MINUTES OF THE

SENATE Committee on Taxation

Seventy-second Session

February 20, 2003

The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:07 p.m., on Thursday, February 20, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mike McGinness, Chairman

Senator Dean A. Rhoads, Vice Chairman

Senator Bob Coffin

Senator Joseph Neal

Senator Ann O'Connell

Senator Sandra Tiffany

Senator Randolph J. Townsend

STAFF MEMBERS PRESENT:

Rick Combs, Deputy Fiscal Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association

Lucille Lusk, Lobbyist, Nevada Concerned Citizens

Marvin A. Leavitt, Concerned Citizen

Chairman McGinness:

We will open this meeting with three requests for bill drafts. The first is for a used-boat tax bill resembling the bill first introduced as BDR No. 32-1490 of the 71st Session. The second request relates to the taxation of electric light and power companies in counties whose populations are less than 100,000. The measure, received from Vidler Water Company, would change the centrally assessed formula in such counties.

The third request, received from the Commission on Economic Development, would change the formula on the exemption of tax on new or expanded business. It includes adding an abatement for leased equipment, changing the amount required in capital investment, changing the number of employees eligible for partial abatements, and adding to the incentives for technical product development.

SENATOR RHOADS MOVED TO REQUEST A BILL DRAFT REQUEST DEALING WITH A USED-BOAT TAX, A BILL DRAFT REQUEST RELATING TO TAXATION OF ELECTRIC UTILITY COMPANIES IN COUNTIES WITH FEWER THAN 100,000 PEOPLE, AND A BILL DRAFT REQUEST TO CHANGE TAX EXEMPTIONS FOR NEW OR EXPANDED BUSINESS.

SENATOR O’CONNELL SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

*****

Chairman McGinness:

We will now open the hearing on Senate Joint Resolution 1 of the 17th Special Session.

SENATE JOINT RESOLUTION 1 OF THE 17TH SPECIAL SESSION: Proposes to amend Nevada Constitution to provide requirements for enactment of property and sales tax exemptions. (BDR C‑28)

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association:

This is a presentation we have made many times to many different committees over the years. We presented it originally to the Legislative Committee for Local Government Taxes and Finance, known as the S.B. No. 253 Committee, who took it under advisement. We then worked with committee member, Guy Hobbs, preparing an extensive list on every exemption in the statute. Unfortunately, the list showed almost all the non-charitable exemptions had no ending date and no finality to them, so, they were totally open. In 1997, the Technical Advisory Committee recommended acceptance of the list to the S.B. No.253 Committee who did so on advice of legal counsel.

Prior to the 70th Session, there was a discussion about making this a statutory change. Since one legislature cannot bind another, the legislative members felt strongly enough about the seriousness of exemptions eroding the tax base they decided to recommend a constitutional change instead of a statutory change, so future legislators would be bound. The idea was to make it as stringent as possible.

Time constraints required the bill to come back to the 17th Special Session, which resulted in an amendment placing “or” on line 2 of the second page. This made it easier to get an exemption than with the conditions that were currently in statute. I have changed my support to opposition and ask you to support the amendment to be presented to you by Ms. Lusk. It would be a disservice to the whole intent of this legislation to have it go before the voters in its present form, because it is entirely too loose.

Chairman McGinness:

Your reasoning for putting it into the constitution is because one legislature cannot bind another?

Ms. Vilardo:

Kimberly Guinasso, Principal Deputy Legislative Counsel, who was legal counsel at the time, told the Legislators if they put it in a statutory provision, they could not bind a future legislature to look and consider these exemptions. Therefore, after discussion with legal counsel, legislative members determined they wanted a constitutional change. That was put through in 1999 and if it had not been for testimony during the 2001 Session, it would have been on the 2002 ballot. Because there was concern expressed by Lucille Lusk, a lobbyist for Nevada Concerned Citizens, the Senate Committee on Taxation decided to make a change. Unfortunately, the change did not do what it was supposed to do and we ended up with something worse than having nothing at all.

Lucille Lusk, Lobbyist, Nevada Concerned Citizens:

Ms. Vilardo has adequately expressed the history of this measure. Our interest is in having exemptions tightened up, whether statutorily or constitutionally. We believe taking all of the five exemptions together would eliminate valid exemptions. We, therefore, expressed a concern about the provision shown on page 1, lines 13 through 16, because we believe it would eliminate valid exemptions and we ask that those lines be deleted. Further, if we changed “or” on line 2 of the second page to “and,” all of the other provisions would work together to tighten up exemptions with reasonable provisions. The proposed amendment is before you (Exhibit C).

It would be possible for the Legislature to pass these provisions as a statute to function for the time being until it goes before the voters for a vote to place it in the constitution. As mentioned earlier, one legislature cannot bind another, but if you pass it this session, chances are it would last for a couple of sessions and could then go before the voters for a vote. Again, our feeling is if that particular provision were required for every exemption, it would eliminate valid church and charity exemptions, which I do not believe is your intention.

Senator Neal:

I did not fully understand why you want to delete lines 13 through 16.

Ms. Luft:

We feel the criteria stated there, if taken literally, would eliminate every exemption. We believe it is the Legislature’s intention to tighten, not to eliminate the exemptions, so those approved are, in fact, legitimate.

Senator Neal:

In eliminating that particular paragraph, are you saying you do not want to grant an exemption that might take away from other areas such as local school support taxes and some of the exemptions dealing with the sales and use tax? An example would be the art tax, which takes money from local school support tax to apply to that particular exemption. By eliminating this particular paragraph, are you not coming back to the similar situation we have today with the Legislature, to start all over again making these exemptions apply wherever?

Ms. Lusk:

I believe that situation is addressed in section 6, subsection 1, paragraph (d), which would require a determination be made that the exemption will not adversely impair the ability of the State or government to pay obligations made based on an expectation of that income. It is not my desire every exemption be eliminated, but that they be tightly construed. I think eliminating paragraph (d) would accomplish this.

Marvin A. Leavitt, Concerned Citizen:

I think we are assuming these exemptions are going to be for charitable-type organizations. Starting on line 5 of the first page, it says “The Legislature shall not enact an exemption from any ad valorem tax” and on line 9, “determines that the exemption will achieve a bona fide social or economic purpose.” I do not know what that means, exactly, but an “economic purpose,” could be to help one type of a business. Think about the way it is worded right now starting on line 3 of the second page, “the requirements for claiming the exemption are as similar as practicable for similar classes of taxpayers.”

Say you chose, for economic reasons, to exempt resort hotels, and the exemption applies to all of that class of property, would that not be applied in this case, given the way it is worded? I think we assume something, but it is not exactly what the language says. The way it is worded, you could exempt certain types of property having nothing to do with charitable organizations. “For economic purposes” is really broad. In other words, you feel you need to help the hospitals of the State so you exempt them from property taxes. Or, the casinos are not doing very well, so you exempt them from property taxes. I think I can apply that logic to the way this reads right now.

Rick Combs, Deputy Fiscal Analyst:

I think when this bill was originally proposed, section 6, subsection 1, paragraphs (a) through (e) were basically set forth as an exercise for the Legislators to go through to determine whether or not the exemptions should be granted in each case. These are the things the Legislature needs to consider and make a finding on before they approve the exemption. So clearly, with the wording “economic purpose” in there, Mr. Leavitt is correct.

One of the things the Legislature would be considering before it approves the exemption would be whether or not the Legislature considered it a bona fide economic purpose.

Chairman McGinness:

If there is no more testimony on S.J.R. 1 of the 17th Special Session, we will close the hearing. I think we will let this sit because it seems the longer we
look at it, the more problems we find. As Mr. Leavitt has pointed out, some of the language may not be quite appropriate. With no further business before this committee, we are adjourned at 2:30 p.m.

RESPECTFULLY SUBMITTED:

Ardyss Johns,

Committee Secretary

APPROVED BY:

Senator Mike McGinness, Chairman

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