MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
May 29, 2003
The Committee on Taxationwas called to order at 2:14 p.m., on Thursday, May 29, 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
Mr. Morse Arberry Jr.
Mrs. Dawn Gibbons
Mr. Tom Grady
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
Ms. Peggy Pierce
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
June Rigsby, Committee Secretary
Mary Garcia, Committee Secretary
OTHERS PRESENT:
David Humke, Chairman, Board of County Commissioners, Washoe County
John Berkich, Assistant County Manager, Washoe County
Stephen Driscoll, Assistant City Manager, Sparks
Chuck Chinnock, Executive Director, Department of Taxation
Jim Avance, representing the Nevada Marine Trade Association
Dino DiCianno, Deputy Executive Director, Nevada Department of Taxation
Terry Crawforth, Administrator, Nevada Division of Wildlife
[Ted Zuend distributed a Bill Explanations for S.B. 495 and S.B. 464, revision number 2 (Exhibit E and Exhibit F, respectively).]
Chairman Parks:
Good afternoon. I would like to call the Assembly Committee on Taxation to order. [Roll called.] This afternoon we have only one bill on the agenda, and that is Senate Bill 495.
Senate Bill 495 (1st Reprint): Makes various changes to Consolidated Local Improvements Law. (BDR 21-1339)
I believe that this is a concerted effort on the part of Washoe County and, I believe, member cities of Washoe County. I have, on a sign-up list, Stephen Driscoll from the city of Sparks to speak on that. Do we have somebody who would like to lead off? We have our former colleague, County Commission Chairman David Humke. Welcome.
John Berkich, Assistant County Manager, Washoe County:
[Introduced himself.] With me, as you indicated, is Chairman of the Board of County Commissioners for Washoe County and former Assemblyman David Humke, and Mr. Driscoll from the City of Sparks. What I would like to do is ask Mr. Humke to open with some comments. Then I would like to walk through a handout from John Swendseid (Exhibit C) talking about the mechanics of the bill. Then Mr. Driscoll can speak.
David Humke, Chairman, Board of County Commissioners, Washoe County:
[Introduced himself.] This bill ties in with some of my legislative experience. A long time ago, I was the Chair of the Economic Development/Small Business and Tourism Committee. Our Commission did adopt a resolution to support this concept because we saw the significant economic impact that it could have on the state, the county, any city, the school district, and any other district that gains from the sales tax. We were glad to do so. Based on my economic development experience here at this body, this material just jumped off the page. I was anxious to support it.
[David Humke, continued.] When I made a trip to the Midwest on other business to the Kansas City, Missouri, area, I went across the border to Kansas City, Kansas, to Wyandotte County, which, as our Assistant County Manager had pointed out, was where this bill originated. The Kansas Legislature passed this type of bill originally to facilitate the development of a huge retail establishment. When I was there on or about March 15 of this year, they were about to complete the building of a 6,000-seat baseball stadium. That stadium was the beneficiary of some of this financing technique. They pointed out where a Harley Davidson Museum was going to be located, and then they turned a few degrees and pointed out where a John Deere Tractor Museum was going to be located. There were two hotels on the property and a major outdoor retail establishment, along with several others. This was all made possible through this financing technique.
Now, a lot of people say, “Why do you want to do that? Doesn’t it take the sales tax revenue to pay off the bonds?” The short answer is “Yes, but what sales tax revenue do you have now from that piece of ground?” If you look at the years to come, there is a tremendous impact. I would be happy to turn it over to Mr. Berkich to take you through the bill, because that is his area of expertise. Thank you very much.
John Berkich:
As Mr. Humke pointed out, the history of this concept here in Nevada really goes back to staff’s discovery of this concept, the efforts of a local development team on a proposed project within the county, and the Washoe County Commission’s approval on March 25 of this year. Prior to that, back in 2002, Kansas approved this mechanism. As Mr. Humke related, it has become a tremendous success there. We are informed that today there are at least six other states looking at this same mechanism. Why? That is because the use of sales tax to finance infrastructure makes available a much more significant revenue stream for such projects.
While the creation of assessment districts and the use of property tax increment is common practice in our state, the notion of using sales tax increment generated primarily from the growth of tourism—and I emphasize that—provides a unique mechanism that benefits both the investor and government.
I would like now to turn to the handout that you have in front of you from John Swendseid (Exhibit C). As you know, John is our tax and bond counsel. He is also the author of this legislation. John is out of the state and could not be here today, for which he apologizes, but he has supplied these comments, which put into some logical fashion the somewhat complex mechanism here. I will do my best to very briefly highlight these comments from John.
[John Berkich, continued.] The bill is an amendment to NRS Chapter 271. It authorizes the issuance of bonds secured by special assessments. In this case, of course, the authority within NRS 271 is the formation of a special assessment district. What we are talking about is making available a sales tax increment to be pledged for bonds for the financing of public infrastructure. However, I do want to point out that if the sales tax increment is insufficient in this mechanism to pay the principal and interest on the bonds, the property assessed would remain liable for the assessment. The underlying property still remains in support of the bonding.
I want to jump to paragraph 2, where we talk about the projects. In Sections 1, 2, and 3, we add the concept of public art and tourism and entertainment projects, which would become eligible for the assessment districts and for this financing mechanism. The other projects that are already provided for in NRS 271 are primarily infrastructure-type projects such as street, sewer, and water projects, interchanges, et cetera. Together with art projects and entertainment projects, all these projects now could be financed with this sales tax increment.
In paragraph 3 are the requirements for a sales tax pledge. Paragraph 4 authorizes that up to 75 percent of the complete 6.5 percent in sales tax be made available. I want to emphasize that it is up to 75 percent and no more. On a project-by-project basis, we could certainly come up with projects that would require something less. Throughout this provision and throughout the bill we have tried to create as much flexibility as possible.
Dropping down to the required findings and determinations, there are four steps in the approval process that we have developed in the bill with a lot of help from our friends in the school districts and other interested parties. First of all, it requires a finding by the county commission. The findings are in three areas:
The next step in the approval process is the Commission on Tourism holds a hearing and makes similar findings. The fourth step in the approval process is school districts, and I will talk about that in a minute.
[John Berkich, continued.] The third step in the approval process outlined there at the top of page 2 is the Governor’s findings. The Governor will need to make a finding that the bonds will significantly contribute to economic development in tourism within the state. This is only after he has made a determination of the potential impact on the fiscal well-being of the school district affected. As part of that determination, the Governor could request reports from the Department of Education or the Department of Taxation or both to determine what, if any, the fiscal impacts could be. Finally, the Governor could require that these fiscal impacts be mitigated with payments from the local government or from the district.
In the next provision, under “Appeal of County Findings,” we have created a mechanism whereby, should an incorporated city be turned down by a county commission for the formation of such a district, that city would have the ability to go to the Commission on Tourism for a final determination as to whether or not a district would be formed. Again, that is something we were able to develop in talks with our colleagues.
Dropping down to paragraph 5, “Agreements with Property Owners,” if there is a negative fiscal impact on local government in the provision of the services that are required by the district, this mechanism says that after taking into consideration all the costs and all the revenues, the local government has the right to go and negotiate the extra expense that is not provided by the revenues and require that the property owners in the assessment district provide what is not being met by the revenues.
At the bottom of page 2, the fourth step in the approval process talking about school districts, is an important point. The school district is served notice, and they must hold a hearing on the fiscal impact of the formation of the assessment district may have on the school district itself. Comments from the school board are to be considered by the governing body in making its findings and, if necessary, mitigated at the local level prior to the Governor having to require mitigation.
[John Berkich, continued.] On the third page, in paragraph 6, it is important to point out that Section 7 prohibits the governing body from pledging its General Fund and taxing powers to the payment of the assessment bonds supported by sales tax increment. Paragraph 7 pertains to the “Application of pledged sales tax revenues to assessment payments.” The effect of this addition in Section 10 is to provide that the increment from the three components of the 6.5 percent sales tax, during the term of the assessments, is to be applied as a credit for the assessments. What this means is that the property is still assessable, and, therefore, you count first the sales tax. If that is not adequate, the property owners have to stand good for the cost of the bonds that would be financed in this fashion.
Paragraph 8 is a mechanism. As you can see, we developed this with our school district colleagues. Should there be revenues beyond the debt service that is necessary in any given year, the excess revenues would be distributed on a priority basis, first to the school district, second to the state, and third to the other funds.
Finally, the last point I will make is that we have two paragraph 9s here, but the second paragraph 9 concerns reports to the Legislature. We will be back in February of 2007 to report from any local government on the use of this mechanism. We stand for questions.
Chairman Parks:
Thank you. That was a very enlightening summary of the bill. Are there any questions from Committee members? Yes, Mr. Goldwater.
Assemblyman Goldwater:
Thank you. You know I am frequently a critic of the economic development models that our state and our locals have used, whether they are redevelopment districts, increment financing, or the abatement programs. This is a much better, very unique way to use economic development, in my opinion. The one question I have is, why the Commission on Tourism?
John Berkich:
Well, Mr. Goldwater, as it was drafted prior to this provision being incorporated into the proposed bill, the only resolution of a dispute between an incorporated city and the county would be court. Because this whole bill is aimed at building tourism, we felt that perhaps the Commission on Tourism might be a logical and reasonable place to go for a final decision in that dispute.
Assemblyman Goldwater:
Okay. I just hope the Commission on Tourism can learn all about the complex concepts of local government finance and what we are doing here so they can make good decisions. I am sure that they will and have every confidence. I do not mean to impugn their abilities. I think that there is some degree of understanding of local government finance that needs to happen there, but I understand. Thank you.
Chairman Parks:
Thank you. Are there any other questions from Committee members? I have only one, and that is, are you going to give us further input into how you would foresee using this? If this were put into law, how it would be used in Washoe County or any other county?
John Berkich:
As required in the proposed legislation, Mr. Chairman, we would be approached with a proposal by a developer to form a district that would first come to the County Commission and, of course, almost simultaneously to the school district. That proponent would have to supply whatever is necessary to convince the County Commission and the school board that theirs is a legitimate project that would meet the requirements, that would enhance tourism, and that would generate the kind of sales tax within a district. New retailers would generate tourism and then it would be successful. There would be a lot of due diligence and a lot of feasibility studies. Once that was completed, assuming the County Commission agreed, it would be an approved project and eligible for this mechanism.
Chairman Parks:
Thank you. Quite often there are proposed projects that someone has that generate or drive the need for this legislation. I did not know if such were the case.
David Humke:
I did visit a development that was done under the Kansas legislation, and some of the same tenants and anchor tenancy in that facility have shown interest in locating some of their facilities in the Washoe County area.
John Berkich:
Mr. Chairman, I want to go back to my response to your question. I do not want to have the record indicate that once the Commission makes its finding it is a done deal. It has to go to the Commission on Tourism and it has to be approved by the Governor as part of that four-step process. Thank you.
Assemblyman Marvel:
Apparently there is a company that is interested in coming in, is that right?
David Humke:
Yes, sir. I am not sure if it is in your district or Mr. Anderson’s district, but it is in the Sparks area. As I mentioned, I am not sure if the proponents are ready to talk about it, but, while in the Kansas City area, they attracted one of the world’s major outdoor retailers selling all types of outdoor hunting, fishing, camping, and hiking gear. That would go toward diversifying the tourism market in the Washoe County area, which is the stated desire of the Reno Sparks Convention and Visitors Authority (RSCVA) and other agencies. There is a project in the Truckee River Canyon of some 1,800 acres, which can facilitate both distribution centers as well as direct retail opportunities that would take advantage of this district formation.
Assemblyman Marvel:
You have a railroad spur right there, too, do you not?
David Humke:
Yes, and they could certainly ship things out on the Truckee River, as well.
Chairman Parks:
You already have R.E.I. We do not even have that in Las Vegas.
Assemblyman Grady:
I wholeheartedly support this because it is going to be just outside District 38, so the financing will go to Washoe County, but I am sure a lot of people will be living within District 38. I applaud your efforts.
Stephen Driscoll, Assistant City Manager, Sparks:
[Introduced himself.] I am here on behalf of the Mayor and Council and their full support of this measure. We have been working along with the county and the development on this. We see this as a very valuable tool to put in our toolbox to bring in diversified business, specifically retail, to our area to help the tax base and to drive tourism, which helps other businesses in our region, not just Sparks alone. We just ask for your support.
Assemblyman Goldwater:
The only question I had is this. One of the things that makes economic development worthwhile are all the service industries associated with it, whether it be architecture or banking. That is really what makes it work. Has the banking industry looked at this project? Would they be involved as sort of underwriters of this, or would they see this kind of financing as maybe a threat to their own business?
John Berkich:
We have not talked to the banks. Of course John Swendseid, our bond counsel, is very familiar with the market. What we find in the Kansas experience is that these bonds are very attractive in the sense that the retailers locating within the district in that particular experiment, the only one we have to relate to, buy their own bonds. They bet on themselves. In the Kansas situation, the bonds were issued for a 20-year maturity. Estimates are that they are going to be paid off in less than 10 years, so that particular project has generated tremendous revenues and, as Mr. Humke pointed out, has enjoyed tremendous success.
Chuck Chinnock, Executive Director, Department of Taxation:
When S.B. 495 was introduced on the Senate Taxation side, we did meet with Mr. Swendseid and Mr. Berkich and had comprehensive discussions for two reasons. One reason was so they could understand our implementation needs, and the other was so we could better understand what they were attempting to do. As a result of that, some of the amendments that you see in the bill that were passed out of the Senate resulted in a plan that I think the Department of Taxation can implement. We are comfortable with this plan and with the implementation of it. That is all I have.
Chairman Parks:
Thank you. Are there any questions for Mr. Chinnock? Is there anyone else who would like to speak on S.B. 495?
ASSEMBLYMAN MARVEL MOVED TO DO PASS ON S.B. 495.
ASSEMBLYMAN ANDERSON SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Chairman Parks:
I want to thank everybody. I do not have anything further to come before the Committee today, so we are recessed [at 2:40 p.m.] to the call of the Chair.
Chairman Parks:
Good afternoon. This meeting of the Taxation Committee will please come back to order [on May 30, 2003, at 2:13 p.m.]. We are here today to consider Senate Bill 464, revision number two. Do we have the author of the bill present?
Senate Bill 464 (2nd Reprint): Revises provisions relating to vessels. (BDR 32-1240)
Jim Avance, representing the Nevada Marine Trade Association:
[Introduced himself.] This piece of legislation has been introduced in the last two sessions but in both sessions, with the Governor’s mandate that there be no taxes, it did not go very far.
This legislation, in the form you have in front of you, has three pieces to it:
This proposal is revenue neutral because collection of the tax on the documented boat washes any loss that would occur because of items one and two.
Assemblyman Marvel:
How do we make money on this?
Jim Avance:
The little bit of money lost is made up for because tax can be collected from the documented vessels currently not required to be registered in Nevada.
A part of the original S.B. 464 you are not seeing was taken out by the Senate Finance Committee. There was going to be a tax on sales of boats between individuals, one to another, in the same manner that automobiles are taxed. The Senate decided they did not want to raise the $3 million the Taxation Department had estimated it needed for additional personnel to administer the tax so they had that part removed.
Assemblyman Marvel:
Who ran these numbers for you?
Dino DiCianno, Deputy Executive Director, Nevada Department of Taxation:
With respect to the fiscal note, originally S.B. 464 was crafted in such a way that it would mirror for boats what already exists for automobiles. In other words, there would have been no occasional sale occurrence with respect to boats. If you were to sell a boat to another individual you would have to pay tax on that sale. Those provisions have been removed. What you have left now is Section 1, which allows an out-of-state resident to purchase a boat from an in-state dealer. That person can get a drive-away permit to drive it out of state and no tax would be collected.
I believe the other change is in Section 7, which would allow for a trade-in allowance on the purchase of a new boat if a particular individual has a used boat they want to trade in on that item.
The provisions in Sections 9, 10, and 11 relate to documented vessels. Currently, documented vessels have federal documentation on them from the United States Coast Guard and they are not subject to Nevada tax. This would place a tax on the use of those boats on Nevada waters, especially those at Lake Mead. I do not know if you have seen some of those boats docked at Lake Mead. They are rather large and some are very expensive.
With respect to the fiscal note, version one would have generated almost $7 million over the biennium. Since those provisions have been removed all you have is the loss in revenue for the trade-ins and the sale of boats out of state, but you would receive taxes from the documented vessels. We removed the additional personnel reflected in the original fiscal note so it is basically a wash.
Assemblyman Marvel:
All we gain is $2,000?
Dino DiCianno:
Let me back up and go through that. If you look at the effective dates in the bill, collection of the tax on documented vessels will begin on January 1, 2004. The loss in revenue with respect to the trade-ins and the removal of boats purchased by out-of-state residents does not occur until January 1, 2005, so there will be revenue generated first and then the loss.
Assemblyman Marvel:
It does not show 2005 here.
Dino DiCianno:
If I could draw your attention to page 5 of S.B. 464, Section 13. This section and Sections 9, 10, and 11 relate to the documented vessels and become effective January 1, 2004. The other provisions of the bill do not go into effect until January 1, 2005.
Going back to the fiscal note, if you were to divide my handwritten numbers on the far right-hand side (Exhibit D), it would be approximately a 50/50 split of that amount between 2004 and 2005. In other words, there would be a revenue gain in 2004 with the collection of taxes from the documented vessels but a reduction in that overall gain in 2005 because of the loss in revenue on the trade-ins and the sale of boats to out of state residents upon which no tax is collected.
Assemblywoman Pierce:
So if we pass S.B. 464 and someone comes here to buy a boat they do not pay sales tax. Is that right?
Dino DiCianno:
That is correct.
Assemblywoman Pierce:
And that is because there are a lot of impoverished boat buyers out there? Is that why we are cutting them this deal? I am a little confused about the need for boats. We are not talking about milk or diapers; we are talking about boats. I am having trouble with this.
We did this with cars, is that the deal?
Dino DiCianno:
With respect to automobiles, there is no “occasional sales” statute with respect to automobiles. Automobile sales are taxed whether they are new or used, and also on trades. Within this particular bill, the occasional sale provision was removed with respect to vessels.
Assemblyman Mortenson:
I wanted to explain to the previous questioner about automobiles. It has been the previous practice that an automobile salesman or a retailer of automobiles could drive the vehicle to the state line when they are selling it to a person from out of state, and it was perfectly legal that they would not pay any sales tax.
That is what occurred for years and years. Everyone who wanted to buy an automobile from out of state, the dealer would just drive it to the border and that was perfectly legal. One day they came to us and said, “This is very inconvenient. Why can’t you just let us let them take delivery right at the showroom?” The Tax Committee said, “Yes, it doesn’t make any difference. We’re not going to get the tax anyway.” Now all we are doing is the exact same thing with boats. We are not going to get that tax anyway because the boat dealer will drive it to the border and let the buyer take it away without the tax. The buyer will pay the tax in his state.
We are not losing tax revenue; it is only changing the point of delivery, that is all.
Assemblyman Hettrick:
What happens right now, if you buy a car in California you can pay the tax and drive it back here. The day you go to register the vehicle in Nevada they will force you to pay the sales tax again, at which point you will take the receipt for the sales tax in Nevada and you will fly back to California and they will give you your sales tax back because you will have proved to them that you registered the vehicle in Nevada. It takes six or eight months to get your sales tax back, however, and indeed California does not get the sales tax. Instead, California does not have the drive-away law. The last car I bought was purchased in California because I could get a better deal than I could in Nevada. They had to drive it to Nevada and I paid my sales tax in Nevada. They had to drive it all the way to Nevada and deliver it to me. That makes it inconvenient at best. This does away with all that mess. It says you don’t have to pay the tax in Nevada, go register your boat in Utah, and then come back to Nevada and say, “Look, I’m in Utah; I proved it to you, now you have to give my money back.” Then we have to write them a check to give back the sales tax. It is actually revenue-saving because if they take it to Utah and force us to write a check, we have to go through the bookkeeping, making sure it is all okay, and then literally writing them a check, when we could have given them a drive-away. It really does not cost any money. It is revenue-neutral.
Assemblywoman McClain:
In the case of boats, the kind of tax you pay does not depend on where the owner lives, it depends on where the boat lives.
Jim Avance:
The other thing that occurs is when the nonresident comes in to look at a boat and to buy it and then finds out that he has to pay sales tax on [the purchase], he doesn’t make the buy and the dealer loses that sale.
Chairman Parks:
Do any Committee members have further questions for Mr. Avance or Mr. DiCianno? [There was no response.] Maybe Mr. Crawforth has a comment.
Terry Crawforth, Administrator, Division of Wildlife:
[Introduced himself.] We are in support of this version of S.B. 464 and will implement our portions of it concerning the documented vessels beginning immediately and actually start getting things registered on January 1, 2004.
Boat licensing registration is on a calendar-year basis in Nevada, and we appreciate Mr. Avance and the Marine Retailers working with us to get to this point.
Chairman Parks:
Will you require additional staff or additional budget authorization to implement those sections of the bill that you would be required to?
Terry Crawforth:
No.
Chairman Parks:
Are there questions for Mr. Crawforth? Not seeing any, and not seeing anyone else signed in to speak on S.B. 464, is there anyone in the audience who would like to comment on this bill? Not seeing any, the Chair will entertain a motion.
ASSEMBLYMAN GOLDWATER MOVED TO DO PASS S.B. 464.
ASSEMBLYMAN HETTRICK SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
The meeting was adjourned at 2:36 p.m.
RESPECTFULLY SUBMITTED:
Mary Garcia
Committee Secretary
Terry Horgan
Transcription Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: