MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
March 11, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 1:39 p.m., on Tuesday, March 11, 2003, in Room 1214 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4401, 555 East Washington Avenue, Las Vegas, 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 Randolph J. Townsend
Senator Ann O'Connell
Senator Sandra Tiffany
Senator Joseph Neal
Senator Bob Coffin
GUEST LEGISLATORS PRESENT:
Assemblyman Bernard Anderson, Assembly District No. 31
Assemblyman Tom Collins, Assembly District No. 1
Assemblyman David E. Goldwater, Assembly District No. 10
Assemblyman Thomas J. Grady, Assembly District No. 38
Assemblyman Joshua B. Griffin, Assembly District No. 29
Assemblyman John W. Marvel, Assembly District No. 32
Assemblyman Harry Mortenson, Assembly District No. 42
Assemblyman David R. Parks, Assembly District No. 41
STAFF MEMBERS PRESENT:
Rick Combs, Fiscal Analyst
Ardyss Johns, Committee Secretary
OTHERS PRESENT:
Bruce L. Woodbury, Board of Commissioners, Clark County
Irene E. Porter, Lobbyist, Southern Nevada Homebuilders Association
Jacob L. Snow, Lobbyist, Regional Transportation Commission of Southern Nevada, and General Manager, Regional Transportation, Clark County
Derek W. Morse, Lobbyist, Washoe County Regional Transportation Commission
John O. Swendseid, Attorney, Swendseid and Stern
Zev Kaplan, General Counsel, Regional Transportation Commission of Southern Nevada
Keith L. Lee, Lobbyist, Southwest Airlines
John Sande III, Lobbyist, Western States Petroleum Association
Anthony M. Bandiero, Lobbyist, Nevada Petroleum Marketers and Convenience Store Association
Grant Sims, Chairman, Blue Ribbon Committee
Joseph L. Johnson, Lobbyist, Toiyabe Chapter, Sierra Club
Jane Feldman, Southern Nevada Group, Toiyabe Chapter, Sierra Club
Bob Rusk
Knight Allen
Charles Chinnock, Executive Director, Department of Taxation
Michael Hillerby, Deputy Chief of Staff, Office of the Governor
Thomas Jefferson
Dan Dew
Chairman McGinness:
We will call this meeting to order. We have invited the Assembly to join us today to hear Senate Bill (S.B.) 237. Since the Assembly does not have this bill, we cannot actually have a joint hearing so they are invited today as our special guests. We will also begin to hear S.B. 238 today which we have scheduled to hear further on Thursday and possibly again next Tuesday, March 18, 2003. The administration will be explaining S.B. 238 to the committee. Depending on how long the discussion goes, we may take limited testimony from those people who are here from out of town. We assure you there will be ample opportunity over the next several days and weeks to discuss S.B. 238. We will now open the hearing on S.B. 237.
SENATE BILL 237: Carries out certain advisory questions relating to funding for regional transportation. (BDR 32-942)
Bruce L. Woodbury, Board of Commissioners, Clark County:
I am chairman of the Regional Transportation Commission (RTC) of Southern Nevada. Thank you for this opportunity to testify in favor of S.B. 237, which is so extremely important for the future of our community. We are very pleased this legislation has been put together in one bill in the form of a unified approach involving the voter-approved transportation and air quality improvement funding plans for both Clark County and Washoe County. Some of you may recall back in 1990, our voters in Clark County approved a ballot question for major transportation funding and the 1991 Legislature then responded with the authorizing legislation in record time. We thank you for expediting the proceedings on this bill again this time. Since 1991, I think most people are aware, despite what has been the most ambitious public works program in the history of the State of Nevada on the part of Clark County, the RTC, and Nevada Department of Transportation (NDOT), our traffic congestion has gotten worse. This is due to the unrelenting growth in population and the number of motor vehicles on our roadways. We also face very significant challenges regarding our air quality.
Two years ago, we asked a large number of concerned citizens representing business, labor, environment, and transit users, to form what was called the RTC Community Coalition. We asked the group to spend more than a year to define solutions and methods of implementing those solutions. Those recommendations were for an integrated system of transportation improvements consisting of hundreds of lane miles of high-speed roadways and freeways, major mass transit enhancements, intelligent transportation systems, state‑of‑the-art traffic signal synchronization, and greatly increased funding for air quality program implementation and enforcement. The coalition also determined without these additional improvements, we are facing a near-term future of total gridlock on the roadways throughout the entire Las Vegas Valley. Clark County voters were then asked to decide whether or not these programs should be funded with an increase in funding, spelled last November as ballot Question 10 and in legislation under consideration in S.B. 237.
Our voters in Clark County, like the voters in Washoe County, said yes. Question 10 and the legislation has been supported by all of our local chambers of commerce, organized labor, the Nevada Resort Association, the homebuilders association, groups like the American Building Contractors Association, Associated General Contractors of America, town advisory boards, engineers, and numerous groups, as well as both major newspapers. The funding authorized by Question 10 and S.B. 237 will generate an estimated $2.7 billion over the next 25 years and will also generate an additional approximately $3 billion in federal funds we likely would not otherwise receive by providing local matching funds. The financial consulting firm of Hobbs, Ong and Associates estimates the average citizen will pay only about $1.25 a month. Let me emphasize one very important point regarding S.B. 237. This legislation does not raise taxes. It only authorizes the Clark County Commission and the Washoe County Commission to hold public hearings and then to make that decision on behalf of their respective counties. We are here to strongly speak in favor of this vital legislation, already approved by the voters in both counties, to require the county commissions to determine whether or not to follow the mandate of the people. Now when these issues come before the Clark County Commission I, for one, will be voting yes to implement the funding for the programs recommended by our committee coalition to preserve and improve our quality of life and our local economy.
Senator O’Connell:
I thought at one point, when I was studying the validation issue before the voting, we had indexing in Question 10.
Mr. Woodbury:
The original recommendation from the citizens’ coalition did include a provision for indexing of the gasoline tax. Upon further consideration and talking to various people in the community, it was reconsidered. Ultimately the RTC and the citizens’ coalition took that provision out. What diversion you see now is what was presented to the voters.
Senator Neal:
You indicated in your testimony a vote on S.B. 237 does not raise taxes, but only requires the commission to have a hearing?
Mr. Woodbury:
It is enabling legislation. It would authorize the Clark County Commission and the Washoe County Commission to hold public hearings and to make a determination as to whether or not to raise the taxes.
Senator Neal:
And the commission would be able to vote as to the requirements we have placed in the statute and it would not require a vote of the people?
Mr. Woodbury:
We have already had a vote of the people. Last November, ballot Question 10 was an advisory question asking the voters whether the county commission should seek this legislation to enable the county commission to raise these taxes.
Senator Neal:
I understand, but the gas prices were not as high as they are now when this issue was before the vote of the people. I do not have any qualms about sending it to you guys to act upon as long as I do not get accused of raising the taxes. You guys like to say “Well, the Legislature passed this and we have to act upon it.” I would much rather have it show it came to us as enabling legislation and we just passed it along to you guys to do whatever you wanted, rather than having it say the Legislature forced you to do it.
Mr. Woodbury:
It was structured, the exact same way it was back in 1990 and the 1991 Legislature. We went first to the voters to see whether or not they would give their permission, and then we took that mandate to the Legislature. In both cases, then and now, it was not for the Legislature to raise the taxes, but only to authorize the county commission to make that decision.
Senator Neal:
Now, if the commission should happen to vote upon this issue, do we anticipate some of this money going to improve the road from Laughlin to Needles?
Mr. Woodbury:
That is already funded with existing revenues on the Nevada side, and we are working a partnership with the California side as well. I think the Legislature in 2001 authorized the spending on those types of projects which directly benefit a community like Laughlin. This legislation has nothing to do with projects already funded.
Irene E. Porter, Lobbyist, Southern Nevada Homebuilders Association:
I am here to talk to you today about the process the citizens’ group went through in southern Nevada in the development of the portion of the bill relating to Clark County. The RTC formed a community advisory panel about a year and a half ago to grapple with the issues of traffic congestion and air quality deterioration and formulate solutions to these problems. I was approached by the RTC to participate in the RTC Community Coalition, or, RTC3 for short. I was out of town a great deal of the time during the process. However, I was kept involved and a member of our board of directors also sat at those meetings as my substitute or alternate for the meetings.
The RTC3 was comprised of a diverse group of citizens and it took 15 months for the coalition to finish its work. I am submitting, for the record, a stack of letters (Exhibit C. Original is on file in the Research Library.) from this diverse group who served on the coalition and who are supporting this legislation today. The coalition consisted of all types of individuals. The coalition came to the realization southern Nevada currently has 195 miles of roads at capacity and close to failure. Unless we expand our transportation network, the figure will grow significantly and we will be at full capacity or failing on most of our regional roads by 2025.
The RTC3 developed a plan to prevent gridlock and to protect our air quality. Funding proposals were reviewed and a funding group was put together. The group eventually came to a unanimous consensus for a plan considered affordable, fundable, and comprehensive enough to ensure mobility and improve air quality. The result is what was on the ballot and what you see in the Clark County portion of this bill today. The money has been used primarily for the funding of the development of the beltway in southern Nevada. The plan calls for $2.7 billion to fund a 25-year master plan. It will, among other things, add 425 high-speed travel lanes on our streets and highways, improve traffic signal synchronization, add bus turnout lanes, and expedite the completion of I-215, or the Las Vegas Beltway, as we all call it.
The plan was placed on the ballot and approved by the voters with a 53.2 percent majority vote on November 5, 2002. We, in the home-building industry and on behalf of the many people who served on the coalition, strongly urge you to adopt this enabling legislation. We need these infrastructure improvements. We need to make sure our air quality does not deteriorate in the future. We have made great strides in the area of air quality and we encourage you to take prompt action to approve S.B. 237. I thank you for allowing me to appear today on behalf of my fellow citizens who served in these groups.
Jacob L. Snow, Lobbyist, Regional Transportation Commission of Southern Nevada and General Manager, Regional Transportation, Clark County:
I would like to bring you up to date on some current studies and impacts which are a result of growing traffic congestion and air quality deterioration in southern Nevada. I have a report entitled “The Cost of Traffic Congestion in Las Vegas, The Region’s 15 Worst Traffic Jams and the Steps Needed to Relieve Traffic Congestion.” This report was prepared by the Road Information Program, based on data obtained from the Texas Transportation Institute of Texas A&M University. It identified the 15 worst traffic jams in southern Nevada. The projects to be funded from Question 10, identify these 15 corridors as well as many others to be funded from Question 10 projects. The road information program concludes the cost to southern Nevadans, by not having the Question 10 funds to solve our traffic conundrums, is more than $1 million per day and rapidly growing. I would also like to point out the federal government has hired a financial management oversight contractor to evaluate our regional transportation plan and our transportation improvement program. They are aware of the passage of Question 10 and cannot complete their evaluation of our program and our ability to complete it until they see action from the Legislature and then from the county commission. Literally, billions of dollars are at stake in the future because we will be required to come up with local match. If we have the local match from Question 10, we will literally be able to leverage billions of dollars in additional transportation money from the federal government.
One way or another, we as southern Nevadans will pay for traffic congestion and air quality deterioration. If we choose to do nothing more than we have available to us now, then we will pay by being stuck in traffic. We will pay by losing time and productivity. We will be paying by wasting millions of gallons of fuel at more than $2 per gallon. That is a lot of money to waste. Or, we can choose to go ahead and implement this program which will cost the average southern Nevadan a little more than $1 per month.
I would like to conclude my comments by pointing out when you have a program of this scope and magnitude, occasionally you are likely to run into a little bit of a problem and we have identified a couple minor problems with this bill. We have a proposed amendment to S.B. 237 (Exhibit D). From our standpoint, it is a friendly amendment.
Senator Neal:
How much money will the development fee generate?
Mr. Snow:
It will generate approximately $125 million over 25 years, so roughly $5 million per year.
Senator Neal:
How much money will the fuel tax and impact fee generate?
Derek W. Morse, Lobbyist, Washoe County Regional Transportation Commission:
The indexing of the fuel taxes in Washoe County, which would apply only to the 15.3 cents of local fuel taxes, would, over the period through 2030, recover about $442 million in purchasing power revenue lost due to inflation. Impact fees are adjusted by law every 3 years by State statute. The indexing we would do on impact fees between those 3-year recalculations would simply recover the lost purchasing power due to inflation. It would bring approximately another $20 million in through the year 2030 on top of the existing collections from the impact fees.
Senator Neal:
How much federal dollars would be generated as a result?
Mr. Morse:
There are no federal dollars generated by these funds. This is just on local fuel tax within Washoe County. Echoing the remarks of Mr. Snow, these monies give us leverage as we compete for federal funding. The federal government is very interested in those communities putting up their fair share. They are looking for those communities doing their part and not just expecting the federal government to pay for everything. There is always a local match involved with the federal funds. We have been strained to make our local matches where federal money has been available. This will give us new resources to be able make that match. Typically, for every $2 we spend in these matches, we get $8 in federal funds.
Senator Neal:
There is no guarantee you will receive those. Right?
Mr. Morse:
There is no guarantee but our track record has been extraordinary, both as a community and as a State. We have got a very cohesive delegation. When they go to Washington, we have been extremely successful.
Senator Neal:
How would the development fee work?
Mr. Snow:
Right now, the current development fee for every new residential unit proposed to be constructed is $500. To catch up to the amount of money we have lost since we implemented this in 1991, this bill would adjust the development fee from $500 to $650 in the year 2003. After 2003, there would be periodic adjustments to the development fee and by 2020, it would cap at $1000 per new residential unit. The development fee also applies to gaming, casino hotel resort development, and commercial and industrial resort development. Right now, the development fee for those types of development is 50 cents per square foot. There would be a similar progression in fees for those types of development going from 65 cents per square foot in 2003, up to a cap of $1 per square foot by the year 2020.
Senator Neal:
Could you tell us what those funds would be used for?
Mr. Snow:
Those funds would continue to be committed for the construction of the Las Vegas Beltway.
Senator Neal:
Not for community, parks, streets, or fire?
Mr. Snow:
Since 1991, the development tax has been used almost exclusively for construction of the beltway. We plan on being able to sell bonds based upon the development tax to help support those bonds so that we can complete the construction of the beltway in 10 years.
Senator Neal:
The beltway project has been in existence for about 4 or 5 years now?
Mr. Snow:
We would not have the beltway if it were not for the original Question 10, when we started the funding of the beltway about 10 years ago, but in terms of the actual construction, the first phase was completed in 1992.
Senator Neal:
How much of the beltway is yet to be completed.
Mr. Snow:
There is $600 million left to go into the beltway to complete it.
Senator Neal:
How many miles are left in terms of the beltway?
Mr. Snow:
The primary portions of the beltway yet to be completed are the northern, western, and small portions of the southern segments of the beltway. To put it in terms of miles, 530 miles total, so we are about halfway there
Senator Neal:
Assuming we pass this legislation and you get the money you need, how long would it take you to complete the beltway?
Mr. Snow:
Ten years.
Senator O’Connell:
Could you give us a little background on the thinking about diverting some of the jet fuel tax to a regional board and would they be the ones collecting this tax? Was Randy Walker very much a part of this decision?
Mr. Snow:
Randy Walker, the director of aviation for Clark County, was a participant in the RTC coalition and he was also on the financial working group in which Irene Porter participated. The whole concept behind Question 10, just like the original Question 10 back in 1991, was this would be a fair-share funding program. There was a Jet-A fuel tax component as part of the original Question 10. Mr. Walker was supportive of committing an additional 1 cent of the Jet-A fuel tax for transportation. I failed to point out the amendment we are supporting would take care of some problems with some currently outstanding airport revenue bonds that are paying off the first portion of the beltway’s construction. We cannot have those funds flow to the RTC until those bonds are refinanced and they plan on refinancing them sometime this summer, which is why we had the minor change. According to how this bill is written with this friendly amendment, the Jet-A fuel tax would not be going to the regional body until that requirement was satisfied.
Senator O’Connell:
Was that the way it was originally set up then in Question 10?
Mr. Snow:
The Jet-A fuel tax was dedicated by the airport to build the airport connector portion of the beltway. That is how it was structured in the original Question 10 back in 1991.
Senator Tiffany:
What scrutiny do you have from the public as far as audits or any reports you have to make to the public about how much you are collecting and how it is being spent?
Mr. Snow:
Two years ago the RTC created a finance committee and we have what, in essence, amounts to a few members of our board who go through and conduct a public process every year for all the construction projects we have ongoing. We hold a series of public hearings and go through a very public budget process. It starts in February and culminates in May when everyone has to submit his or her budget to the State. It has been a very open and public process. It has been a source of good information not only for the public, but for our respective local governments who participate in the RTC planning process.
Senator Tiffany:
Do you have an outside audit by someone with whom you contract, or is it done by the county commission auditors?
Mr. Snow:
We have a number of audits. We have the single audit done every year by a contractor. We also have the Clark County internal audit which audits every revenue stream and every account we have on a regular basis.
Senator Tiffany:
Do you have an outside audit in addition to the one the county does and the single audit?
Mr. Snow:
We contract with an outside company to come in and evaluate the cost‑effectiveness of the transit system. We contract also with the University of North Carolina. We participate in a cost-effectiveness program with them and are ranked number one in cost-effectiveness for large transit systems in the country.
Senator Tiffany:
Is this the first time the transportation commission will be able to accept taxes?
Mr. Snow:
No, it is not.
Senator Tiffany:
What other taxes can you collect now?
Mr. Snow:
Right now we collect a 9-cent-per-gallon, local gasoline tax and a 0.25-cent sales tax.
Senator Tiffany:
Do those funds go into your audited accounts?
Mr. Snow:
That is correct.
Senator Coffin:
My question has to do with the involvement of the Nevada Department of Transportation (NDOT) in these projects. Can you give me an outline of approximately how much involvement NDOT will have in the design, construction, and any other phase I might have overlooked?
Mr. Snow:
The director of NDOT sits on our board as an ex-officio voting member and we work hand in hand with NDOT in the development of our regional transportation plan and transportation improvement program. It is basically our capital improvement program for streets, highways, transit, bicycle, and pedestrian infrastructure. In terms of the funding breakdown, the projects we have identified for Question 10 are largely getting the beltway completed and then focusing on the 15 corridors where we have the worst traffic jams. Those involve Interstate 15, U.S. 95, and the major arterial streets in southern Nevada. We have a planning program we would like to advance, which would take a number of those arterial streets and convert them into what we call super arterials. They would be similar to the Desert Inn Road super arterial, where there is limited access, no traffic lights, and grade separations. We plan on having NDOT be a very integral part of the funding of this program, as well as in the planning and programming.
Senator Neal asked a question about local match dollars and there being no guarantee of leveraging additional federal funds which will come through NDOT. All of our federal funds come through a stewardship agreement. Our chances of competing against the rest of the country to bring these federal transportation funds are 100 percent greater if this bill passes. I am very confident we will receive billions of dollars over the next 25 years, which we would not receive otherwise. So, we will have to work hand in hand with NDOT in the planning, the programming, and the funding for these projects.
Senator Coffin:
I have a problem with NDOT in many respects. The problem is not in the acquisition of federal funding nor with its general overall participation in projects. I think NDOT plays a critical role. I have a particular tendency to object to some of the design problems created by them and some of the other difficulties we face in many ways because so many of them do not live or have any roots in southern Nevada. It is very hard for them to know what they do with the work they designed. They do not drive those roads, they do not suffer those traffic jams, and they do not live with the signage and delineation they have created. Therefore, we need to make sure close watch is kept on how this thing comes off the drawing boards so we really have a handle on it. I know some employees of NDOT might take my position as an insult, but I do not mean it that way. I just mean they do not live there and, therefore, do not feel the pain we do walking in our moccasins.
Mr. Snow:
I think we share a lot of the same sentiments. We would love to see a design office for NDOT open back up in southern Nevada. I think it would do a lot to take care of some of the problems and concerns you just articulated so well, and we have asked for that to happen. We have a lot of respect for the people who are our peers at NDOT. We will continue to attend State transportation board meetings and raise concerns when needed to take care of problems we see. This past year, I think we have seen some improvement in addressing some of those problems.
Senator Coffin:
As long as you will be proactive I will feel much better about it, but Mr. Morse, you probably do not have quite the same problem in Washoe County.
Mr. Morse:
We are a little closer with the headquarters, only 30 miles up the road. We work very closely with the personnel at the NDOT and, as in southern Nevada, they are intimately involved in our technical advisory committee process. The plans we put together when we look at the regional transportation plans are completely integrated with those of the NDOT. They must be. It is a federal requirement. I can say, from my perspective having worked with them for the last decade, the relationship has steadily strengthened and improved as we work together. I think everyone has come to realize transportation transcends political boundaries. We have to make this whole system work together. Your comments are taken to heart and I think the situation has shown we can work together for the benefit of the State.
You have a folder containing some of the slides I was going to present in a Microsoft PowerPoint presentation (Exhibit E. Original is on file in the Research Library.), but in the interest of time, I will abbreviate my presentation.
The road to S.B. 237 for northern Nevada began about 4 years ago with our last regional transportation plan. We do these long-range plans and the last one takes us out to the year 2030. This plan was an exhaustive, 30-month effort in our community. It was steered by representatives from every citizens’ advisory board and neighborhood advisory board in the region. Thousands of citizens participated in this plan, given its importance, either by coming to the meetings or taking part through our Web site and other opportunities we afforded them. The resulting plan was a balanced approach. It is not a plan just about roads, but about all transportation at all levels, the regional level and the local level. It was really focused on doing those things in our community we need to do to maintain our outstanding quality of life, and transportation is the key. The improvements in the plan will require about $5.4 billion through the year 2030. Our existing resources are only about $4.6 billion, so we have about an $800‑million shortfall.
The community wanted this plan to come into reality and so they took action. A Blue Ribbon Committee was formed of 33 community leaders, similar to the committee formed down in southern Nevada, and members were specifically tasked with coming up with a way of filling this $800-million shortfall. They eventually came up with a four-part program which is embodied in S.B. 237 and I just want to enumerate very quickly what they talked about. The first was adjusting the developer impact fees we currently charge in Washoe County for inflation between these triennial updates. The second issue was to index local fuel taxes to inflation and I will explain the reason for doing this. We have lost tremendous portions of the purchasing power of local fuel taxes over time. When you look at it in inflation-adjusted dollars, we collect 44 percent less today through fuel taxes than we did 50 years ago for every mile driven in Washoe County, and that is our primary source for funding transportation in Washoe County. When you add the burden of improved fuel economy, meaning people are driving more on less gas, we collect less for each mile they drive; we collect 65 percent less for every mile driven in Washoe County than we did 50 years ago. We are in a deep hole because of inflation and those impacts. So, the committee proposed to index local fuel tax rates for inflation. Just small adjustments to recover the lost purchasing power each year. We are losing 2, 3, 4, sometimes as much as 5 percent and it needs to be recovered. If you look at the 15.3 cents of local fuel taxes collected today in Washoe County, with current rates of inflation, the price of a gallon of gasoline would go up three-tenths of one cent in 1 year. It is a very small increase, but it is enough to recover that lost purchasing power.
The third financial element of their program was to add one-eighth of one cent to the sales tax. The proceeds from this money would be split roughly fifty-fifty between public transit and roads. This element was extremely important for two reasons. For public transit it is the only funding source we have aside from passenger fares. It is the only way we can expand transit in our community. This sales tax was also important for roads because the indexing provisions on the impact fees and the fuel tax kick in very slowly. They do not generate very much revenue in the early years. Therefore, if we are to take care of all the small problems, the maintenance needing to be done on our existing system, and work on the huge backlog, we need to have some immediate money, which the sales tax provides. The last element they proposed was to continue the efficiency programs, in place now for almost a decade, that have saved the taxpayers millions of dollars through increased productivity. We see there is more opportunity in the future, which we want to continue.
These recommendations from our Blue Ribbon Committee were put into Washoe County ballot question 2 (WC-2). We asked the voters if the RTC should seek the funding proposed by the Blue Ribbon Committee and, in last November’s election, 57.4 percent of our voters said yes.
That is really what S.B. 237 is all about. It is a promise we made to the voters, if you will, on the commitment we made to go to the Legislature to seek this additional funding, so they could have the type of community they desire. It will enable us to pass on what is most precious to us and future generations. We ask for your support, your favorable consideration for this bill to do precisely that.
Senator McGinness:
Are you prepared to go through this amendment to tell us exactly what the changes are?
John O. Swendseid, Attorney, Swendseid and Stern:
I will go through the first four items of the amendment and Zev Kaplan will go through the second part. The first amendments were to protect existing bonds. The county had issued bonds secured by the jet aviation fuel tax, including the one penny of jet aviation fuel tax Mr. Snow indicated would go into the regional transportation plan. Those bonds were issued for the first segment of the beltway, but they are still outstanding, which means the Legislature cannot take the tax away from its pledge to the existing bonds. It has to stay with those bonds until the bonds are redeemed, retired, or refunded. The county, in fact, is embarking on a plan to refund those now, but it is unlikely it will happen before this bill passes. Therefore, it was necessary to put an amendment in the bill to make sure the tax stayed with the county instead of going directly to the RTC while those bonds are outstanding. This is the purpose of 1, 2, and 3 on the amendment. It just keeps that tax with the county until the bonds are paid off. The county can then dedicate the tax to the RTC to be used for the purposes embodied in the regional transportation plan. Number 4 of the amendment is to just make clear if new bonds are issued, the commission at RTC’s request issues them, which is how RTC’s bonding program works.
Zev Kaplan, General Counsel, Regional Transportation Commission of Southern Nevada:
The additional language deals with air quality and funding of the air quality programs. It provides for a new section 11 and a new section 12 to the bill, which really just makes it clear the sales tax in Nevada Revised Statute (NRS) 377A, which goes into the transit fund maintained by the RTC, may be utilized for the programs for the improvement of air quality. It further amends existing language in the bill, as drafted, to make similar clarification. For instance, page 3 of the amendment where it says “Amend section 11, page 11 line 30,” it deletes the word “both” and inserts “for the improvement of air quality.” The final and perhaps the most key additional element, is where it says “Amend section 11, page 12 of the bill, by deleting lines 17 and 18 and inserting the new language, subparagraph (d).” This says the RTC now is enabled to transfer funds to the local air pollution control agency of the county, as designated by the Governor pursuant to NRS 445B, for the support of activity, services, and programs related to the improvement of air quality. This money would go to help fund air quality programs implemented and overseen by the local air pollution control agency as designated by the Governor, which happens to be within the purview of Clark County. The RTC would provide, from the sales tax, those funds necessary to fund that operation.
Senator O’Connell:
Was this anticipated and just did not get into the bill? How long before these bonds are paid off?
Mr. Swendseid:
I am not sure why it did not get into the bill when it was drafted. George Stevens, the county finance director, brought it to my attention right after the bill came from bill drafting.
Senator O’Connell:
So you anticipated collecting from the jet fuel tax at a later date?
John Swendseid:
The county anticipates continuing to collect the jet fuel tax until the bonds are paid off. We do not anticipate that happening until probably June, so it is just a few months off, but we are hoping the bill will pass before the bonds are paid off.
Senator O’Connell:
Okay, it was anticipated; the language just did not get in the bill, and the bonds will be paid off in June?
Mr. Swendseid:
We anticipate the bonds will be paid off in June. The county is working on a refunding now. There is no guarantee, but it is the direction in which the county is going.
Senator Neal:
Was the issue regarding the improvement of air quality before the voters in the advisory question?
Mr. Snow:
Yes, it was.
Senator McGinness:
Mr. Combs says there is a technical clarification we probably should make, but he said it may not be necessary unless there will be another amendment. Mr. Combs, would you apprise the committee?
Rick Combs, Fiscal Analyst:
I would just seek authority from the committee, if it decides to go ahead with the other amendments, to talk to the legal division about section 2, subsection 1, paragraph (b) on page 3, lines 22 through 24. There is a condition included there related to the fuel tax levy in NRS 365.190. In NRS 365.190 subsection 3, there is currently an opt-out provision allowing the local government to opt out of that tax. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau, and I looked at it and we do not believe anyone has ever opted out and the last time, I believe, you could opt out was in the 1940s. I will talk to the legal division and see if this would be something that would technically clean up those provisions.
Keith L. Lee, Lobbyist, Southwest Airlines:
By virtue of Southwest Airlines being the largest carrier in the State, I am also here on behalf of the Air Transport Association (ATA), which represents all the major carriers including Federal Express, United Parcel Service, United, Continental, and American Airlines. We support this bill. We understand there is certainly, indirect benefit the airport receives by virtue of the fact we have good, clean, flowing transportation for people to get around their community, also including to and from the airport. However, let me express some of our concerns. Whenever the airline industry, particularly in these times since September 11, 2001, sees either a proposed increase in the jet fuel tax, or in this case, a redirection of the jet fuel tax, we have great concern. To put this in some perspective for you, a year ago the airlines were paying about 60 cents per gallon for Jet-A fuel. Today we are paying about $1.30 to a $1.35. Nationally, for all the airlines, a 1-cent increase in the cost of jet fuel, costs the airlines about $200 million annually. You can see why this is a concern of ours. It is compounded by the fact McCarran International Airport, like almost every other airport in the United States, was built by and is funded and operated by the airlines themselves and the users of the airlines. The airlines are sensitive to having to make up even pennies these days when, as you know, two majors are in bankruptcy and another major airline is possibly going into bankruptcy. My particular client, Southwest, while it has been profitable for many of the last several quarters, it is problematical whether it will do more than break even this quarter. So, it is a concern to airlines whenever we start talking about aviation taxes.
We have been involved with Mr. Snow and have met with Commissioner Woodbury and Randy Walker and his staff at McCarran International. They are all fully aware of what our concerns are and know they cannot keep coming back to us for more money. There are two separate provisions for jet fuel tax in this State. Nevada Revised Statute 365.170 was passed, I believe, in the late 1980s, and is the one penny collected that goes to the State and then back to the county commission. That is the penny being sought to be redirected here from the county to the RTC. Nevada Revised Statute 365.203, I believe, authorizes counties, meaning Washoe and Clark in this instance, to raise the fuel tax an additional 4 cents for a total of 5 cents. Clark County has chosen to raise the additional tax by 2 cents, so there is still a 2-cent cap available. In the early 1990s, what we call an anti-diversion prohibition was passed. It prohibits revenue diversion raised through jet aviation fuel tax to be diverted to other than airport uses. The 1 cent we are talking about here has been grandfathered in and is not subject to the anti-diversion provisions. The 4 cents, however, are subject to anti-diversion provisions. I know Commissioner Woodbury and Jacob Snow and Randy Walker are well aware of those provisions. They are also well aware of the fact that in 1996 the federal government, primarily in response to some things Los Angeles International was doing, even strengthened those anti‑diversion provisions and strengthened the penalties so even what we call intermodal surface dollars could be put at risk for anti-diversion. I assure you the airport, the Clark County Commission, and the RTC are fully aware of those. At the end of the day, Southwest Airlines and the ATA were comfortable with the discussion we had with those involved in Clark County. They understand our situation. They understand we are not in a position to have our taxes raised. We support this bill because we clearly see the benefit that flows indirectly to the airlines. We have all agreed on an amendment removing one of the uses to which the additional 4 cents may be put, specifically the use promoting air service for a particular airport.
John Sande III, Lobbyist, Western States Petroleum Association:
We certainly support the bill, except for section 2, which has to do with gasoline indexing as to Washoe County only. I am a resident of Washoe County and I voted in favor of the ballot initiative asking to increase taxes in Washoe County to build roads in order to be able move around in the future. I voted for it even though I knew it allowed the RTC, according to the petition, to go and ask the Legislature to index fuel taxes as well as other taxes. The reason I voted for it was because I knew we needed more roads even though I was opposed, personally, to indexing. I think a lot of voters, if they read that part of it, had the same feeling.
Western States Petroleum Association (WSPA) opposes S.B. 237, not because we are against increased fuel taxes. As a matter of fact, we do not oppose increased fuel taxes if the Legislature specifically sees there is a need. If that is the case, we should increase fuel taxes. We are, however, opposed to indexing, which has no relationship to the needs of the State, or in this case, the county. If you look at section 2 of the bill, it is a little confusing. It not only tries to index the 9 cents the county is allowed to propose, it also tries to index 3.6 cents imposed by the State and allocated to the county by a complex formula. That means it might not necessarily go to Washoe County. It also tries to index, under NRS 365.190, the 1.75 cents per gallon collected by the State and allocated to the local government based on assessed valuation. Therefore, there is a little more taxation here than just the local option. Again, we are talking about compounding a compounding effect. We believe this sets a bad precedent for Nevada. Only three states have imposed indexing, according to my information, namely Maine, Wisconsin, and Florida. Indexing basically violates the whole spirit of the budget process. It takes away the need for anybody to show why a tax must be increased. You were told today it is very important they have the ability to index because, over time, Washoe County has fallen behind others. If that is the case, they should come forward today and say how much we need to increase taxes this session to keep up with inflation and our needs. Then next session come back to you and present you with more information as to where we stand and whether we need more money, or we need less. You are not going to get any commitment from Washoe County or the RTC that they will never come back and seek increased fuel taxes if you index today. They do not want to have to come back and make their case on a periodic basis like any other industry in the State of Nevada.
I have handed out an article entitled “Historical Trends in Motor Gasoline Taxes, 1918-2002” from the American Petroleum Institute (Exhibit F), which I think you will find of interest. I would like to point out, as of July 2002, Nevada was second in the nation for State and local taxes at 51.7 cents per gallon. Hawaii was fortunate enough to be higher at 53.5 cents per gallon. Therefore, I think you should be very cautious when you do decide to increase taxes.
Senator Tiffany:
I have heard this argument a number of times and I am glad you brought it back up. If we amended the bill to remove the indexing, how would it affect their funding and their ability to initiate their projects? How big of a dent would it make?
Mr. Sande:
There would be absolutely no dent. All they would have to do is come in and make their case to the Legislature. The only thing we recommend is, if you do increase taxes, you do it on a cents-per-gallon basis. If we are going to index this, we should start indexing everything, wages, all taxes that we have.
Assemblyman Goldwater:
Let me get this clear. They want to index to Consumer Price Index (CPI)?
Mr. Sande:
It is a CPI for West Urban Consumers.
Assemblyman Goldwater:
Do you know what makes up that index?
Mr. Sande:
I have no clue. There are various indexes out there and you can pick one.
Assemblyman Goldwater:
I agree with you. I do not know why they cannot come back here when increases are needed.
Mr. Sande:
The voters have said they are willing to pay more taxes and certainly if you take a look at it on a regular basis, on a regular biennial session, it could be determined if more money is needed or perhaps less money will be needed.
Assemblyman Mortenson:
If you should get federal funds in the billions, as you are saying you might, is it possible you will be over-financed for this project?
Mr. Sande:
I truly believe Washoe County has some large needs over a long period of time, so I would doubt we would be overfunded. With the situation we have now at the national level, I doubt whether there will be a lot of federal funds, but it could always be a possibility. I think it is more likely over a period of time Washoe County will need more tax revenues. As a resident there, I have absolutely no problem with paying more if the case is made to the Legislature to raise fuel taxes at the local level. A conscious decision could be made as to how much is needed, so it is not just an arbitrary amount that could go up or down. Another state tried fuel indexing, but stopped because they found it was not keeping up with their needs. They then had to go in and ask the legislature to increase taxes even more.
Mr. Morse:
I do think it is worthwhile to address a couple of comments to Mr. Sande’s discussion. I would point out several things. First of all, there are many states having imposed sales taxes on gasoline precisely for the reason we have shown, flat fuel taxes traditionally fall further and further behind. Sales taxes, because they are a percent of the sales price, adjust for inflation pretty much automatically so the fact that only three states have formally indexed is only showing part of the picture here. Many states have added sales taxes to their gasoline as well. Another thing I would like to point out is we explained indexing local fuel taxes to inflation in great detail to the voters in Washoe County. The ballot question was very clear. We did hundreds of presentations and handed out thousands of pieces of literature to folks. We were very explicit in what we were telling them we were going to do. I understand how the petroleum retailers certainly have some national positions on indexing, which is fine and well, but the voters in Washoe County have spoken. They knew exactly what they were doing when they approved us coming to you and asking for indexing.
I would also point out the indexing provisions, as written into the bill, do include caps. This was merely to recover the purchasing power lost through inflation. The bill says if the inflationary average over the previous 5 years of the West Urban Consumer Price Index goes over 4.5 percent, that is the limit. It can never go above 4.5 percent in any one year the adjustment can be made. It also has opportunities for deflation. If there is deflation in the economy and West Urban Consumer Price Index declines, there can be a negative adjustment at the same time. Again, this is recovery of lost purchasing power. It has put us in a hole. This is not just true in Washoe County. It is true all across the country. At the national level there are also discussions about indexing the federal fuel tax for precisely the same reasons. If and when we need further increments of funding to embark upon new programs beyond our plans, then certainly it would be appropriate to come back to the Legislature. However, this will take care of the needs of Washoe County and of our citizens for good transportation for the next 30 years and it is a complete package. To withdraw this element from the package would gut it. It would cut in half the amount of funding this would raise over 30 years. This would be a disaster for our community. Every day of delay is costing our community $200,000 and this increases daily. If nothing is done, if inaction continues for the next 30 years, the daily cost of this inaction will be $1.6 million a day. We cannot afford to be wasting this time as we fall further and further behind by not acting in these areas.
Assemblyman Goldwater:
I am very cautious on this consideration. This is a piece of the breadth of taxes we are considering this session. The district I represent is right in the middle of Las Vegas and they have been promised relief from traffic problems for 33 years. With every single bond issue and every single tax, relief never comes. What I do not want to do is promise the residents something I cannot deliver. I do not think removing indexing would absolutely gut the whole thing. I am not entirely sure that is an accurate statement.
Mr. Morse:
I stand by my statement. It will gut the northern Nevada portions of this bill, which would raise $800 million through the year 2030 to fill the gap. The indexing provisions provide more than half of that funding That is a huge hole for every dollar we do not have to address our needs there, we fall further and further behind. To fix those things later on would cost four and five times as much. If this package were not in place today, in 30 years we would have a $1.6 billion backlog to hand over to our children and grandchildren. The voters in Washoe County have come up with a good solid plan of making sure that will not happen. It is certainly reasonable given the size of the problems we are facing.
Assemblyman Goldwater:
Not to belabor this, but taking it out does not preclude you from coming back and asking for it in the future does it?
Mr. Morse:
Certainly, it would not preclude us from coming back in the future, but given the history of fuel tax increases in this State and the extreme difficulty it imposes each time, we just fall further and further behind. Then the sticker shock is greater when it comes. This is a way the Blue Ribbon Committee, this group of 33 community leaders, thought would best solve the problems in Washoe County. We are not talking about reaching out and grabbing a lot of new money. We are just talking about recovering the purchasing power lost, bit by bit, by inflation putting us further in the hole.
Anthony M. Bandiero, Lobbyist, Nevada Petroleum Marketers and Convenience Store Association:
We are against this bill in particular because of section 2 which allows Washoe County to adjust their fuel tax against the Western States CPI. If I may address Assemblyman Goldwater’s question, I have the answer about what Western States CPI is. Overall there is a national CPI. Western States is about 15 states and some of the products it covers are food and beverages, housing, apparel, transportation, medical care, recreation, education, and other goods and services. It also includes gasoline prices and excise taxes, so they are already adjusting. The reason I bring this up is because it is almost like a tax-on-tax situation. If Washoe County raises their excise taxes, the CPI is going to go up. I am not sure how big this will be because I have not done the math. The CPI goes up and then Washoe County says the CPI went up, so now have to raise fuel taxes. I think this is a point to consider. Having a floating index would affect our members in the following ways. In particular, it would increase their fuel tax bond. Also, it would possibly affect their business license fees and, more importantly, it would affect the overall predictability of their business. Year-by-year changes can be very difficult to manage, especially in today’s rampantly rising gas prices. A lot of our members’ gross receipts are up 50 percent, which does not mean their profitability is up 50 percent. Since they are paying higher prices, this would definitely affect them that way. I also believe transferring this body’s authority to set the fuel tax rate to someone else, especially to just one county, would not really allow the same open debate and public process we currently enjoy. However, we are aware and cognizant of the fact citizens of Washoe County have expressed their desire to pay more taxes for transportation. We would suggest the RTC and the county ask for the money like they have in the past and use the traditional routes, versus attaching to a CPI.
Another reason we do not feel this is in the public’s interest and our interest is because the annual increases really may not reflect the long-term CPI rate. For example, there is a 4.5 percent cap and my math shows the Western CPI for the last 5 years is about 11 percent. Therefore, my logic says since it is already high and past the 4.5, it would probably take years before it would actually trickle down below 4.5 to around 3 percent, which is really the national long‑term global inflation rate which has been in effect since 1926. It really is not 4.5, it is actually more like 3 percent. Therefore, we believe in the long term the tax increases would not necessarily accurately reflect inflation because there is no mechanism to reduce the overall tax when the CPI is different. I am also concerned maybe the CPI will be less than expected and the RTC would not actually get enough money and go back again to using the traditional methods. I am sure they would not try to cap it out again. This is something for the experts to look into, but this is what I found and it was a concern to me. The Department of Labor suggests if someone is going to use and put into a law form or contract form a CPI for price escalation, they should also incorporate methods to readjust the static cap rate which here is 4.5. So, major CPI is based upon 1981, 1982 and 1983 prices and, eventually, the Department of Labor feels they will adjust it to a more modern era. When they do, it is probably going to throw off any kind of calculations you do on which you are basing this. It is really not even a long-term solution. It is probably very short term. If the RTC needs more money, we ask they come with a bill to ask for the money they need in the traditional way and not through complicated indexing.
Assemblyman Griffin:
I cannot remember how these things looked on the ballot. Is the $800-million figure you mentioned listed on the ballot or at least in some public area, so the voters know the amount being asked of them?
Mr. Morse:
The ballot question in the explanation does call out the funding measures. The calculations of how much money this would raise over time are extremely complex and the number of words is limited when we put these ballot questions together with an explanation. We did however, go into great detail in our public presentations and public pieces about how much money all these measures would raise individually and then collectively to fill this $800-million shortfall we were facing.
Assemblyman Griffin:
How are these all paid for? If this were approved, would you issue bonds and then start construction and use these taxes to pay off the bonds?
Mr. Morse:
That is one possibility in terms of how this money would be used. We are a very fiscally conservative organization and have only bonded when it really made sense, given market conditions and the types of projects. We believe very largely it is more beneficial to the taxpayer to pay as you go. We would bond if the situation were the type where it would make sense to do so.
Assemblyman Griffin:
If you do not do this on an index and come back every 2 years, are you limiting any long-term abilities you have if all of a sudden the right opportunity comes along to get great rates? You really only have the ability to get those based on what you know you are collecting.
Mr. Morse:
I think your analysis is certainly true. When you go to the bond markets and they look at your revenue stream, they would know they could count on it to be there in the future to support the repayment of those bonds.
Assemblyman Mortenson:
I asked this question before, but I asked the wrong person. What happens if you get a large quantity of federal funds? If you then find yourself with more money than you anticipated having, what do you use it on? Do you give it back?
Mr. Morse:
To put this in perspective, federal funding is extremely important to an agency such as ours and certainly to the RTC in southern Nevada. However, when we look out long-term at the needs of the total community for all transportation, federal funding will only account for about 14 percent of all the expenditures we make. It is significant, but it is by no means the lion’s share. Whenever we get federal funds, they are specifically targeted toward projects we have in our long-range plans. When we ask for those funds, we cannot ask for funds for a project not in those plans. For instance, they will not give us money for a project not planned for the community. Therefore, the likelihood we would see a huge increase in federal funding beyond what we are expecting would be highly unlikely because we have the plans showing the amount of federal funds we will be looking for in the specific projects. In the event we were to get excess federal funds, it could allow us to offer even further improvements in our services to the community. It could also allow us to accelerate some of these projects and complete them sooner so they would benefit the community more quickly than what is currently in our funding stream. The idea we would be awash in federal funds, as wonderful as it would be to contemplate, is probably not going to happen.
Grant Sims, Chairman, Blue Ribbon Committee:
This is enabling legislation. You have not heard so far today from citizens who voted in favor of asking for the right to bring this to a public hearing in front of their local county commission. Having had the honor to serve as a county commissioner at one time, I know how people will come out in droves to talk about the potential of gas and sales tax increases. This was a citizens’ process from the very beginning. The regional plan in Washoe County was driven by a citizens’ committee, including business interests, who looked at the funding options and then 57.4 percent of the voters approved this. You have heard a lot from interest groups today voicing their concerns. We are asking for you to give us the right to have those concerns discussed in detail at the county commission. We are not asking you to support any of these gas taxes or sales tax increases. We are simply asking for the right to bring this back to the local sector to those people who would be asked to pay for it and have an honest debate. Some of the discussion I have heard today is intriguing at best, but I think when you look at the ballot question and the explanation of the ballot question, it was clear these funds would be indexed. It was clear in all of the literature sent out to the voting public as well.
Joseph L. Johnson, Lobbyist, Toiyabe Chapter, Sierra Club:
We would like to go on record as supporting the measure.
Jane Feldman, Southern Nevada Group, Toiyabe Chapter, Sierra Club:
The Southern Nevada Group of the Sierra Club served on the RTC community coalition so it is part of our background. I am here to speak in favor of S.B. 237 specifically because of the transit package it will buy for us here in Southern Nevada. The Sierra Club is particularly interested in giving top priority to providing transit opportunities in the Las Vegas metro area. We are absolutely convinced transit will give us a chance for long-term relief from gridlock traffic and asthma-inducing pollution. Transit is the only way we can provide basic services to some of our residents. Transportation choice will relieve traffic, clean the air, and improve the quality of life for each one of us. Senate Bill 237 will allow the funding of a program of transportation measures specified in the Southern Nevada RTC’s Regional Transit Plan (RTP) and the Short Range Transit Plan (SRTP). These two plans include an exciting package of transit opportunities. In the past, we have built a lot of highways, trying to keep up with sprawling developments on the edge of town. We have not been able to keep up with the basic transit bus services. As a matter of fact, we experienced a cut just this past January in our bus services. We must reinvigorate our transit program. As the proposed funding is applied to the RTP and to the SRTP, 40 percent of the funding package will go to transit projects. We understand S.B. 237 was not written with an earmark for transit because the fund needs to be built in with cash-flow flexibility as individual projects are ready to design and build. The Sierra Club is intent on ensuring this minimum of 40 percent of the funding is carried through against the transit projects. The voters of Clark County recommended this tax package to the Legislature as Clark County Advisory Question No. 10. The local group of the Sierra Club supported Question 10 because of the clear indication a minimum of 40 percent of these funds would go directly to transit. The design of the tax measures themselves is fair and well-considered. Here in southern Nevada we are desperate to have our buses returned to us, desperate for new and more buses and fast buses, desperate for the monorail and the light rail connection from Henderson into the airport, and desperate for intermodal centers to connect this system of transportation modes. We are desperate for relief from traffic and bad air. We want better transportation services and we want a better quality of life. We want to breathe easier and we want transportation choice now and are ready to pay for it.
Bob Rusk:
I served on the Blue Ribbon Task Force and enjoyed it, but did not think we could get any enabling legislation passed, but we got it with a 57 percent vote, for which we are thankful. My particular interest was improving bicycle and pedestrian facilities which this bill will do as well as the bus and rapid transit systems.
Knight Allen:
The people have voted and I basically go along with what they want, but I would like to add my voice against indexing of taxes. I think it is a very bad public policy. The folks in Washoe County, regardless of whether they voted for it or not, have set themselves on a very slippery slope. There are all kinds of options for the county commission. If you withdraw the indexing, they can have those honest discussions with the enabling legislation back at the county level. They can pick a number they estimate is good for 5 years out, 10 years out, or the whole 30 years out, and have a number to put before the people either to vote on or vote on it themselves. But to sit back and just allow inflation to generate more revenue to them year after year is not a good idea. One of the representatives stated it is so much harder to get these increases when we have to go through the traditional method. I would respectfully submit, it is supposed to be harder for government than it is for the people.
SENATOR COFFIN MOVED TO AMEND AND DO PASS AS AMENDED S.B. 237.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman McGinness:
We will take a 5-minute recess. It is 3:15 p.m., and please make this a true 5‑minute recess.
This meeting is reconvened at 3:25 p.m., and we will open the hearing on S.B. 238. We have asked the representatives from the Governor’s office to come and talk to us. You pretty much gave us an overview of what the presentation was going to be. There are a few changes in S.B. 238 from the previous presentation and we are going to ask you to talk about those changes. I am sure there will be a question or two along the way.
SENATE BILL 238: Provides revenue in support of state budget. (BDR 32-1208)
Michael Hillerby, Deputy Chief of Staff, Office of the governor:
Since we were here last, obviously we have a bill. It is an identical bill in both houses, Assembly Bill (A.B.) 243 and S.B. 238, which we will go over today. In the interest of time, I will highlight the changes, which are fairly simple. We will go through those quickly and then do a quick overview of the bill. The admissions and amusement tax rate was changed from 7.3 percent to 7.25 percent, which is a reflection of the sales tax rate as it exists in the two largest counties. The admissions and amusement tax proposal now excludes the rental of video home system videocassette recordings (VHSs), digital versatile discs (DVDs) and games. There was some concern expressed about that, particularly as it related to the collection of sales and use tax. As you are probably aware, Nevada law allows the company renting those items to either pay the sales tax when it buys them and then not collect it again, or charge the sales tax on each rental. Almost all of those companies pay the sales tax on the purchase, but to avoid the possibility of anyone being charged both the sales tax and the admissions and amusement tax, those items were excluded from the category.
Senator O’Connell:
Would you please give us the sections you are relating this information to as you are going through this?
Chairman McGinness:
On page 2 of the summary Mr. Hillerby passed out (Exhibit G. Original is on file in the Research Library.), an index shows a list of key sections. The admissions and amusements tax is in sections 34 to 60.
Mr. Hillerby:
I neglected to say we are passing out a couple of different handouts, a synopsis kind of table of contents showing the major sections (Exhibit G), and a general overview of the bills (Exhibit H), which I will refer to now. We will also have, in time for the next hearing or shortly thereafter, a detailed table of contents listing all 190-some sections of the bill and exactly what is contained in there, even those just for internal consistency within the bill or that reference other sections. The last piece does not actually affect the coming biennium, but is an issue for the proposal as it sits now, to begin in July 2005. The original proposal for the bill included a provision once the gross receipts tax kicked in, the business activity tax would reduce to $140. The $140 would be a straight tax on those businesses not liable for the gross receipts tax (GRT). Those liable for the tax would then be eligible for a credit of $100 per employee, an amount not to exceed their total tax liability. In working with your legal counsel, Brenda Erdoes, she expressed very strong concerns about the constitutionality of providing a credit. The idea being a facile argument: the more tax you pay, the bigger you are, the less tax you could pay by being eligible for that credit. I will be honest and say we did not agree. We felt we had some strong arguments on the other side. However, to bring this bill forward in a manner not having a memo attached to it saying here are these constitutional concerns, we opted to change directions a little bit. The business activity tax, after the GRT kicks in, would drop to a flat $80 for everyone. So, those roughly 62 percent of Nevada businesses not subject to the GRT, would see their business activity tax decrease to $80 from the current $100, or the $300 for the next biennium, so it would actually be a tax cut for them. Those businesses making over $450,000 would no longer get the credit, but would pay $80 versus the $100 they are paying currently.
Those are the three changes to the bill in terms of the general topics we have talked about. I will just briefly go back over the operation of the Governor’s proposal. Phase 1 is the coming biennium. It includes increasing the business activity tax (BAT) to $300 per full-time equivalent employee per year. It also includes the liquor tax, which we talked about over the last couple of weeks with the short-term bill which is essentially the same proposal. The same holds true for the cigarette tax increase by 70 cents per pack. The slot route tax would increase by 33 percent. The one-time annual business activity fee would become an annual business license fee of $100 in the next biennium. The property tax would be increased by 15 cents for General Fund operating expenses for the State of Nevada and then you have the 7.25 percent tax on taxable admissions and amusement expenditures. The BAT would be expanded to include sole proprietors and the other forms of businesses currently exempt from the BAT. Then, there is a general, across-the-board increase of the Office of the Secretary of State fees of 50 percent.
You have heard these a number of times because this is essentially the same proposal, in many ways, as the task force recommendations. It will be brought forward both in our initial presentation and in the short-term bill you have in your possession now. We have had a lot of questions on the full-time equivalent (FTE) calculation for the BAT. It is not a per employee tax. It is based on full‑time equivalence and is based on roughly 2000 hours per year. So whether you have a lot of part-time employees or a smaller number of full-time employees, the FTE is calculated the same way in statute. The revenue in phase 1, shown in this slide on page 4 (Exhibit H), which is the coming biennium, is the BAT tax increase of $300 per year. I will not go through all of those numbers since you have those in front of you, the increase in the liquor tax, cigarettes, slot route, and the business license fee. The next slide includes the increase to include all FTEs and business forms in the business activity tax and secretary of state fee increases. The property tax, which in the Governor’s proposal does not start until the second year of the biennium, is in section 189 in your bill. Also shown here is the admissions and amusement tax. There you see the total revenue in phase 1.
Phase 2 of the bill, shown in the next slide on page 5 (Exhibit H), which is the outgoing biennium, would be when the gross receipts tax kicks in. It coincides with reduction of the business activity tax from $300 to $80 which is when the gaming fee increase would go up 0.25 percent in all three tiers. This example obviously uses the largest tier and that revenue is shown here. The gross receipts tax is projected to bring in roughly $200 million in each of those years of the following biennium and the additional gaming money at about $24 million for the net revenue of $222 million and $229 million. You will then see the credit reflected there because the BAT has been decreased from $300 to $80 in the Governor’s proposal and there are the total receipts projected for 2006 to 2007.
We will quickly go through some of the examples we have used (Exhibit H). You have seen these before. This shows the direct increases on a family of three. The increase in property tax, the liquor tax, and admissions and amusement tax, based on going to two movies a month and three major events a year with a $50 ticket price, shows the direct tax impact on this family of about $176. For a family with a one-pack-a-day smoker, the additional 70 cents would increase their total direct burden under these taxes by $431.68. We will quickly move through these next three examples because we have gone through them before. A small business making less than $450,000 with 3.5 FTE would see a total tax increase, once the gross receipts tax kicks in, of $121.70. A business with $1.1 million with the same 3.5 FTE would see a tax increase of $1747, and a business making $2.1 million gross with 30 FTE would see an increase of $4312.
Senator Rhoads:
Would you show me in the bill where agriculture is exempt?
Mr. Hillerby:
The exemption is found at the top of page 3 in my first handout (Exhibit G) where it says, “Gross receipts does not include revenue from the sale of agricultural products at wholesale.”
Senator Neal:
I do not think I understand the language on page 5 of the bill, section 17.
Charles Chinnock, Executive Director, Department of Taxation:
The purpose of this provision is to match with the State’s fiscal year upon those quarters. The way we do that is by cumulatively, in each quarter, looking at what the total gross receipts are so, at the end of the State’s fiscal year, we can make sure the taxpayer has the ability to take an entire credit of $450,000 for that fiscal year. So each quarter you have an increment of $112,500 added to the prior quarter so you can get the full credit of $450,000 by the end of the fiscal year.
Senator Neal:
And if it exceeds that amount, it is to the person’s credit.
Mr. Chinnock:
You can actually exceed it by each quarter and then have tax due, but by the time you get to the end of the fiscal year, if you have had either a short quarter or a longer quarter or you are a seasonal business, you still end up getting the full $450,000 credit.
Mr. Hillerby:
We have also handed out a 2-page sheet (Exhibit I). At the top it says “Gaming Properties Tax Worksheet.” Senator Neal and others had asked if we could provide some examples of some specific companies and how they would look after the gross receipts and the gaming tax increases had gone into effect. These were provided by the gaming control board and are samples from the information they have. They picked three different properties, a small rural property, a medium-sized property, and a large Strip resort. It shows their non‑gaming revenue minus the $450,000 exemption, and totals their taxable revenue. It then shows what their gross receipts tax would be.
Their other tax increases included the percentage fee increase of 0.25 percent, the property tax increase of 15 cents, and the credit they get for the business activity tax being lowered from the current $100 to $80. Once gross receipts and the gaming taxes become effective in July 2005, the total tax increase for the small rural property would be $7400, roughly. For the medium-sized property, the total tax increase would be roughly $387,000, and the large Strip resort would be roughly $1.9 million. The second page shows what they would be paying in the interim. The coming biennium, with the increases in the BAT and property tax, the small property would pay about $38,000, the medium‑sized property $426,000, and the large Strip resort $1.4 million.
We want to make the best use of your time this afternoon. Are there specific sections to which you would like to go, or would you like us to walk through this table of contents (Exhibit G) and do a brief overview of the bill?
Assemblyman Anderson:
I would like to go back to your slide relative to the tax income of the family of three. I am trying to understand how you are making your projection on the tax burden. What was the income level of the family of three you anticipated would be buying this particular bag of goods and services?
Mr. Hillerby:
We did not project an income level for them. We just looked at some average kinds of expenditures. The average home value was placed at $180,000, which is roughly the median in Clark County. It was just some assumptions we made about the number of six-packs of beer per week, how many movies that family might go to, et cetera.
Assemblyman Anderson:
Are you anticipating each family member would be attending two movies a month?
Mr. Hillerby:
Yes, sir.
Assemblyman Anderson:
But you do not have an income figure for a $180,000 home?
Mr. Hillerby:
No, but I think you could probably make a fair assumption regarding median income here, to buy that median-priced home. This one was not based on income, but rather on some average consumption levels. One of the things pointed out in the task force report on the admissions and amusement tax was its relative progressivity. In other words, the more money you had, the higher percentage of your income you tended to spend on admissions and amusement. We talk a lot about the regressivity of some of our tax structure. This one happens to be progressive.
Assemblyman Anderson:
That was the reason I was asking the question relative to income where you were fitting and utilizing that table. I have seen that table in operation in the past and the figures kind of mystified me, relative to the median income of the house you were projecting in the qualifier. To get in there would indicate a higher level of income than would be anticipated with two six-packs of beer.
Senator Neal:
Going back to the gaming property tax worksheet you have given us (Exhibit I), would I be correct to assume this is based upon the proposal the Governor is making?
Mr. Hillerby:
Yes, Senator, it mirrors the proposal in this bill in front of you.
Senator Neal:
So it would not include those exemptions already in the law as it applies to these resort properties?
Mr. Hillerby:
Anything currently in the law is included here. These are based on actual properties and the amount of gaming tax they currently pay at the different tiers they represent.
Senator Neal:
Would you show me where the exemption for the fine art is involved?
Mr. Hillerby:
I do not know which large Strip resort this is, or if it is one having taken advantage of the exemption, so there is no way I could do that.
Senator Neal:
But you do understand they have an exemption for fine arts?
Mr. Hillerby:
I do.
Senator Neal:
Are you aware it is a tremendous amount of money, something like $2 million a year depending on the amount of art property they have?
Mr. Hillerby:
I am aware it is a sizable amount. I could not quote you the numbers.
The last page in the synopsis table of contents (Exhibit G) brought up some questions from the committee regarding the proposal on the property tax. The specific recommendation in the Governor’s bill is to make the new statutory cap for local property tax $3.14. That was done by removing the existing 90 cents, 75 cents for school funding and 15 cents for current State debt service, from that cap and pulling the State pieces in the education funding outside of that so we have essentially two pieces. The first tier is the local tax cap and the local option available to each county and local government. The second would be the portion essentially collected by the State and used for those purposes. You can just walk down each of those county examples. I will pick a couple of them if I may. Start at the top line with Carson City. The current highest county rate for Carson City is $2.68. If you remove the 90 cents, it would put them now at $1.78 against a new proposed statutory cap of $3.14. In Carson City, which obviously has very low property taxes, that would free up $1.36 available for them. Then you go to Clark County because there is a difference there. One of the vagaries of property taxes is you have to look at the highest county rate and Clark County, technically, is above the cap. The reason it is reported that way is because it includes voter-approved items. In Clark County, Henderson has 23 cents, Las Vegas has 9.5 cents, and North Las Vegas has 88 cents in voter‑approved overrides. If you remove the 90 cents, Clark County, across the board in terms of their highest rate, would have a $2.99 highest rate, compared to a new cap of $3.14. In Clark County’s case, it would free up 15 cents. You can go right down the chart and see how this works. The minimum available for any county, with the exception of those with the overrides, would be 40 cents for those that are up against the cap. The existing 90 cents and the proposed 15-cent increase for State operating fund would not be counted against the local cap.
Going to the third block on the chart on the right, you see a State and local tax maximum of $4.19 and our constitutional cap obviously is $5.00. There are additional voter-approved overrides that may impact it. For example, the bond measure, passed this last November by voters for open space in the State museum in Las Vegas and other purposes, provided 2 cents outside the cap because the voters approved it. So those things could happen still between the $4.19 State and local proposed maximum and the $5.00 constitutional cap. Since we spent some time discussing this in previous hearings, we wanted to try to make this, if you can with property tax, as clear as possible so you could see what the impact of the Governor’s proposal is. Again, it would move the cap down from the current $3.64 statutory level to $3.14, but remove the existing 90 cents that goes to education and State debt service.
Just to briefly go through the bill, the gross receipts tax, which again is in the Governor’s proposal, would begin in July 2005, and can be found in sections 1 through 33, the admissions and amusement tax in sections 34 through 60, and the property tax in sections 72 to 74.
Chairman McGinness:
Lets go back to admissions and amusement. In the Governor’s budget, was it not envisioned those would take effect July 1 in the bill instead of October?
Mr. Hillerby:
Yes, it becomes effective October 1, and we will check the budget number it was based on to be sure it is adequately reflected in the revenue calculations for that first year of the biennium. Obviously a number of these, like the inclusion of the other business tax to the BAT, take some time to get going while you set up those new accounts. There was some allowance made for the revenue. We will double-check that and the revenue projections for the admissions and amusement tax.
Look at the property tax, sections 72 through 74, sections 167 to 169, and sections 189 and 190. I would call your attention to section 189, which is on page 112, line 3. “An ad valorem tax of 15 cents on each $100 assessed valuation of taxable property is hereby levied for the fiscal year commencing July 1, 2004, and ending June 30, 2005.” It is somewhat new language for those of you who have sat on the money committees. You know when you adopt the capital improvement project budget every year, you expressly also adopt the rate pay for the State’s bonded indebtedness. The same thing will need to happen here. Each successive Legislature would have to decide on the amount of property tax for a State general operating fund. Obviously, the proposal going forward is 15 cents.
Assemblyman Marvel:
Earlier in the session you were talking about adding another cent to the debt service. What do you do with it?
Mr. Hillerby:
The Governor’s Capital Improvement Program (CIP) proposal does include an additional 1 cent. It is not included in this bill because it shows up, as you know, in the CIP bill in front of the two money committees, so those are separate. It would be added to the portion outside of the local government cap if it were passed.
Assemblyman Marvel:
Would that put any of the local governments over the cap?
Mr. Hillerby:
No, because it is going to be within the proposed $1.05 above the $3.14. All those local governments have 40 cents. If you go back to the sales tax chart at the end of the handout on page 17 (Exhibit G), that would appear in the second block of the State portion of the funding. It would be outside of their $3.14 cap, so it would not have an impact on the local governments.
Chairman McGinness:
Staff has just noticed, and Senator O’Connell may remember this from the deliberations of the committee that reviews the distribution of taxes among local governments, the school district debt levies are taken out of the cap which was not part of the proposal to get relief to the local governments. The committee did not recommend it. Did you mean to do that? Do we need to look at a possible drafting problem, or is it something on which you want to make a notation?
Mr. Hillerby:
We will check into it and get back to you. Another piece that may be of interest, particularly to Senator O’Connell and some of the members who have served on the local government finance committee, is section 157 of the bill. Page 84, section 157, subsection 2, includes some specific language for the next biennium, “the committee shall consider the purposes for which various exemptions from those taxes were adopted, whether any of those exemptions have become obsolete or no longer serve their intended purpose, and whether any of those exemptions should be repealed.” You will also notice the business license fee in section 76 and 191. Like a lot of bills this size, it takes some work to look at the last couple of pages of the bill and look at all the transitory language and the effective dates to be sure you have all of this correct. We hope we do. I need to point out one thing that happened in the drafting of the bill we would like to correct. Section 9 on page 2, subsection 2, paragraph (b) talks about nonprofit organizations. The original overview we did for you in the documents we were working with had both an exemption for nonprofits and a deduction from the calculation of gross receipts for those nonprofit dues and membership fees. Those were inadvertently combined in the drafting process. So section 9, subsection 2, paragraph (b) should read “Any revenue received by a nonprofit organization that qualifies as a tax-exempt organization pursuant to 26 USC §501(c), … .” The rest of that line should be deleted. Again, one of those originally was an exemption. Those were merged in the drafting process and something we did not catch before the bill went to print.
Chairman McGinness:
If you could give us a quick overview of section 9, it may help everybody in exactly what gross receipts does not include.
Mr. Hillerby:
Subsection 2, paragraph (a) states that gross receipts does not include “Any revenue which this state is prohibited from taxing pursuant to the Constitution or laws of the United States or the Nevada Constitution.” I will digress a little bit and talk about what we intend by the language on the federal and State constitutions to the taxability of the gross receipts. I will use the example of mining. Our State constitution says no tax may be levied on the proceeds of minerals other than that tax the State already collects. It is our intent and belief mining companies will pay the tax on their gross receipts after the value of the mineral is determined according to existing State law and that amount is eliminated from the taxable total. It should be noted, mining companies already pay a 5 percent tax on those receipts and will actually end up paying two taxes, that tax and then a portion of their gross receipts not currently taxed under the existing mining tax. We believe that passes constitutional muster. It is my understanding the industry does as well and, obviously, your counsel had some level of comfort with it as it came through.
Paragraph (b) in subsection 2 was the nonprofit we just spoke about. At the top of page 3, paragraph (c) talks about the rental owned by an individual who owns four residential units or fewer. It mirrors to some extent the existing language in some of our local governments exempting those people from business license taxes. Paragraph (d) is any revenue from the sale of agricultural products at wholesale, which we already talked about. Paragraph (e) on line 5, “If a business entity pays a license tax on premiums pursuant to Title 57 of NRS,” that portion of an insurance company’s revenue subject to the insurance premium tax would not be subject to gross receipts. Any other taxes or fees they collect from management investment and other activities would be subject to the gross receipts tax if they were over the threshold. Paragraph (f) is the increase in the quarter cent gaming fee with the existing gross gaming receipts tax. Paragraph (g) applies the same concept to the slot route tax. So, the portion of the income subject to the slot route tax would not be included in the calculations of gross receipts.
Chairman McGinness:
If you are a slot route operator, you will not be subject to gross receipts?
Mr. Hillerby:
There was a lot of testimony at your hearings last week about businesses having slots as a larger part of a bar or convenience store or other thing. If they own those slots, the portion of their income attributable directly to the slot machines, and subject to the slot route tax, would not be subject to gross receipts. The other unrelated business income they had would potentially be subject to gross receipts if it went over the $450,000 threshold.
Chairman McGinness:
Was it part of the task force’s recommendation?
Mr. Hillerby:
I think this fairly closely mirrors the recommendation the task force made. The Governor’s proposal is those items we tax specifically in another fashion, those portions of the revenues taxed by other levies, would not be subject to the gross receipts tax.
Section 10 is the pass-through revenue. This is revenue received by a business entity, essentially in an agency capacity for instance, financial institutions, brokers, consignees, auctioneers, and those kinds of things. If you do not take title to the money, if the money is not yours, it is not calculated in the gross receipts. It is not your money because you are handling it for another person.
Chairman McGinness:
Can you help me with section 11?
Mr. Hillerby:
Section 11 talks about this being a tax on the businesses and to not be construed as a specific tax or a pass-through tax on customers. Included there are those businesses having the ability to do that in a part of their operations. There are some legal questions as to whether or not a business could add a gross receipts line item to the bottom of the bill. It is just an affirmative statement intended to be part of broadening and stabilizing the general tax base across the business community.
Chairman McGinness:
So if you were a movie theater you could not add, say 50 cents or 75 cents to cover the gross receipts tax?
Mr. Hillerby:
This differs from, for example, the admissions and amusement tax which is clearly going to be a line item on a bill versus the gross receipts tax. The ability to identify it as a specific line item like you do the sales tax would obviously be problematic because you do not know in any given transaction exactly how much of it is attributable to gross receipts.
Chairman McGinness:
In my estimation, this is not enforceable unless we are going to give Mr. Chinnock a virtual army. Why is this declaration being made?
Mr. Hillerby:
You are right. There is no intent to say this is not going to be a part of the cost of doing business. It is going to very clearly be passed on in some fashion to consumers. I do not think any of us is naïve enough to believe it is not going to happen. The question then becomes, Do you add a specific line item to a bill? Clearly it is going to manifest itself in many businesses in the price of the goods. It will depend on how they choose to handle their payment of the gross receipts and their ability to pass those on in consumer prices and in other aspects of their business.
Page 12 begins fairly standard language about the department’s activities in terms of accounting, auditing, collection of taxes, tax returns, and those kinds of things you can find similarly in other sections of the NRS.
Senator Rhoads:
Is there a procedure a business has to go through every quarter? Does he have to go to a CPA even if he is under $450,000?
Mr. Hillerby:
Every business now subject to the BAT gets a quarterly bill, a statement from the Department of Taxation. If they do not make more than $450,000 a year they would not remit anything during that quarter to the Department of Taxation. If at the end of the year, your gross receipts have come in more than $450,000, then you would need to pay the gross receipts tax on any portion above that amount, if it was a business that was liable.
Senator Rhoads:
Would you file every quarter?
Mr. Hillerby:
You would continue to file the current BAT form quarterly to make those payments for those employees, but you would not be filing anything for the BAT because you would not be paying it. There would be essentially nothing to fill out. You would just check “no.”
Mr. Chinnock:
I am just backing up what Mr. Hillerby said. Because you do not know from one quarter to the next how much a person might make or if you have a seasonal business, it is important to get a reporting on a quarterly basis. To minimize the amount of paperwork, as Mr. Hillerby stated, we would send that out with the business tax computation.
Mr. Hillerby:
There are those seasonal businesses that may have revenue of over the $112,500 in any given quarter, but know they will not do that in every quarter. They would not pay tax on that just because they went over in one particular quarter.
Mr. Chinnock:
The provision would be simply for them to mark that at the end of the fiscal year they would not exceed the $450,000. Of course there is always the potential of exceeding the $450,000 after having marked, in one of the prior quarters, the box stating they would not. The bill provides they would then owe a penalty and interest based upon what amount they did exceed.
Mr. Hillerby:
Pages 4 and 5 of the bill provide language dealing with the administration of the gross receipts tax and the department’s duties and functions for auditing and the filing of that tax. Section 16 on page 5 is a further definition of what constitutes a business for this calculation. If you are a natural person engaging in business, you are deemed to be a business if you are subject to the provisions of the Internal Revenue Service (IRS) requiring you to file a Schedule C or Schedule F with your Form 1040. Section 17 is actually the imposition of the gross receipts tax of 0.25 percent on amounts in excess of $450,000 per year. We have already talked about subsections 2 through 4 with Senator Neal’s questions earlier and with what we just talked about with the quarterly filing and the exemptions.
Section 18 says:
The Department shall, by regulation, adopt criteria for determining the amount of gross receipts attributable to business conducted in this state by each business entity for the purpose of calculating the tax liability of the business entity pursuant to this chapter.
The criteria there is listed in subsection 2, paragraphs (a) through (d).
Senator Neal:
Does the department adopt the regulations or does the tax commission adopt the regulations?
Mr. Chinnock:
The Nevada Tax Commission actually has the authority to adopt those regulations. They currently maintain 750 regulations.
Senator Neal:
Are we taking that authority away from them now?
Mr. Chinnock:
I do not think there is an attempt to do that. They are the regulatory body for the Department of Taxation.
Assemblyman Marvel:
How many additional auditors will it take?
Mr. Chinnock:
With respect to just the gross receipts, once it was fully implemented, a total of 71 personnel. Regarding the number of auditors, about 140,000 accounts could be eligible under the business tax and somewhere between 25,000 and 30,000 accounts would actually end up paying that tax. So with respect to the auditors, we are talking about a total of 17 auditors, not counting any supervisors there would be. There are currently two working supervisors and one supervising auditor for that amount.
Assemblyman Marvel:
Would they just be auditing for gross receipts or would they be auditing for sales and use tax?
Mr. Chinnock:
We did have a great deal of discussion on this and it was our determination, in order to cause the least amount of disruption when you go to a business, you would have them audit all areas. It would be sales and use tax, business tax, and the gross receipts tax, all at one time.
Mr. Hillerby:
Section 18 deals with the adoption of those regulations and the philosophy the Governor adopted for the bill as proposed which is to identify those activities having a nexus to Nevada and generating revenue in Nevada. We had a lot of conversation about those businesses doing a great deal of business out of State. The language in section 18 provides the guidance for the department and the taxation commission to adopt those regulations in keeping with the philosophy as outlined in this section.
Senator O’Connell:
On page 7, subsection 4, where it talks about a substantial nexus, is this situation something where you would go after General Motors because of the number of cars they would sell in this State? Is that an example that could be used for this?
Mr. Chinnock:
I think there has to be facilities, employees, something of that sort, to have substantial nexus within a state. You have to have a business or operation within the State. You have to be located there.
Senator O’Connell:
You would have a home base then. You would not be reaching to get companies outside of the State?
Mr. Chinnock:
Yes, we would. We would be looking at companies coming into the State to make sales, if they have tangible property here. We would decide what amount of nexus we would have to have in order to assess them.
Mr. Hillerby:
I think the automobile manufacturer example is a good one. There are two issues. Their products are sold almost exclusively through Nevada businesses, essentially car dealers, repair shops, and other kinds of things. For example, General Motors still has a parts distributing warehouse in Sparks. They have a business nexus here. The portion of that activity, the sales or things from that parts facility directly attributable to Nevada, may in fact be subject. This gets to some very interesting questions about warehousing. If you are a food distributor or a large grocery store chain and own a warehouse and move product in and out of that warehouse, there is, in essence, no business transaction going on there. There are no gross receipts attributable to that, so there are going to be a number of questions needing to be worked out. There are going to be a lot of questions in front of the commission.
Mr. Marvel made a comment about the potential of lawsuits. One of the reasons the language is drafted this way is so you do not jeopardize the entire legal structure of the tax on any single one of those appeals, however many there may be. The finding of fact will be delegated to the commission and the Department of Taxation. There will likely still be legal appeals to the larger tax increase because of those who either feel they have not been treated fairly or do not like the tax at all. The idea behind this language, and we have some other legal cases we can provide to your staff, is to talk about the Legislature’s ability to set those policy directives and make those guidelines clear.
Section 19 of the bill talks about deductions from the gross receipts. Subsection 1, “The amount of any federal, state or local governmental fuel taxes collected by the business entity,” would obviously not be considered in the gross receipts. Subsection 2 shows any revenue attributable to interest upon government bonds. Subsection 3 says “Any pass-through revenue of the business entity,” which is defined earlier in the bill. Subsection 4 allows “Any revenue received as dividends or distributions by a parent organization,” and subsection 5 lists “Any operating revenue of a public utility for the provision of electric, gas, water or sewer service.” Subsection 6, any revenue received by a health care provider from a government entity, Medicaid, Medicare, and similar kinds of revenue would not be included in gross receipts. Subsection 7 would deduct “Any cash discounts the business entity allows a purchaser of property, rights or services.” Subsection 8 is bad debt, and subsection 9, counterfeit currency.
Subsection 10 allows “The amount of any payments received by the business entity upon claims for health, casualty or life insurance.” I want to be clear because there was a great deal of confusion in our ranks as we worked on this. This is not the amount of money they pay for premiums. This is if you file a claim because your car was stolen or your home was damaged, or you file a health insurance claim. The money you receive from those claims is not considered income for IRS or State purposes. These are deductions from income for the federal income tax. Section 20 deals with the idea of creating separate entities solely for the purpose of avoiding the gross receipts tax. It says:
If the Department determines, after notice and hearing, that: (a) Two or more business entities are members of the same control group; … engaged in essentially identical activities; and The purpose of engaging in those activities through multiple legal entities is to avoid or to reduce liability for the tax imposed by this chapter, the Department may require those business entities or the control group to compute their liability for the tax imposed by this chapter as a single business entity.
Subsection 2 defines “control group” as “any business entity in which 50 percent or more of the ownership belongs to a single legal entity, whether through holdings of stock or otherwise.”
The next sections talk about refunds, overpayments, and other administrative issues within the department. It also talks about the interest rate for overpayments, either from the taxpayer or from the department. This language mirrors other language within that title of NRS for the collection and computation of interest and penalties and the like for the Department of Taxation.
We will move ahead to the admissions and amusement tax starting with section 35. Section 36 defines “admission charge” as the total amount of “any consideration provided … for the right or privilege to have access to a place or location where group entertainment is provided.” Then it talks about
If any consideration is otherwise required for the right or privilege to have access to a place or location where group entertainment is provided and all or part of that consideration is waived as part of a promotional or marketing plan, the total amount of the consideration that would otherwise be required.
Essentially what this amounts to is that those comps would be calculated the same as if they had been paid cash. Section 38 is the operative definition. “Group entertainment” means entertainment provided for groups of spectators, including, without limitation, athletic and sporting events, closed circuit and other transmissions of events, movie theaters, concerts, theatrical and stage productions for the performing arts, exhibitions of art, skills or goods, beauty contests, lectures and speaking performances, live entertainment, adult cabarets, and tours and tour services. That takes us through subsection 11 to section 39.
Sections 39 and 40 show some definitions of “taxpayer” and the department’s administration of tax money. Then you get into fairly standard language from other tax statutes about how the department does the auditing and accounting functions. Section 44 is the actual imposition of the tax of 7.25 percent of the admission charge, as we talked about earlier in those definitions. Subsection 4, on page 15, “The tax imposed by this section does not apply to an admission charge: (a) Included in the computation of the tax …” That is the casino entertainment tax.
(b) Provided to a governmental entity or a public or private educational institution for any group entertainment sponsored by a governmental entity; (c) Provided to a nonprofit organization that qualifies as a tax-exempt organization … or to a person who remits to such a nonprofit organization at least 60 percent of the net revenue.
The tax does not apply to an admission charge “(d) Provided for the right or privilege to have access to a convention, an exhibition or a trade show, if the opportunity for admission is not made available to the general public.” That is obviously a fairly substantial issue for our economy and the trade shows and conventions happening here. The tax also does not apply to an admission charge “(e) Provided for the right or privilege to engage in a participatory recreational activity, including, without limitation, ¼” and there is a long list of those participatory items which are not included in the computation of the admissions and amusement tax in the Governor’s proposal.
The following sections and several pages are the fairly standard administrative language for the Department of Taxation, which takes us through page 19 and section 60.
Chairman McGinness:
Were there any calculations made which would make the admissions and amusement tax apply in addition to the casino entertainment tax?
Mr. Hillerby:
I think we can certainly get those. Obviously, it is already taxed and it goes with the Governor’s general philosophy that those specific revenue items already having a levy against them would not be included in the calculation.
Chairman McGinness:
Would there be a benefit or more revenue if we replaced casino entertainment tax with the amusement tax?
Mr. Hillerby:
I would have to get some information from the State Gaming Control Board. I think for those entities subject to it, the casino entertainment tax is higher than the admissions and amusement tax. It is a very complicated tax, based on all sorts of things such as whether dinner is served and the number of drinks. Perhaps the gaming control board might be willing to answer some questions about the specific implementation and we can certainly try to run some numbers and see whether or not it is revenue neutral or a plus or minus.
Senator Neal:
What is the import of the language in section 11?
Mr. Hillerby:
I think two things. One being the idea this is not a line item on a bill saying this amount is added to your bills, specific with the gross receipts tax. The other is to simply state this is in fact a tax on business. It is a part of broadening and stabilizing the revenue base on the minority of businesses in this State making more than the $450,000.
Senator Neal:
Does the language prevent the seller from passing this on to the customer?
Mr. Hillerby:
No, Senator. It does not.
Senator Neal:
So why is it here?
Mr. Hillerby:
Again, really, for those two reasons. There is an issue about a line item identification on a bill and a larger philosophical statement. If a version of this bill ultimately passes and a section like this is in it, a statement of intent from the Legislature that this is, in fact, construed to be a tax on business and not a direct pass-through. As we all know, there is essentially no way to separate those parts of a business entity and say we are going to force you to pay some sort of tax you can actually not pass on in any other way. It is impossible to do that and clearly is not the attempt here.
Senator Neal:
From where did the language come?
Mr. Chinnock:
I think it just came out as part of the standard bill draft language.
Assemblyman Mortenson:
Referring to section 76, the business license fee, which in the past has been $25, will it now be $100 every year?
Mr. Hillerby:
Yes, sir.
Assemblyman Mortenson:
You have been talking about trying very hard to keep this from being regressive. When these mom-and-pop operations with little tiny businesses compared to Costco Wholesale Corporation, Sam’s Club, and casinos have to pay $100 a year, I think it is incredibly regressive.
Mr. Hillerby:
Depending on the local jurisdiction in which they do business, they may now be paying a higher business license fee than that to the local government. Many of the local jurisdictions require a business license fee based on revenue and other areas. Therefore you may be paying substantially more than that for a business license in the city of Las Vegas or in Clark County now, depending on the size of the business.
Assemblyman Mortenson:
But still, the smaller the businesses, the harder it will hit them.
Senator Neal:
Where did the language come from preventing the Legislature from seeking information involving these taxes other than through an audit?
Mr. Hillerby:
Is there a specific section to which you are referring?
Senator Neal:
It starts with section 15 and goes through 16, pages 4 and 5. “Disclosure in confidence to the Governor or his agent in the exercise of the Governor’s general supervisory powers, or to any person authorized to audit the accounts …” suggests the Legislature cannot receive any information unless they do so through an audit. Yet, the Governor can receive this information through his agents or through anyone else. Are we now being put into a category of nonexistence? We are to sit here and pass things through which we cannot come back to and to find out what happened?
Mr. Chinnock:
This language mirrors language in the sales and use tax statutes and also in the business tax statutes with respect to confidentiality, so it is identical to legislation already passed.
Senator Neal:
Are you suggesting to me, sir, just because it has been in there for some time, it is right? The Legislature should not have the authority to come back and revisit this or get data from the various entities in order to effect Legislation?
Mr. Chinnock:
No, sir. I am just suggesting if the current legislation was effective and operational then I guess we tended to continue it.
Senator Neal:
But this is drastic change in terms of our tax policies and we are kind of treading out into new waters. The gross receipts tax is new and other things there are new, but the language being proposed does not allow the Legislature to come back and take a look at what is going on or even call these people in and address issues of taxation and whether or not they are paying their fair shares.
Mr. Chinnock:
I believe the language permits information, but does not permit specific information with respect to companies or to individual taxpayers. I believe it is worded so if general information is needed to give an idea of statistics and data, it is okay.
Senator Neal:
But we are requiring specific information from companies, are we not?
Mr. Chinnock:
Yes, sir. The way this bill would be structured, the Department of Taxation would be receiving individual information on companies and taxpayers.
Senator Neal:
Do you think we should have laws on the books permitting the Legislature, sitting in session, to receive this information?
Mr. Hillerby:
Clearly, because this is modeled on existing language, previous Legislatures have made the privacy of an individual taxpayer’s records of paramount concern. If you, as a body, decide you want to change, lessen, or strengthen the standards on privacy for those individual taxpayer’s business records, their revenue, their employees, and that kind of information, it is clearly a policy, I think, that is yours to make. I would not venture a legal opinion about other parts of the statute and the privacy those businesses or individuals are entitled to. That is something your staff would need to advise you on, but we have followed the wisdom of previous Legislatures making privacy of paramount concern when you are handling those kinds of private records for individuals and businesses.
Senator Neal:
But any business required to pay taxes according to our law should be open to scrutiny by the Legislature during the session. If there were provisions within the law to do so, would that not make the process more fair?
Mr. Hillerby:
I do not know specifically what kind of information you are looking for.
Senator Neal:
We could only look for information that would address the people with concern of the State. That is why we are sitting here. We represent the people of this State, so when we seek information, we want to be able to address their concerns as to whether or not things are above board.
Mr. Hillerby:
Absolutely, and if you want to look at a specific sector of an industry, a specific area of the State, the kind of revenue generated by specific kinds of businesses in an abstract form, that is available. That is the kind of information the department can provide. It would be a fairly significant departure from existing policy to talk about individual taxpayers’ information in any kind of public forum.
Chairman McGinness:
We are running short of time. I know there are a few people who came from long distances to testify today and we are going to accommodate them.
Mr. Hillerby:
Thank you for your time. We will obviously be back here on Thursday, if you so desire, to go through other portions of the bill and we look forward to working with both of the chairmen of both committees and their staffs. I know many of the other tax bills we have heard about are starting to emerge.
Senator Coffin:
I just wanted to say I have admiration for the staff of the Governor’s office who have come up here and taken the flak on this issue. I actually admire the Governor for doing this. I know he has lost his temper and others have lost their tempers with him. Everybody seems to get angry with everybody else where we are going down the slippery slope here of exemptions in the interests of justice and fairness, which always happens within a tax bill. That is why our sales tax section has so many exemptions in it and so you will see you are going to have to continue to produce exemptions and changes as you modify your own bill. You did it today and you will probably do more Thursday as you begin to think of things and hear of things. That is the one big thing worrying me about the bill and it has worried me from the beginning. It is not easy to give bad news to people. I sit on finance and know we need money. I will vote for taxes of some kind, but I am not sure how many and which ones. I am going to vote for a lot of taxes because I just know I have to. You have to be congratulated for at least taking the step forward that should have been taken a long time ago.
Mr. Hillerby:
I very much appreciate those comments and want to thank all of you. You have not shot the messenger, at least not anywhere vital, yet. It is never fun. All jocularity aside, this is very serious business. The Governor is taking this very seriously. We look forward to working with you and hopefully doing the best job we can together to serve this State.
Thomas Jefferson:
I have been listening to these tax proposals, S.B. 237 and S.B. 238, and they have been kind of educational. I probably have a tax proposal here that could make both of them obsolete. I believe what I have to say is important to our State. I have been looking at this Montana plan of which you have a copy (Exhibit J). I ran some numbers on this based on the tax velocity of say, the gold mining industry. They have about 10 million ounces of gold they sell per year. That comes to $3.5 billion in sales, plus there is another $2 billion in velocity through the purchase of outside items like supplies and payroll they make to their employees. All in all they come up with a velocity of $6 billion. Taxes we would derive from it for the State of Nevada would come to approximately $37.5 million.
In the gaming industry, Microsoft National Broadcasting Company (MSNBC) estimates the cash velocity, not counting supplies and wages, in the Las Vegas Valley is approximately $144 billion per year. That is not their income. That is the velocity of their money. It comes out to about $5 billion in taxes for the State of Nevada. If you total the whole thing, we are talking about $8 billion, once you bring the rest of the State economy in on the deal. This is, of course, far more than the State needs to conduct its business because it has been doing so with about $4 billion this last year. As near as I can see, this little five‑eighths of a cent raise would materialize into about a $4 billion surplus which could be paid right back to the people on a per household, or per person share. It is very simple. These last two bills we just heard are extremely complex bills. There are so many sacred cows and so many unsacred cows involved in those bills. I think it is typical of what is going on in every state in the Union. If Nevada is really interested in economic growth and enticing major corporations to come here, I think this little simplified tax thing I just showed you, is actually the way to go. It would allow corporations to take a look at this State and be able to forecast, in advance, what their actual outlays on the taxes would be as far out as 20 or 30 years. I know a lot of you are thinking this is awfully simplistic, but a lot of times the simpler it is, the better it is. Our forefathers, when they developed this nation, were looking for a way to form a more perfect union and for me, I am looking for a way to form a more perfect State and a more perfect State tax system.
Dan Dew:
I am representing the Magical Hula Girls. I am their father and their manager. They sat here for a few hours and had to leave for some classes, so I will read their written testimony opposing S.B. 238 (Exhibit K). My daughters also wanted me to say we hope the Legislature, at some point, since our soldiers may soon be going to war, would take a moment to show support to the soldiers. Our girls do two songs, “The Ballad of the Green Beret” or “God Bless America” at most of their events to show support for our soldiers.
Chairman McGinness:
We have written testimony by Amanda Vertner of Foothill High School in Henderson. Since she was unable to read it because she had to catch a plane back to Henderson, we will make sure it is entered into the record (Exhibit L).
We are posting this bill probably for the next three meetings, at least. We are adjourned at 5:06 p.m.
Ardyss Johns,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: