urge you to consider the interest of these people, your constituents and reject passage of this bill.
[Mr. Guttman, continued] Once again, this bill has absolutely no effect upon revenue to the state. Any alcohol coming to this state through a licensed importer to a licensed distributor is subject to taxation. That taxation is collected and passed on to the Department of Taxation, which maintains a monthly record of sales. There is no absence of revenue to the state. The passage of this bill is for the benefit of the largest importer in the United States, and we know who that is – Southern Wine and Spirits. Therefore, I urge that this bill be defeated.
Assemblyman Goldwater:
Thank you for your testimony, Mr. Guttman. Who is your client?
Bruce Guttman:
My client is Chateau Vegas Wines in Las Vegas. They are a state importer and distributor of wines and champagne.
Assemblyman Goldwater:
They are registered with the Tax Department?
Bruce Guttman:
Yes, they are. They have gone through all of the requirements. They have been in Las Vegas for a number of years, and they import and distribute wine and champagne. They do not distribute spirits.
Assemblyman Goldwater:
Is it conceivable that there are disreputable importers who may be avoiding taxes or could possibly be someday?
Bruce Guttman:
There could be mom-and-pop operations, bootleggers, or any number of scenarios of people who are not licensed and not paying tax. That does not affect [prevent] them from bringing something in from Vermont or cigarettes from North Carolina. These people have to be stamped out, but do not punish the licensed importers. Do not create a monopoly in favor of one company against others. There may be people who are violating the law. Those people should be punished to the full extent of the law. My client and the other reputable state importers are governed by the Department of Taxation. They regularly maintain records and submit the taxes on these products.
Assemblyman Goldwater:
Is there a suggestion you might be able to make to the Committee that would be able to stop the problem? We had a big problem with the gray market cigarettes circling back into the country. We had to slow that down. Maybe you could suggest to the Committee a way to stop that and not do harm.
Bruce Guttman:
Yes, I can, but perhaps I can submit something to you in writing or reappear at another time. There are ways to stop it, but do not punish the legitimate state importers.
Assemblyman Goldwater:
I do not think Mr. Christensen wants to punish anybody. We are just trying to solve a problem.
Bruce Guttman:
Ultimately, it is the consumer that we must protect. This measure does not affect the consumer except to the extent it would create a monopoly in favor of the largest company. I am a consumer, too.
Assemblyman Marvel:
How would it [the bill] punish you?
Bruce Guttman:
Southern Wine and Spirits is the largest [distributor/wholesaler] in the country. I do not know what they control, but theoretically, it is 85–90 percent of the liquor in this country. They go to a foreign bottler who is the producer and tell that vintner “we [Southern] are now taking your product for the American market. We [Southern] will sell 90 percent of that product, and we will be your exclusive agent. If you do not give us the exclusivity, we [Southern] will not carry your product anymore.”
This is a big country with a big sales record for selling foreign-made products. The bottler will say, “I will give it to you [Southern].” Nobody else can legitimately carry that product or import and sell that. Southern Wine and Spirits can then say, “This is the price. If you want this product, we are the only store in town. Either you buy it from us [Southern], or you do not get it.” That is how they [Southern] control the market. They also control the market in other ways because now they have control over certain products that other importers cannot acquire. If a retailer wants to get a particular product for its inventory or bar, Southern will say, “If you want this, then you have to buy this.” [The retailer says,] “But we do not need this.” [Southern replies,] “Well, then you cannot have this.” That is not right.
Assemblyman Marvel:
The bill stops that?
Bruce Guttman:
That is because it allows other importers to have the same product. It does not create control in one company over that product. It should be an open and free market. By doing this, you eliminate that.
Assemblyman Marvel:
Does it restrict it that much, as I read the bill?
Bruce Guttman:
The term “supplier” now is redefined to mean the bottler or his agent. Now, the bottler can appoint an agent. Who is he going to appoint? He is going to appoint the person who has a track record of selling more of that product than anybody else. He does that, and they control that product and set their own price controls to the difference [disregard] of the consumer and other retailers and importers.
Chairman Parks:
Is there anybody else who wants to speak in opposition to this bill [A.B. 437]?
Harvey Whittemore:
I would like to respond to any questions and then I have a short comment. With respect to the damage that is done to the legitimate importer, the whole point of the bill is to allow those small importers to get lines designated to them so they can compete effectively in the marketplace by getting a champagne that competes. The very reason for the bill is that the vintner, manufacturer, supplier, bottler, or whoever, has designated a specific person to be the person responsible in the state of Nevada for the sale of that product. If they wanted to go to somebody else, they would. What they are doing is getting around the franchise agreements and distribution agreements in such a way as to create an environment where they are not, in fact, doing what the manufacturer or the supplier wanted.
The simple answer is that you are free to compete with a number of products. Mr. Guttman keeps on suggesting that this is for the benefit of Southern Wine and Spirits. It is for the benefit of everybody in the state of Nevada who has an existing relationship or who is the designated agent. I was surprised he suggested that there was a litany of importers and suppliers who are opposed to this bill. We only know of two or three circumstances, in which the Department of Taxation has said, “No, you cannot do that.” I cannot imagine that there is the big group of people who are concerned about this bill. There simply are not. They know how the system works. You get the right to distribute a particular product, you do it the right way, and you make a profit. You set your price, and, if you set it too high, you invite competition with respect to another comparable product. You go about your business.
[Mr. Whittemore, continued] Again, this is a very straightforward bill [A.B. 437]. Mr. Guttman suggested that in 1999, “The Legislature created an artificial mechanism for a loophole to exist.” That is exactly the point. I do not think so. Judges do not think so. Nobody thinks so, except for someone who is trying to take advantage of “this loophole.” That is why it was brought forward to you in 2003. Certainly, in 1999, nobody intended to create the loophole that Mr. Guttman is suggesting exists. We do not believe so, and no court has agreed with his position.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
I would be happy to respond to questions.
Assemblyman Marvel:
Are you aware of any gray market product being sold?
Dino DiCianno:
Not to my knowledge. It could exist, but we would probably be the last to know. There is one comment I would like to make. We have had requests in the Department with respect to these situations, and we have always told them that it is illegal. I believe the bill [A.B. 437] would clarify that issue.
Chairman Parks:
If there is nobody else to speak on A.B. 437, we will close the hearing and thank Assemblyman Christensen for bringing it forward. We will move to A.B. 348 and welcome Assemblyman Carpenter.
Assembly Bill 348: Revises provisions governing development of certain factors used in determination of taxable value of improvements to real property for assessment of property taxes. (BDR 32-1121)
Assemblyman John Carpenter, District No. 33, Elko County and portions of Humboldt County:
I am here today to testify on behalf of my bill, A.B. 348. To give you a little background, a few years ago in the rural areas there was not enough manpower to reassess property every five years. We came up with a scheme so that when we assessed someone’s property every five years, for example, in 1990 and 1995, they would get a horrendous increase in valuation. We would get comments and complaints. We decided we needed to put in some kind of mechanism that would apply to a period of high growth. We would get a small increase every year, rather than a large one every five years. I think that when you are in a growing economy like Elko was for a great number of years, it worked fine. Now we are in a situation where we are on a downtrend. In Elko we have had many layoffs because of the mines. We have a great number of homes on the market, and we have quite a few foreclosures.
[Assemblyman Carpenter, continued] The Tax Commission or the Department of Taxation is supposed to come up with the growth factor or what the value of the property should be. Joe Aguirre, our Assessor from Elko County, can explain it to you in more detail. The problem happened this year when they published the factors for Elko County, Eureka County, White Pine County, and Lander County. We know that those counties are not growing. They are actually going backwards. As I understand it, the Tax Commission hires an outfit, Marshall & Swift, who makes a survey of what it would cost to build a new home. They apply that factor to all of the property in these four counties.
All counties are broken up into districts and some counties are combined. I think Humboldt County is in with Churchill County. We got a fairly substantial increase. Joe Aguirre can tell you exactly what it was. My phone started ringing off the hook; people were saying, “How come we are getting this increase in valuation when we have all of these homes for sale?” Some people have called me and told me, “I have been trying to sell my home for two years, and I cannot get what I want. I have been reducing the price, and I still cannot sell it. Why are you increasing the value of my home?”
We discussed it with Joe Aguirre and the bill drafters, and we came up with A.B. 348. What it does is to set out a procedure that, on or before July 1 of the year, Joe has to send out his valuations based on the factors proposed by the Tax Commission for the counties. I included the Board of County Commissioners because I thought if there was a discrepancy, the Board of County Commissioners would hear about this also. Maybe they lend more weight to the Assessors when they meet with the Tax Commission. If the Assessors do not believe that the County Commissioners should not be in there, I do not have any problem with taking them out. I just thought they would add more credence to the argument.
On or before September 1 of the same year, the County Assessor and the Commissioners would notify the Tax Commission that they either approve or object to the proposed factors that are applicable to the county. If the Assessors or the County Commissioners felt that these factors were wrong, too high, or too low, then the Tax Commission would be mandated to hold a hearing.
[Assemblyman Carpenter, continued] As I understand it, the Assessors have had some difficulty in talking to the Tax Commission and their staff. The Tax Commission would provide a hearing where the grievant could go and plead the case. The main thing is that the Tax Commission would have to listen to their objections and would have to provide the figures and the data from Marshall & Swift, or whoever came up with this factor. As I understand it, the [building] contractors used this year in Elko really were not, what I consider, in the home-building business. Assessors need those facts in order to make their decisions.
There is nothing in A.B. 348 that requires the Commission to change the factors. We just want to have a hearing so that everyone can have their say. Basically, that is what the bill does. Joe Aguirre could answer questions more of the technical nature.
Assemblyman Marvel:
Why can you not do this in front of your respective Boards of Equalization? I thought that is what they were set up for. If you have certain mitigating circumstances, that is where you make your appeal. I served on Nevada’s State Board of Equalization for five years. We gave a lot of relief.
Joe Aguirre, Elko County Assessor:
I would like to try to answer that question and to keep this on a level so as not to point a finger at anybody. My intent is to say the system does not work, and we do not have the manpower. Elko County is in a unique situation to prove the fact for right or wrong. Take, for example, Wendover, where there is a ten‑story tower being built. There are approximately 1,000 people in Wendover, and it is booming. Four years ago in Elko County we had 1,100 new houses constructed; however, last year we had 200. That is the problem. The system was working properly when we had an inflationary market. Before that factor catches us, it is two years old. Now when it catches us, we are in a declining market. To take it to the Board of Equalization, we would have to go out and do the studies. I have one less appraiser than one year ago. I only have four now. Our budgets in Elko are getting cut to the point where we do not have the manpower to make the proper presentations.
Assemblyman Marvel:
Do you still use the ratio study?
Joe Aguirre:
Yes, we do use it.
Assemblyman Marvel:
It works both ways, up or down. You try to get that balance. It is at your discretion as to how you apply it as the Assessor.
Joe Aguirre:
I was told by a written letter that I had to take it to the Tax Commission for approval for whatever direction I went. When I tried to talk to the Tax Commission, I did not get any response. I have already taken some avenues.
Assemblyman Carpenter:
I think the problem is that it is mandatory for Joe [Aguirre] to apply that factor to the total of the county. When he has to do that, it creates discrepancies. He has not been able to present his arguments to the Tax Commission as to why he felt the factor was wrong. The bill provides a sounding board where they can take their problems. This factor is an increase of 3.5 percent this year on improvements countywide. The only way that Joe [Aguirre] can really disprove the Tax Commission is to argue that it raises it up higher than the market value. Joe does not have the staff to do the calculations to present that argument to the Tax Commission. We feel that he should take it in a simple form and state that the valuations of properties, homes, and businesses have not actually increased by 3.5 percent in these four counties. In reality, the other counties, such as Carson City and Douglas, went down 1 percent. Look around here at all of the buildings that are being constructed. It is hard to fathom that an area such as Carson and Douglas would be decreasing, whereas the four counties in the eastern part of the state would increase that much. We think the bill clarifies that the figures need to be presented one year in advance. Now it is two years.
Assemblyman Marvel:
Who does it, the Department of Taxation? [Mr. Aguirre confirmed.]
Assemblyman Marvel:
Do they have the staff and manpower to do it?
Joe Aguirre:
They do not have the manpower, nor do we.
Assemblyman Carpenter:
Another situation is that it does not affect Clark County, because they have manpower and reassess everything each year. In the rural areas, we do not have the manpower, and we are on a five-year schedule. It [A.B. 348] provides for a sounding board where the Assessors can plead their cases before the Tax Commission. They could go to court, but we just want something reasonable to use with the Tax Commission to get an adjustment.
Assemblyman Grady:
I have two questions. Do you feel that there could be a conflict since the Assessors are elected officials and County Commissioners are elected officials? If they do not agree, how do you settle the disagreement? I am concerned that we are telling two elected officers to make a decision.
Assemblyman Carpenter:
I understand that, and I do not have any problem if we take Commissioners out of the bill language. I thought maybe they could decide amongst themselves. Joe [Aguirre] has to bring it up to the County Commissioners, and they decide if it is too high or too low. They could go to the Tax Commission as a unified group from out of that county. If County Commissioners are taken out [of the bill], I do not have a problem with that.
Assemblyman Grady:
Did you just finish your conference with the Assessors? [Joe Aguirre replied yes.] Was there support for this bill there?
Joe Aguirre:
There is support, but not so much for the County Commissioners. There is support to do something, but we are not sure what needs to be done. There are other Assessors here today.
Assemblyman Mortenson:
As I understand it, the Department of Taxation figures an overall factor for a whole county and then goes to the Assessor and says it has gone up 2 percent or 3 percent. Is that the way it works?
Assemblyman Carpenter:
Basically, that is the way it works. In our area, they come up with a factor for four counties: Elko, White Pine, Eureka, and Lander. The way they get this factor is by hiring a company that goes out and talks to the building contractors to get the price of building materials. They come up with the factor. It is in the statute that the Assessor has to apply this factor to all buildings in the county.
Assemblyman Mortenson:
In Clark County after September 11, 2001, many of the hotels claimed that they were no longer worth what they were before that date. As I understand it, they applied for tax mitigation, and they got it. That establishes the fact that if business is bad, the value of your property goes down. It sounds to me that the region in which the factor is determined for all of those counties is just too big. It should be divided into a smaller increment where they can determine if it is a depressed area and gets a negative factor. If an area is growing really well, it gets a higher factor. To average them together seems unjust. They need to break up the area.
Assemblyman Carpenter:
I can see the validity in that argument, and I think they probably have done that for that group of counties by assuming they all have the same economic situations. Most of those counties are mining communities; however, we feel that in the last four to six years, we have been on a downtrend, and it was hard to fathom why the factor was so high. I think you have a good analysis.
Chairman Parks:
I have a question on the existing language in the statute on page 3, lines 18‑23. Does that [language] do what you are seeking?
Assemblyman Carpenter:
The factor referred to in lines 18–23 is for the land. What we are speaking about is the other factor in lines 13–17, where it refers to the factor for improvements. That is the factor we are addressing. Factor improvements must be adopted by the Nevada Tax Commission. We are talking about the actual buildings on the land.
Joe Aguirre:
We use a Marshall & Swift program in our computers, and they are updated every fall. Two weeks ago, one of my appraisers reported she was working on permits, but there was a problem. She said, “I went out and picked up a really nice porch, and I appraised the porch and reappraised the whole house as instructed. The total value went down.” I said that it had been factored too many times. That was my only answer.
Dave Dawley, Carson City Assessor:
Personally, there is a problem with the factors, and we all understand that. Most counties are going to a re-costing program which we would be doing every year. I believe that will eliminate the factors all together. My problem is that this bill [A.B. 348] should be amended to exclude the Board of [County] Commissioners. The Assessors’ offices provide current market data to the Department of Taxation when they develop the factors. These are based on current market and current trends for different parts of Nevada. If you include the opinions of the County Board of Commissioners, I believe it will just muddy the waters.
Jeff Johnson, Humboldt County Assessor and President of the Nevada Assessors’ Association:
[Witness distributed his prepared testimony, Exhibit D.] Most of the Assessors are not in favor of the part that includes the County Commissioners and the conflicts we would have with them in trying to resolve what the factor should be. I fully agree and understand the intent here. There is a problem with the factor in Humboldt County. Two years ago, several of us went to the Tax Commission and tried to get them to retract passage of the factor. They did delay it for a few months, but it passed later.
There are some serious problems with the factor in the declining economies. Part of the problem is the lack of manpower, either in the Department of Taxation or the Assessors’ offices, to figure out which properties will be over market if we apply the factor and which properties will be okay. We know that property typically increases in replacement costs each year. You cannot buy anything today and expect it to be less tomorrow. We understand the idea behind the factor. The problem is where the statute says we are not allowed to exceed full cash value. Sometimes applying those factors will push some of the properties over their value. The hard part is trying to figure out which properties are right at that level. It is easy with the ones that sell because you can look at the sales price. If it is below the taxable value, it is an automatic problem.
There are a number of other properties you may have in your county that have not sold; therefore, you have no way to know if they were over the market value unless it was brought to your attention. Mr. Marvel had mentioned going to the County Board of Equalization, and that could happen; however, it would require the taxpayer to come back and appeal their valuations or the Assessor would have to determine which ones to take. When we go to the Boards of Equalization, unless you can pinpoint a problem area or individual properties, it would be very difficult to figure out what to take to them. You cannot take the entire county to them and argue against the factor imposed by the Tax Commission.
The other problem is that the factor is supposed to include, according to the statute, all applicable depreciation and obsolescence; however, it does not. The problem is a lack of manpower to determine what the factor should be. It requires a lot of study and detailed analysis to arrive at those conclusions. I have no great solutions, except for the annual reappraisal which would take a lot of time. We are working on that, but it will take a few years before we are prepared.
Assemblyman Mortenson:
If you take the advantage of a big, broad area to factor it and increase the cost, you cannot go in there and analyze every individual business on that. Why do you make the excuse that you have to do individual entities to apply the obsolescence and depreciation? If you are doing one on a grand scale, why cannot you do the other on a grand scale?
Jeff Johnson:
It depends on the individual properties. In Humboldt County, we have over 700 pieces of real property with obsolescence. We have also applied obsolescence to over 1,000 manufactured homes. It took about three years to get to the point to understand what needed to be applied and where. You need to do some analysis so that you know which batch of properties needs to have that obsolescence. We have manufactured home conversions. They had been receiving 17 percent, and we reduced that to 10 percent obsolescence. You can do that when you can track all of those things, which we do. We also do the same thing with single-family residences. We have tried to track all of the single-family home sales, and we have tried to discern if certain ones are too high because of their age or because of their size. There is no single category for them. What we do is that when one sells, we research the data to make sure the sales price was “an arm-length transaction.” If we determine that it was, we reduce the property individually.
Assemblyman Mortenson:
On the upward factor, do you vary it for different entities throughout the area, or do you just apply a blanket upward factor?
Jeff Johnson:
It is a blanket factor that applies to every piece of property with an improvement, and it does not matter what that improvement is.
Assemblyman Mortenson:
That is my point. Why can you factor upward in a blanket fashion, but you cannot depreciate downward in the same way?
Jeff Johnson:
You can if you have the proof to show why it needs to go back down. You have to be able to prove that because the Department of Taxation will come back and will want to know how we arrived at that downward adjustment.
Assemblyman Mortenson:
How do you arrive at the number that says it should go up?
Jeff Johnson:
The Department of Taxation does that in consultation with the Marshall & Swift Valuation Service who does costing throughout the country. They talk to individual contractors and ask them how much it cost to build with certain materials, such as concrete. Then, they conclude the total cost apparently has gone up 3 percent to replace this house. They give us that number, and we apply it to all improvements.
Assemblyman Mortenson:
It sounds like a very unfair system where you can “blanket it up,” but you cannot “blanket it down.”
Jeff Johnson:
You can “blanket reduce it” if you have the data and can
support that claim. That is the hard
part for us to prove. With
single-family residences, we track those and use a ratio to determine if we are
over market value. The ratio we are
supposed to use is 32–35 percent. For
50 home sales, if there are 15 that sold for less than the taxable value, but
the overall ratio is still in that
30–35 percent range, I cannot blanket reduce all of those. I have to go back and individually handle
those 15 homes.
Assemblyman Mortenson:
Property rarely goes downward. In the case of Las Vegas, the hotels claimed that, since business was bad, their properties were worth less, and they wanted a reduction in taxes. That seems to belie the statement you just made.
Jeff Johnson:
The problem is the way we value property. There are three approaches to valuation: market, income, and cost. We use the cost approach and determine what it takes to replace that particular structure or improvement today.
Assemblyman Mortenson:
In other words, you do not believe that if a business is bad, then property has less value. You do not use that as a factor.
Jeff Johnson:
We do if the income approach would indicate that there is something wrong in the value. The other two approaches are supporting valuations or used to make a reduction. If we go to the Board of Equalization, if it is applicable, we will use those other two approaches to value property to see if we are too high or too low. Does that make sense?
Assemblyman Mortenson:
Not a lot, but thank you.
Doug Sonnemann, Douglas County Assessor:
As Mr. Carpenter said, it is a good tool in a good market, but it can be detrimental in a declining market. The bill [A.B. 348] would allow for current market conditions to be included with the improvement factor, not just utilizing the cost approach. Douglas County was on the other side of that situation where the market has been and continues to be very strong. Through the Marshall & Swift service, we did get a decreased factor. That did not hurt us from a taxpayer standpoint. We were not pushing people above market value, but it does affect Elko County.
The improvement factors tend to be based upon the cost approach, as Mr. Mortenson was saying. This bill would give us another tool in our bag of abilities and for the Department of Taxation as well. It has been limited by the cost approach and by the Marshall & Swift service to be more in tune to what is happening in the market. If the market is declining, that can be reflected more currently than what we do now. We tend to be one or two years behind the market [values], and they can be very telling for the taxpayers. It may prove to be impractical, but it would be worth having this in the bag of tools.
Chairman Parks:
I noticed on the sign-in sheet that you indicated you were neutral; however, you also signed in for A.J.R. 8. Are you neutral on this bill [A.B. 348], or are you in favor?
Doug Sonnemann:
Personally, I would be in favor of it. I put “neutral,” but there are pro’s and con’s to it. Although I think this would be of benefit, I agree with Mr. Dawley and Mr. Johnson, as far as the County Commissioners’ [role]. I think it would be very important to keep them in the loop as far as providing the information to them regarding the factor and the actions of the Tax Commission and the Department of Taxation. As far as testifying back before the Tax Commission, I think it would be more appropriate to be exclusive to the Assessor. We certainly would not mind the County Commission or anyone else providing input. At least it would give a focal point to provide testimony back to them.
Gaylyn Spriggs, Nevada Taxpayers Association:
I would also like to talk as a former assessor and a former legislator. The reason we have the factors is that Nevada law required that we reappraise once every five years. When we did that, it raised values too high. It can be compared to the frog in the frying pan. If you cook him slowly, he does not realize he is being cooked until he gets to heaven. The idea was to raise the tax a little bit every year within the five years, so that there was not a big hit every five years. What happened was the Assessors were told to come up with factors. It was their job in the first place, and there were several factors for each county to care for any trends up or down. All of a sudden, we changed it so that the Department of Taxation would come up with the factors, instead of the Assessor.
[Ms. Spriggs, continued] I just went to a Tax Commission hearing, and the Department of Taxation is proposing a “one factor fits all” for the whole state. We are going in the wrong direction, in my opinion. It needs to go back to the Assessor. He knows more about property value than anybody else in the county or in the state, in my opinion. I believe that the Assessors could set a better factor to make sure that 90 percent of the taxpayers are underneath their taxable value. Right now, if you have a factor that is wrong, anybody that is over his value has to go to the Board of Equalization. It is on the taxpayer’s back to get his value reduced. The burden should be on the government to make sure the value is correct or below that value. Speaking for the taxpayers, we are in favor in support of A.B. 348; however, we would like to see the process go back to the Assessors.
Chairman Parks:
To reiterate your situation, you are saying you are in favor of the bill; however you have concerns about the County Commissions. How do you think we should do that?
Gaylyn Spriggs:
The Nevada Taxpayers Association is in support of the bill [A.B. 348]. We would like to see it amended so that the Assessors set the factor rather than the Tax Commission. We have no position on the County Commissioners’ role.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
I am hesitant coming up here, but there were statements made that need to be clarified. I have worked for the Department for over 20 years, and I have always known the Nevada Tax Commission to be open and to listen to all public comment with respect to any issue that affects any taxpayer, whether it is the Assessor or the taxpayer. I think there are some issues here that are policy questions, and they rightfully rest with you; however, I need to say something. The reason we have gone down this path, as testified by Gaylyn Spriggs, is that there were inconsistencies between the counties with respect to the overall assessed value. That is why the process was raised to the state level. If that is a policy decision this Committee wants to make, that is fine. It rests with you.
[Mr. DiCianno, continued] I just want to read [Nevada Revised Statutes] NRS 361.260 and hope that I will not bore you too much, but I think it is important. Paragraph 5 of Chapter 361.260 of the NRS is associated with the improvement factors. “For any property not appraised in the current assessment year, the County Assessor shall determine its assessed value for that year by applying a factor for improvements, if any, and a factor for the land to the assessed value of the preceding year. The factor for improvements must reasonably represent the change, if any, in the taxable value of typical improvements in the area since the preceding year, and it must take into account all applicable depreciation and obsolescence.”
The reason I am quoting this, Mr. Chairman, is that the mechanism is already in place to adjust these things. There is also the opportunity for anyone, including the Assessors, to come before the Tax Commission to provide public input as to what those improvement factors are. It is there. As Gaylyn Spriggs indicated, the Tax Commission this year, at its last meeting, postponed the adoption of those improvement factors based on concern that was expressed by the general public. Therefore, as far as the Department of Taxation is concerned, there is an open forum for this discussion. It exists today.
Assemblyman Mortenson:
Just out of curiosity, is there a general policy, a factor, or a percentage on a residence with regard to annual obsolescence and depreciation?
Dino DiCianno:
By statute, this legislative body established policy, as several Assessors have indicated, that the main method for assessment is the cost-approach. By statute, depreciation is already established at 1.5 percent per year. That is not the only level for depreciation. We also have to take into consideration obsolescence, whether it is economic or functional, with respect to the property.
Assemblyman Mortenson:
Can you explain that?
Dino DiCianno:
I will leave that to Mr. Chairman.
Chairman Parks:
Are there further questions? Thank you very much for that testimony. We will close the hearing on A.B. 348 and proceed to A.B. 514. That was a Committee-recommended bill, and Mr. Goldwater served as the legislative representative to the project, the Streamlined Sales and Use Tax Agreement.
Assembly Bill 514: Provides for enactment of certain provisions that are necessary to carry out Streamlined Sales and Use Tax Agreement. (BDR 32-1292)
Assemblyman Goldwater, Clark County, District No. 10:
I have before you today A.B. 514 that is this Committee’s continued effort to streamline our sales and use tax and its method of collection. You will notice that A.B. 514 furthers Nevada’s effort to continue to participate in the Streamlined Sales Tax Project. By doing this, we accomplish a number of different things. First, we move closer to collecting a transaction tax in an equitable fashion. We also move further down the road in the Streamlined Sales Tax Project by remaining a governing state of this project, having a vote, and continuing to be leaders in the West. Lastly, we do a few things to bring our Taxation Department a little closer to the twenty-first century; but, given the current level of technology in our Taxation Department, we will just say we will bring them into the 1990s.
First, it would be helpful to tell the Committee what the Streamlined Sales Tax Project is and what we are trying to accomplish. When something is purchased, for example, on the Internet, we are having a very difficult time collecting those sales taxes. In fact, in many cases those taxes are not collected at all. The standard for how you collect a tax on a remote sale is whether or not they have nexus or a substantial physical presence in Nevada. That is found in the 1992 U.S. Supreme Court decision, Quill v. North Dakota, which governs transactional sales for tax.
This pamphlet (Exhibit E) explains what the Streamlined Sales Tax Project is about and what simplification would do. Let me read, for the record, a few of the bullet points. “It would streamline the country’s more than 7,500 diverse sales tax jurisdictions, each of which has different definitions of what is taxable. States must enact legislation to simplify their sales tax systems as a first step to congressional passage of legislation permitting states to require collection of sales tax by remote sellers.”
It is not a new tax. We have decided in this state that we want to tax sales transactions and use of taxable goods. These are things that we have decided are already taxable. It is not an Internet tax at all. It is not taxing things on the Internet. It is an agreement about the collection of owed taxes on purchases made online or from any other remote source. It is not a tax prohibited by Congress. What Congress has said is that states have the right to govern their own taxation.
[Assemblyman Goldwater, continued] Inside your book (Exhibit E) is a fact sheet emphasizing these facts. I should also point out what Nevada is estimated to have lost. This estimate is from the GAO Office and from Professor Fox at the University of Tennessee. In the last legislative session, I had a presentation about Professor Fox’s estimates. Those estimates looked so big back then [2001], and we thought we would never meet them. Governor Guinn has been an advocate of the Streamlined Sales Tax Project, as well as our Budget and Fiscal Departments. All of our estimates include a major discount factor to sales tax collections because of remote sales. I think Professor Fox underestimated what Nevada is losing.
We have lost in 2003, an approximate $2 million; in 2006 it is estimated at $441 million; and in 2011, you are looking at $600 million. I encourage you to look through this book (Exhibit E). It is very informative. Also, Chairman Parks has a letter from the National Conference of State Legislatures (Exhibit F). I was a member of the Executive Task Force On Remote Sales and Internet Taxation, and I happily participated in many of the policy developments.
Another important thing about this bill [A.B. 514] and about the Streamlined Sales Tax Project is that we are not mandating anything. We are saying to retailers, “If you would like to volunteer to register with the Taxation Department, volunteer and do so. Register.” It gets you out of some of the carrots and sticks in the legislation if you volunteer and register as a remote seller with the Tax Department. The state of Nevada cannot come back at some time and say, “We know you have been in Nevada for ten years, and you should have collected ten-years-worth of taxes, and we will come get you.” That is how the Streamlined Sales Tax Project works.
Let’s walk through the bill [A.B. 514]. It is all voluntary and mostly “carrots and sticks.” The Department of Taxation shall post a Web site or other Internet site. It talks about rates, changes, and amendments to statutory provisions so that people have access to our tax code and can work on it. The Department shall establish and maintain a central electronic registration system that allows a seller to register. Those are things that the registration system may use as a factor to determine if the seller has a nexus in this state for purposes of determining the liability. Section 4 is just conformity with the use tax.
What the Streamlined Sales Tax Project tries to do is resolve some of the complexities involved in trying to establish a simplified system between states. Some states exempt food or cookies as food, but not candy. Shoes, in some states, are taxable, but work boots are not. How is the Nevada Tax Department going to make that determination? Rates between counties and cities are very difficult to determine. Who gets those taxes will depend on where these things [transactions] happen. These are things that can be worked out by an interstate agreement, and we are slowing moving that way. It takes the passage of this [A.B. 514] to slowly but surely get us there. What A.B. 514 does is it gets the Tax Department on its way to providing information, to setting itself up, to allow sellers to register, and to move us down the road to collect these sales taxes as they should be collected.
[Assemblyman Goldwater, continued] Section 21 allows the Department of Taxation to accept credit cards, debit cards, and electronic transfers for the payment of taxes due. That is an essential part of this [A.B. 514] and something we have found challenging in this state. Other states do not have that much challenge.
I will summarize. Nevada has been a leader in the West, and we have a distinct advantage compared to a number of other states regarding our sales tax. As complicated as it is, it is still relatively simple compared to most other states where the exemptions are voluminous, and the rates and distribution are unbelievably complex. We have a real opportunity to continue to be a leader, not only on the West Coast, but also in the country. I encourage your passage of A.B. 514.
Assemblyman Hettrick:
It is my understanding that the Streamlined Sales and Use Tax Agreement has some kind of implementation based upon when a certain number of states enact the legislation. Does the bill address that? Could you explain for the Committee what that is?
Assemblyman Goldwater:
There is a critical mass of states needed to participate and have adequate membership in order to have this legislation passed for Congress to look at either an interstate agreement or legislation governing the sales tax and recognizing the work of the Project.
Ted Zuend, Deputy Fiscal Analyst:
On November 12, 2002, the implementing states approved the Streamlined Sales and Use Tax Agreement and sent it to the states. At least ten states comprising at least 20 percent of the total population of all states imposing a state’s sales tax must be found to be in compliance with its requirements. I believe South Dakota has already passed legislation. They may be the only state so far that is totally in agreement. [A bill explanation document for A.B. 514 (Exhibit H) was distributed by Ted Zuend.]
Chairman Parks:
In the pamphlet (Exhibit E), it refers to $199 million for 2003. Are your eBay purchases part of that $199 million?
Assemblyman Goldwater:
They probably are. Last year, I sent the Committee some of my receipts from items I purchased over time. We know, for example, Amazon.com has a nexus in Nevada, in Assemblyman Grady’s district, and they have not charged sales tax. They have not collected any. I think the Department of Taxation has collected some estimated sales tax from them. They have collected intermittently from me, but the Quill court decision says they should be collecting every time.
Chairman Parks:
Are there any further questions? We do have a number of guests who signed in to speak on A.B. 514.
Dino DiCianno:
I submitted some material (Exhibit G) for distribution to the Committee. I need to tell you that I have been the voting member for the state of Nevada for the implementing states. What I can do is fill in some gaps and answer some questions on the specifics associated with the Streamlined Agreement and with Nevada’s involvement.
The bill in front of you is in skeleton form. It does not have all of the changes necessary with respect to all of the provisions that need to be put into [NRS Chapters] 372 and 374. I am working with Brenda Erdoes, Legislative Counsel, Legal Division, LCB, with respect to that. I need to express the importance with respect to this Committee and this Legislature of passing A.B. 514. It would allow Nevada to be a governing state. This is very important, because, as a governing state, you will sit amongst other states that have passed this, with respect to the adoption of rules, the costs associated with the remote sellers reporting, and other issues that Nevada may have with respect to the Streamlined Sales Tax Agreement. This is very important.
Initially, Woody Thorne, former Deputy Director of the Department of Taxation, who is now with PERS [Public Employees’ Retirement System], worked very diligently with the Project four years ago. This has been an ongoing project. Initially, there were certain naysayers who said the states would never come to an agreement to simplify the application of sales and use tax. Initially, California and New York were not members, but if you look at Exhibit G, California and New York are becoming participating states, and this is significant. In response to Mr. Hettrick’s question, it does take ten states with 20 percent of the population. With California and New York on board, I do not think I need to tell you what kind of weight that will bear on Congress to allow the states to determine their own destiny with respect to taxation of Internet sales.
[Mr. DiCianno, continued] Let me give you an example of why we think A.B. 514 is very important to Nevada, to retailers, to consumers, and to everyone, including local governments. I can go to a particular electronics store in Reno or visit their Web site where it says “no sales tax owed.” So, as an astute consumer, if I do not have to pay sales tax, I will probably purchase that particular item over the Internet; however, March Madness is upon us, and I want to watch the “final four, and I am not about to wait six weeks to get that television that I want in order to watch the games.” So, I go to the retailer in Reno, who has exactly what I want, and I approach the sales representative and say, “I can go to your Web site, and I do not have to pay sales tax. What can you do for me?” What happens is the representative wants to make that sale, so he reduces the sales price by the amount of the sales tax that would have been owed if purchased at the original price at that store. The net effect is that the consumer wins, no question. The state loses, and local governments lose. When that retailer, in essence, goes to report to the Department of Taxation, he eats the reduced value and pays the tax on the reduced value. The consumer pays nothing. You may think that is good for the consumer; however, from a policy standpoint, it is not the proper thing to do.
Within the exhibit package (Exhibit G), I have tried to provide you some information with respect to the Streamlined Sales Tax. There are some questions and answers, some of which were covered by Assemblyman Goldwater. It is also an extension of what this body, the Taxation Committee, did during the last legislative session with respect to A.B. 455 of the Seventy-First Session. It got us on the road. I need to stress that Governor Guinn is also very supportive of the Streamlined Sales Tax Project. It is a win-win-win-win situation. Congress will allow Nevada to participate in this on July 1, 2006; however, the requirement of Congress was that by January 1, 2003, there has to be at least ten states with at least 20 percent of the population in order to petition it. That is why it is important for Nevada to be part of it. Those revenues will not come into play until after January 1, 2006.
Also included in the Exhibit G package are the latest e-stats by the United States Department of Commerce. Those figures are staggering. As Mr. Goldwater stated, I am sure they are “marvelous numbers.” Also in the package is the study on the amount of loss to the states, with respect to e‑commerce. It is of spurious validity. Some of the assumptions made are probably questionable; however, the bottom line is there are significant revenue losses to all states to date, with respect to Internet sales. There is no question in my mind that Nevada should become a “governing” member [state]. I would like to see the local governments benefit by this proposal. I would also like to see the state benefit by this proposal. With that, I will answer any questions.
Assemblyman Anderson:
Since this bill is in skeleton form, do you have additional amendments you are considering now? Are you looking for that later?
Dino DiCianno:
They are not amendments. The skeleton nature of it is that we have to amend the specific provisions of [NRS] Chapters 372 and 374, as to the definitions that are prescribed in the Agreement. As Assemblyman Goldwater has already indicated, the definitions are almost a match right now. There are some subtleties, but we can get them in there.
I would like to add that it is important to understand that there are those who are opposed to this. There are certain states that will not join, for example, Colorado, a “home-rule state.” I need to point out the fallacy in going down that road, as they have in Colorado. As you can see in the exhibit package (Exhibit G), Montana, which does not have a sales and use tax, is seriously considering during its current legislative session, to enact a sales and use tax to become a member of this and to share in the potential of the Streamlined Sales Tax Act.
Assemblyman Goldwater:
Dino, I want to thank you publicly for your work. Of all of the things I have ever been a part of in my ten years in this business, I have never seen states come together, work a project of this magnitude and this much technical minutia, and be able to have a product. To move this far in this short amount of time is positively amazing. You were as much a part of that as anybody else. We should thank you, and the state owes you a debt of gratitude.
Dino DiCianno:
Thank you very much.
Assemblyman Goldwater:
That is in lieu of a raise. [laughter]
Dino DiCianno:
There is one more point I would like to make. Not only will this bill [A.B. 514] put Nevada on the map, it also has other benefits, not just to the local governments, but to the existing retailers within this state. Not only does it level the playing field, it makes it equal across-the-board, whether you are a brick and mortar company, a click and brick company, or purely a remote seller. Streamlining will benefit the existing retailers in this state.
Ray Bacon, Nevada Manufacturers Association:
There is not much that I can add. I believe, from a long-term tax policy standpoint, that this is probably the most important bill that will come out this session. It is truly in the state’s vested long-term interest to be part of this process.
Gaylyn Spriggs, Nevada Taxpayers Association:
We agree with the testimony of Assemblyman Goldwater and want to be on the record in support of this bill [A.B. 514].
Christina Dugan, Las Vegas Chamber of Commerce:
We are also in support of the bill [A.B. 514] for the various reasons set forward earlier. I will not repeat those in the interest of time.
Mary Lau, Executive Director, Retailers Association of Nevada:
I would like to thank Assemblyman Goldwater for bringing this bill forward and the Chairman for having a Committee introduction of this bill [A.B. 514]. Mr. Goldwater has spent years working on this, and it is extremely vital that this bill does pass. Mr. DiCianno gave a lot of our testimony on the bill, and I will not be redundant. I will add that there are currently seven states that have adopted this, as of March 14, 2003. It is imperative that Nevada stay at the table, and that Mr. DiCianno continues to work on keeping Nevada closer to the sales tax simplification.
Section 22 of the bill states the effective date is January 1, 2006, which allows the Taxation Committee to take one more look at everything in 2005 to make sure that we are current and have done everything we need to do to be a full participant in the Streamlined Sales Tax Project. I am sure that Mr. Goldwater will continue watching that we stay on this path.
There is a lot of work that needs to be done. It is also important that we do funding. I did ask Mr. DiCianno about why there was a fiscal note, since we would not be putting this into effect now. I do not know if it is relevant, but we will look into this further. In the tax package that eventually will leave this Taxation Committee and this legislative session, we are requesting that our Taxation Department has the facilities, technology, and ability to do these things. One thing I will say about the Streamlined Sales Tax Project is, what Carole Vilardo often refers to as “passive revenue-generating,” that a lot of retailers and Internet service sellers are voluntarily coming forward and collecting sales tax currently. They do see the handwriting on the wall. They do recognize that it is not a new tax, but it is a tax that funds local and state governments.
Assemblyman Goldwater:
Why is there a two-thirds voting requirement on this bill [A.B. 514]?
Dino DiCianno:
That is not a question I can answer. Ask Legal Counsel.
Assemblyman Goldwater:
We will not worry about it. I was just curious.
Chairman Parks:
You had commented that this [A.B. 514] was still in skeleton form and that you were currently working with Brenda Erdoes [Legislative Counsel] on other revisions. Are those to be brought forward to us at this time?
Dino DiCianno:
I need to talk to Brenda Erdoes first before I can respond. The language that is contained in A.B. 514 is the language that is necessary to make Nevada in partnership with the Agreement.
Michael Pennington, Reno-Sparks Chamber of Commerce:
We add our support to A.B. 514. We thank Mr. Goldwater for all of his work on the bill, and we encourage your support.
Chairman Parks:
We will close the hearing on A.B. 514 and open the hearing on A.J.R. 8.
Assembly Joint Resolution 8: Proposes amendment to Nevada Constitution to authorize reassessment of real property for taxation purposes upon transfer of ownership and, under certain circumstances, upon its conversion to another use. (BDR C-348)
Assemblyman Bernie Anderson, Washoe County, District No. 31:
In front of you is a request that you have seen several times during past sessions (Exhibit I). If A.J.R. 8 passes this Committee, it moves on to the Constitutional Amendments Committee. A.J.R. 8 would give the cities and local government entities the opportunity to reassess the value of real property when its use has changed from one project to another. Currently, cities lose that opportunity and lose the cash revenue when property continues to grow in value. Older communities tend to be severely affected by this because, as the property continues to devalue, the opportunity for new growth and new tax revenue is not there as it is in faster growing communities. As you know, there is a constitutional question that has precluded this legislation from passing in previous sessions. The person who was meant to present this bill (A.J.R. 8) is ill today, and I am not as prepared as I would like to be. It is a strong piece of legislation that I think would be very helpful to smaller communities of the state and older communities, such as the City of Sparks. I would recommend the legislation and recommend you hold another hearing since I have been able to answer only some of your questions.
Assemblyman Grady:
Why has this been done as a Resolution rather than a bill?
Assemblyman Anderson:
It is a constitutional question. In the past, we have introduced this piece of legislation as a straight [bill] piece of legislation. You end up having two pieces of property that would be at two different tax rates, thus creating a constitutional question. The first hurdle that must be overcome is whether the citizens of the state wish to set up this type of issue and then we can move forward with the legislative intent to implement such a program. It would come back to a Taxation Committee. It seems to me that it was only fitting and proper for this to start here in the Taxation Committee, rather than in the Constitutional Amendments Committee. If this bill is to move, it needs to move through here and then through the second Committee by the 11th of the month.
Chairman Parks:
Is this an exempt bill because it is a Resolution?
Assemblyman Anderson:
Absolutely. It is exempt, and I keep forgetting that.
Jeff Johnson, Humboldt County Assessor and President of the Nevada Assessors’ Association:
We are in opposition to this bill [A.J.R. 8] as we
understand it and read it. [The witness
distributed a prepared statement, Exhibit
K.] As it is presented here, A.J.R.
8 violates the very first part of Section 1 about “uniform and equal
assessment.” I have more questions than
I have opposition or answers, at this point.
With the way it is written, I wonder how the Taxation Committee would
determine the obsolescence and depreciation that would be removed and how much
it would be. Would it end up violating
another portion of statute that would say that certain properties could not
exceed the full cash value? The
Taxation Committee members would be acting as appraisers. I have more
questions about how this will work out in the long run. I do not understand the portion that talks
about some entities that are losing revenues, because they are not re-valuing
when it [property] changes use. I have
not personally called all of the Assessors to ask them; however, I think that
most of us would handle a [property] change-of-use and reappraise it according
to the new use. We would typically do
that like new construction, and it would be put on the tax roll as of July 1.
Doug Sonnemann, Douglas County Assessor:
In re-valuing property, not all depreciation can be excluded from taxable value. The market does recognize depreciation. A new house located next to an identical 3-year-old house or a 20-year-old house will command a higher value than the neighboring houses, due to the depreciation factor. As Mr. Johnson mentioned, that is where we have some concern with eliminating depreciation. People do prefer the new houses and will pay more. In many cases, newer houses include more amenities. To give you an example of the conversion issue, we have four dentist offices in Douglas County that have been converted from single-family residences. We value all of those commercially. We value them at conversion, and we value the land commercially as well. That opportunity is provided to us now, and we do utilize that law.
Assemblywoman McClain:
If you have two houses that are each 25 years old, and if one sells, will that one be reassessed at a higher rate than his neighbor?
Jeff Johnson:
That is the concern that we would have. That is what I was saying would be in violation of the uniform and equal assessment practices.
Chairman Parks:
On the first page it says, “except as otherwise provided.” In subsection 11 it says, “everything must be uniform and equal.” The new proposed subsection 11 would make it permissible to have things assessed that were not uniform and equal.
Dave Dawley, Carson City Assessor:
My comments will be based upon “subsection 11, Section (b).” Currently, in Carson City we get building permits when you convert a home from a residence to a commercial building. It is mostly to get it to ADA [American with Disabilities Act] compliance. At that time we become aware of the fact that it has been converted to an office, and we do put it on the tax roll as an office for the next year. I believe the majority of the counties that actually get building permits do the same thing. The problem is that a lot of the counties are currently on a budget decline and are being told to cut budgets. Currently in Carson City we reappraise between 3,500 and 4,000 parcels each year. I have a staff of three appraisers. We normally have between 1,600 and 1,700 property sales each year. If you enacted this, that would make our job much tougher. We are not in a position to hire another appraiser, nor can we physically complete this [proposal] under the current budget.
David Howard, City of Reno:
Although our City Council has not taken a formal position on A.J.R. 8, we are glad it is an exempt bill. Here is the dilemma. I do agree with the Chairman’s observation of line 1 in Section 1, “except as provided.” If the voters decided to do this, the problem for local governments would be the two $25,000 houses, as discussed by Assemblywoman McClain. Services provided to those two houses cost the same. The inequity is there today. If you have a house being assessed as a new house located in the same neighborhood that has an older house, both houses cost the city government the same amount of money. That is the dilemma for local government. It was said earlier today that, when determining taxes for a long-range project, this should be a piece of it. I think our City Council will find a way to support this bill [A.J.R. 8].
Chairman Parks:
We will close the hearing on A.J.R. 8. It is almost 4:00 p.m., and I know that a number of members are already late for the Elections, Procedures, and Ethics Committee. We cannot handle any work session today. [A work session document (Exhibit J) was distributed by Ted Zuend.] What we will do, at this point, is adjourn.
June Rigsby
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: