MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
March 13, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:00 p.m., on Thursday, March 13, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4406, 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 J. Tiffany
Senator Joseph Neal
Senator Bob Coffin
STAFF MEMBERS PRESENT:
Rick Combs, Fiscal Analyst
Gale Maynard, Committee Secretary
OTHERS PRESENT:
Michael Hillerby, Deputy Chief of Staff, Office of the Governor
Charles Chinnock, Executive Director, Department of Taxation
Dino DiCianno, Deputy Executive Director, Department of Taxation
Carol Vilardo, Lobbyist, Nevada Taxpayers Association
Renee Parker, Chief Deputy Secretary of State, Office of the Secretary of State
Jerry Threet, Secretary of Treasurer, Rally Corporation
John L. Wagner, Lobbyist, Nevada Republican Assembly, and The Burke Consortium of Carson City
Richard W. Dieleman, Dielco Crane Service Incorporated
Janine Hansen, Lobbyist, Nevada Eagle Forum
Knight Allen
George Harris, Nevada Republican Liberty Caucus
Mark S. Ireland, TAB Contractors, Incorporated
Chairman McGinness:
This meeting of the Senate Committee on Taxation will begin by considering Senate Bill (S.B.) 238.
SENATE BILL 238: Provides revenue in support of state budget. (BDR 32-1208)
We are going to finish some of the issues we were not able to finish last time, and take some testimony from the public and the secretary of State’s office. We will take more public testimony as more tax bills come forward. We may also group the bills together under each topic, such as property taxes, business license fees, and so on.
I ask all those who are speaking to please stick to the bill, S.B. 238, and how the bill, as written, would affect you or your business. We would like to start with business license fees and taxes, or anything else the committee would like to discuss.
Michael Hillerby, Deputy Chief of Staff, Office of the Governor:
I understand there were some specific questions about some of the lesser publicized pieces of the bill from the hearing the other day and I will be happy to try and answer them as quickly as possible in order to take time for public testimony. I should have someone here shortly who can answer some specific questions you may have. Otherwise we will start with the business license fees.
Chairman McGinness:
Let us look at S.B. 238, section 76 on the business license fee, page 30, line 26.
Mr. Hillerby:
The proposal the Governor has recommended for beginning July 1, 2003, would be to change the $25 one-time application fee to an annual business license fee of $100. This would be renewed on an annual basis forward from the current renewal date they have, and would be spread throughout the year.
Chairman McGinness:
How did you make the determination on the number of businesses in your calculation? Was it task force numbers?
Charles Chinnock, Executive Director, Department of Taxation:
We basically reviewed the Internal Revenue Service (IRS) information to find out how many sole proprietors there would be. Then we added this to the total number of accounts and businesses we already had in Nevada who were registered and filed with us.
Chairman McGinness:
What is the rationale going from a $25, one-time fee to a $100 annual? The task force recommendation was a 2-year, $25 each year, to establish the basis for the license, or database. What is the reasoning?
Mr. Hillerby:
Essentially, yes. It was a revenue number, based on this coming biennium and looking forward. The Governor also looked at some of the business license fees that some of them were paying local jurisdictions and landed on the $100 number.
Chairman McGinness:
I am looking at some of the revenue for fiscal year (FY) 2004, is about $9.7 million, and $10.9 million in FY2005. Comparing this to the amount of roll up which is going to have to happen with the Department of Taxation, is there a tremendous net gain? Is there enough net gain to justify going through these mechanisms?
Mr. Hillerby:
I would like to have Mr. Chinnock address that question specifically, but one of the things important to keep in mind and one of the recommendations from a number of places, is our existing operations within the Department of Taxation needed to be strengthened and the staff did not have all the resources they needed to do their jobs. Part of this is attributed to new activities, staffing, and funding for technology, which have been long overdue.
Mr. Chinnock:
I know we are talking about the business license fee, but if I could put a frame around the number we are talking about. I know you mentioned $9 million the first year for the business license fee and $10 million for the second year. Once the business tax was increased and the business license fee was in effect, the sole proprietors within this were stabilized, now you are looking at about $20 million. We are looking at adding $30 million. The computation I had shown you in an earlier meeting, showed 42 people coming on board as far as the basic package of personnel and this package was set based upon being account driven. The cost for adding these personnel is about $4 million for the basic package. I am not sure if this is an increase or decrease in return, all I can comment on is the business tax itself brought in $80 million last year. This is about 3 percent of the revenue we collect, and to which we devote about 30 percent of our resources. It puts a perspective on the business tax and what we do to add to it.
Senator Tiffany:
I do not understand how you get from $9.7 million and $10.9 million to the leap of $30 million? Is there a gap you did not explain? Can you tell me how you got to the $30 million? I am assuming this is only the business license fee.
Mr. Chinnock:
The $10 million is the business license fee, once it is stabilized. The business license fee alone for $100 million. The other part to this is the sole proprietors; once this is stabilized, it is about $20 million a year. The $20 million and the $10 million give you $30 million.
Senator Tiffany:
The $10.9 million is the $25, one-time fee.
Mr. Chinnock:
It is actually the $100 fee per year which makes the $10.9 million.
Senator Tiffany:
This is from the existing people you are collecting from.
Mr. Chinnock:
I do not have it broken out.
Senator Tiffany:
Are you saying you know an existing number out of the Business Activity Tax (BAT) now, just the number of people you collect from? Is this where you get a number times one hundred to get to the $10 million and then when you add all the sole proprietors on top of this is where you get the $20 million?
Mr. Chinnock:
Exactly. The $20 million also includes the actual business tax within this. The reason it was done is because we did not separate the resources between business tax and the license tax. I could do this for another meeting if you would like.
Senator Tiffany:
Okay, but the $20 million and $30 million still do not include the Business Activity Tax.
Mr. Chinnock:
Yes, it did. The $20 million included the Business Activity Tax for the additional sole proprietors.
Senator Tiffany:
Thank you.
Chairman McGinness:
Mr. Chinnock, I think those numbers would be helpful if you could talk about the number which is going to be generated in the business license fee. We need to look at what type of resources we are going to have to throw at this to get back the revenue. Now that the BAT is proposed to go back to $80, your revenue from this is going to go down even further. Give me those numbers again. Is the BAT 3 percent of your revenue?
Mr. Chinnock:
The current collection on business tax is $80 million a year. Using a round number, about 30 percent of our resources are devoted to collection of the business tax.
Senator Rhoads:
Does this mean it takes $24 million to collect $80 million in taxes?
Mr. Chinnock:
No. Our budget at the Department of Taxation is about $15 million in personnel, therefore, it is about $5 million to collect the taxes.
Senator Rhoads:
What was the 30 percent for again?
Mr. Chinnock:
The 30 percent applies to the total, $15 million cost of the department, which is $5 million.
Chairman McGinness:
Is there anything else you want to talk about in reference the business license fee?
Mr. Hillerby:
To clarify the next 2 sections of the bill, sections 77 and 78, affecting Nevada Revised Statutes (NRS) 364A.140, section 77 would be in effect for the coming biennium and would expire at the end of June 30, 2005. Section 78 would become effective July 1, 2005, and would decrease the Business Activity Tax to $20 per employee, per quarter or $80 per year. Section 79, dealing with NRS 364.150, on page 34, beginning at line 15, incorporates a change in the language to include sole proprietors.
Chairman McGinness:
Sole proprietors will be picked up beginning July 1, 2003?
Mr. Hillerby:
Yes. Beginning this biennium, we will be picking up sole proprietors and the exemption for the sole proprietors who have employees.
Chairman McGinness:
Are you going to have a problem making everyone comply? Do you have the database to notify all of these sole proprietors?
Mr. Chinnock:
We will have a database, but we will also use an information and education program in order to contact them. We also have the ability, under NRS 364A.190, to go over four quarters to make sure we contact those personnel and collect these taxes. It is just a matter of getting the word out and getting the information to them.
Senator Rhoads:
Maybe you have already covered this, is there a definition here for sole proprietorship?
Mr. Hillerby:
I believe it currently exists in the NRS, possibly within the Business Activity Tax, but we will check on this for you
Senator Coffin:
Mr. Chinnock, on governmental issues, I think in 1991, we talked about not sharing information with the Internal Revenue Service, but you can share with just about everyone else. Do you have in place now a system to talk with cities and counties to find out who has business licenses? Is this in your database to cross tabulate and see who has a business license in a municipality, but not with the State?
Mr. Chinnock:
We do not have a database, per se, but one of the things we would do is to make a match. As a matter of fact, we would also consider partnering with county business licenses in order to work with taxpayers to get them signed up.
Senator Coffin:
How much money do you think we have lost by not doing this before? I did not realize we did not have this in place. We do not do a cross tab with the local government to find out who pays a business tax?
Mr. Chinnock:
We do not have a system in place matching databases to our database.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
Currently, under our business tax registration form, it does have a cross‑reference with the local agencies and basically tells them that in addition to applying for the business license at the local level, they are also to contact the Department of Taxation for the business license. Mr. Chinnock is correct in we do not have a computerized system in place where we can cross-reference data with these local entities.
Senator Coffin:
This may be why the tax has never generated the revenue it was supposed to generate and was promised back in 1991. I do not believe we have discussed this in 10 years.
Mr. Chinnock:
I would like to add one other thing. With the secretary of the State, as far as corporations and other entities who do file, there is also a requirement stated on their filing documents saying filers are to report for the business tax, also on this form.
Senator Coffin:
It is simply a piece of advice being given to those people to contact you to pay a tax, which they are not likely to do voluntarily.
Mr. Chinnock:
If I might add, they are required to sign it as an affidavit, under penalty of perjury.
Senator Coffin:
I do not recall in my city business license, which I pay semiannually and is not very much based on revenue, where I have to continually acknowledge I am licensed by the State. Do you know if I should be doing this or if it is there? I do not recall seeing this on my own city license. I believe I am still on the subject and I sense some revenue loss.
Mr. DiCianno:
I do not believe I can answer this question directly, because I do not know. I do not know if we are losing revenue, or actually gaining the revenue necessary between the local business license and the State business licenses.
Chairman McGinness:
Continuing to gain those people who had not filed before or had not been part of this tax before, there is a difference in the Governor’s revenue in fiscal year 2004 and fiscal year 2005, it goes from $12 million to $21 million. Did you think you would capture more of those people at this point?
Mr. Hillerby:
Yes. We knew it would take some time for the information to get out and get people signed up and aware of the program, and there is a phasing in for this revenue.
I understand there were some questions on the collection allowance, beginning in section 87, NRS 372.370, the timing of this, and the department’s plans to begin accepting electronic forms of payments. I will let Mr. Chinnock explain this.
Mr. Chinnock:
Senate Bill (S.B.) 238 provides that the Nevada Tax Commission establishes regulations for the electronic payment. We are currently in the process of starting an electronic payment, web-based filing system for some of our taxes. We plan to do more this coming biennium. With respect to the collection allowance, it was the idea of the task force to come up with a tiered concept on the collection allowance. The Department of Taxation, with respect to their information technology, cannot implement a tiered concept of the collection allowance at this time. If you were to take a look at the language in the bill, it does show an implementation of this on July 1, 2005. The idea being, if we were provided with the money and the opportunity needed to implement the proper technology, then we could put into service this kind of concept on a tiered collection allowance.
Chairman McGinness:
What sort of a tiered plan did you have in mind? Presently, they get 0.75 percent?
Mr. Chinnock:
Right now, they collect 1.25 percent and I think the idea on this is if they pay and the department receives it within 7 days after the end of the month, they would get the 1.25 percent and if they pay under the normal time frame, they would get 0.75 percent. If they were late, they would get no collection allowance. This is how it is established.
Senator Neal:
When was the last time the 1.25 percent was looked at, in terms of it being appropriate?
Mr. Chinnock:
I will try and look this up if you would give me a moment.
Senator O’Connell:
I believe the last time we looked at this was either last session or the session before last. Maybe Ms. Vilardo can answer this.
Carol Vilardo, Lobbyist, Nevada Taxpayers Association:
I believe it was changed from 1.50 percent to 1.25 percent when Reno was looking for the money. The State was going to lend it in order to look at the Olympics. This would have been about 1989. We have looked at changing it, but we have not changed it. It has been at 1.25 percent for quite some time, and it has been under discussion.
Senator Neal:
When you speak of changing this, what do you mean? Are you looking to change it downward, or upward?
Ms. Vilardo:
I am speaking for the “253 Committee,” and there are other people who can tell you this, but during the discussions, many of us in business have said it could be reduced a bit and we could change some of the time frames.
Senator Neal:
Changing it to 0.75 percent?
Ms. Vilardo:
It could go to 1 percent or 0.75 percent, payment dates could be changed so it was 20 days instead of 30 days.
Chairman McGinness:
As long as you are here, Ms. Vilardo, I believe Senator Neal mentioned the appropriateness. Do other states do this, or all states?
Ms. Vilardo:
The last time I checked into this, I believe there were 32 states which had a collection allowance, and this may have been reduced. States look at this as a quick way to get money. The reality being, the reason the collection allowances were allowed in the beginning was to put the retailer in a position to act as a tax collector for the State. Because of the additional record keeping, bonds, and audits, and having to provide the necessary facilities to report this tax, they were allowed the collection allowance. This is a bit of the history on it.
Chairman McGinness:
Mr. Combs stated this section has not been changed since 1991, and there was a bill last session to try and change it.
Senator O’Connell:
It was a bill to take it away and it did not pass. The collection allowance remains the same.
Chairman McGinness:
Shall we discuss tax exemptions?
Mr. Hillerby:
Section 157 of S.B. 238, dealing with NRS 218.53883, includes some language for the Legislative Committee for Local Government Taxes and Finance about their abilities to look at the exemptions to the sales and use taxes for the next biennium. We have talked about this section in the past. There was a recommendation in section 8 of the task force’s report, acknowledging the narrow sales tax base created by statute, and further narrowed by the many exemptions put in place over the years, for some very worthwhile causes and for good reasons. When we are looking at this, there is a need to take a look at all of the sales tax exemptions and find those which are still useful and find those that are not, and have some recommendations back before you within 2 years about any potential changes.
Senator Neal:
The Governor is putting forth a bill to increase the taxes; and the exemptions we have looked at in the past are approaching over $900 million per year, close to a billion dollars. I am wondering why we would want to put this off and why it should not be part of this package, since it is taking from the budget?
Mr. Hillerby:
The simple answer is, given the 120-day time limit you have, there were going to be real questions as to how many of these tax bills you could take on during a session. The idea was to carve this out as a separate piece and look at the specific exemptions that have been granted over the years to the sales and use tax act and going forward.
Senator Neal:
I will be introducing a bill to look at the exemptions being listed.
Mr. Hillerby:
We will be looking forward to hearing your bill.
Chairman McGinness:
Let us look at the sales and use tax permit fee going from $1 to $5, and educate the committee on this.
Mr. Chinnock:
I would like to explain these permit fee changes under sections 85, 86, and 89 of S.B. 238. Basically, when people sign up for sales and use tax accounts, they paid the $1 fee 3 times for a total of $3. The idea of the increase was to cover costs. This was not a specific recommendation from the task force, although the task force made several recommendations on other fees.
Senator Rhoads:
How much is it generating?
Mr. Chinnock:
I do not know. It was a one-time fee on the accounts when they signed up and it was not a substantial amount.
Mr. DiCianno:
To answer the question, it is approximately $30,000 per year.
Chairman McGinness:
Tell us about section 165, affecting chapter 338 of NRS, page 91. Is this a method to make sure your database collects all taxes from contractors and subcontractors?
Mr. Chinnock:
Yes. This came out of the task force and is another way of ensuring personnel who were doing business in the State signed up.
Chairman McGinness:
Were there any problems that generated this language? Are we looking at mainly contractors?
Mr. Chinnock:
This is what this section of the bill was aimed towards, to make sure subcontractors who came into the State working for general contractors did, indeed, sign up and pay the taxes due from them.
Senator Tiffany:
Do we know if it has been a problem?
Mr. Chinnock:
We probably cannot quantify this, but we believe there is a potential for taxes being missed as a result of subcontractors.
Senator Tiffany:
You are putting this in here in case there is a need?
Mr. Hillerby:
Over the years there has been a lot of abuse with contractors coming in and doing work in Nevada, and sometimes on public works projects, and not having workmen’s compensation insurance as well as other things. We have some preference language in the statute, which exists for contractors to register vehicles, pay workmen’s compensation, and other Nevada-based fees where they can get a preference. There has been some well-documented history of contractors from out of State coming in with these problems. In terms of putting in an exact number for taxation purposes, I do not know this, and it would have to be an estimate.
Senator Tiffany:
Would the labor commission have this information? We have talked to the labor commissioner, Terry Johnson, in the Senate Committee on Government Affairs, and went over a lot of prevailing wage stuff and were talking about how to make sure all the potential people that are paying salaries and making sure there are more surveys returned. There was mention of going to the Employment Security Division to get some information there, and I am wondering if this is a way to capture all subcontractors.
Mr. Hillerby:
We will certainly ask the labor commissioner and see if there is any information on subcontractors who are coming in and not going through the normal channels required.
Senator O’Connell:
I believe Ms. Vilardo made a request for this to be put into the bill and it did not have to do with in-State contractors, but it was capturing the work being done by so many who were coming in to work on major projects, such as architects, and we had no record of them or any of the money they take out of the State. Therefore, it was a request this not be overlooked.
Senator Tiffany:
Can we really capture these individuals, and if so, is this done through the labor commissioner? Who handles this?
Mr. Hillerby:
I believe this is why the language is put in. At least starting with government who spend taxpayer’smoney by hiring contractors from out of State and making sure they are registered to do business in this State, and for them to know they need to pay the same bills as those contractors who are in-State.
Senator Tiffany:
It is a lot to make sure we collect on these taxes and I am wondering if we really can?
Senator Neal:
In section 163, dealing with NRS 240.165 on page 90, of S.B. 238 referencing the “apostille” document, you have this going from $20 to $30. How often do you have these documents executed?
Mr. Hillerby:
If you are ready to talk about the Office of the Secretary of State fees, we have someone present who can address these issues.
Chairman McGinness:
Senator Neal, I think you might have to explain to some of us what this document means.
Senator Neal:
These are documents notarized by the secretary of State’s office to be used in foreign countries by people who wish their signatures authenticated.
Renee Parker, Chief Deputy Secretary of State, Office of the Secretary of State:
That was a very good explanation of an apostille. These documents are authenticated and we authenticate the notary’s signature. We regulate notaries and are able to look in our database and have notaries’ signatures on file to authenticate their signatures. This is primarily used for adoptions, documents in foreign countries, such as birth and death certificates. We process quite a number of these per day, and we process 10,000 per year.
Senator Coffin:
An apostille is also used as a document allowing remains to go back to a foreign country, and usually for people from Mexico. It comes at a tragic time and frequently to people who can least afford it.
Ms. Parker:
This is correct. They are primarily used in cases of adoptions and cases for poor countries, such as Mexico. We do now process these out of our Las Vegas office and have a connection with our notary database as well as having a deputy who can process them.
Senator Neal:
So, this will bring in an additional $300,000.
Ms. Parker:
Yes.
Mr. Hillerby:
The Governor chose to adopt the recommendation from the task force, which was, across the board, a 50 percent increase in most of the filing fees in the secretary of State’s office. Since then, we have met with Ms. Parker and this office to discuss areas of concern involving timing issues and other fees that may be increased at a higher rate or other fees that may have been left out.
There are others here today who may have another proposal including generating more money from the secretary of state fee structure, in exchange for the liability laws for directors and officers to make filing in Nevada more attractive. This is a separate issue and I am not sure when this bill will be brought forth and cannot speak on the details. I just wanted to give you an idea of what the Governor has in his bill and why someone from the secretary of State’s office is here today.
Chairman McGinness:
Are we going to be looking for some sort of an amendment?
Mr. Hillerby:
I will allow Ms. Parker to speak on the concerns from the secretary of State’s office and the specific recommendations they have. I do not know what or when you are going to see something from the resident agents organization.
Chairman McGinness:
You are amendable to the changes suggested by the secretary of state’s office?
Mr. Hillerby:
I believe so. We obviously want to see the details. They know their business very well and are concerned about the bottom line also, not only to make Nevada an attractive place to do business, but to meet the budgetary needs as well. We are comfortable with what they have expressed.
Ms. Parker:
I will walk you through the proposed amendments discussed with Mr. Hillerby and the Governor’s office, and will provide our suggested language for these amendments.
Some of the amendments, with respect to revenues, apply to sections 142 through 148, pages 65 through 78, dealing with securities fees in our office, the broker-dealer fees, investment adviser firm license fees, sales representative fees, and representative investment adviser fees. We believe these fees, as proposed here, to be increased by 50 percent, can easily be doubled. We are in the bottom in the nation and these fees have not been changed in years. We charge some of the lowest fees; by doubling these fees, it will bring us to about average in the nation. For example, the broker-dealer licensing fees are $150. If you raise this to $300, we become average in the nation and there still remain 10 other states that charge higher fees. This will generate approximately another $8 million in revenues for our office, which is an additional $4 million on top of the Governor’s proposal.
Chairman McGinness:
Then, sections 142 through 148 can be doubled?
Ms. Parker:
Yes.
Senator Neal:
What are we doubling, the proposal?
Ms. Parker:
We are doubling the existing fees. For example, $150 will go to $300. Next, we have section 158, page 85, and there are two concerns in this section dealing with our expedite fees in subsection 3. In subsection 1 we had a bill just passed out of Senate Committee on Government Affairs which dealt with some of the fees in subsection 1, and our preference would be to conform the changes in here to the changes brought out on S.B. 112.
SENATE BILL 112: Make various changes to provisions relating to Secretary of State. (BDR 18-557)
To summarize these changes, we deleted the first two fees, the copy of the law or joint resolution and a copy of any document pursuant to Title 24 of NRS. This falls back to NRS 239 which provides we can charge a fee which represents our actual costs for providing those copies and will give us the ability to waive this fee. It makes more sense to waive a $1 fee rather than taking up staff time to go through the receipting process. Also in this bill, the certifying‑a‑copy fee is going from $10 to $15; we raised it to $20 because last session, S.B. No. 577 of the 71st Session raised the fee for all documents filed under Title 7 of NRS, which are all the business entity certifications.
The final fee is the negotiable instrument returned unpaid was increased to a fee of a minimum of $25 and a maximum of our direct costs in reversing filings associated with returned checks. Our proposal is to conform to changes made in S.B. 112.
With respect to subsection 3, on page 86, line 18, our office currently receives 50 percent of the expedite fees we charge. Prior to last session, we received 100 percent of those expedite fees. We currently fund 58 full-time positions out of the expedite funds, and when this was changed to 50 percent, this kept us whole with respect to the 2000 fees we received. Unfortunately, you have salary step increases associated with these 58 positions and the pressure on this fund will leave it bankrupt at the end of 2004 without the fee increases. Mr. Hillerby agreed to leave us with the half if the fee increase is passed.
Chairman McGinness:
So this will go from one-third to one-half?
Ms. Parker:
It will remain one-half, as it is currently in the statute. The next change is in section 193, page 112. The only fees we are concerned about are the commercial recording fees. The fee increases for sections 149 through 151 and sections 93 through 141 would be effective October 1, 2003, instead of July 1, 2003. This would give us the time to make changes to the forms, which we are required to make, to have the 60-day lead time to send the annual lists out to businesses. If we do not do this, we would potentially not receive any of the increased revenue. Therefore, we have agreed to October 1, 2003, to give us time to make the form changes through the department of technology and give our customers ample notice.
Chairman McGinness:
Are we looking at any new positions due to this, or is it going to cause any increases?
Ms. Parker:
We have anticipated some need for customer service positions, based on the July-effective date. We will be taking a look at what our needs will be if we have an October-effective date. This will give us the 120-day lead time we need to see if we need additional staff. Part of our concerns were with the rejected filings under S.B. No. 577 of the 71st Session, we added two additional customer service personnel with the fee increase changes last session and four processing positions, and we had a substantial amount of overtime associated with the changes. Due to the changes, our customer service could not keep up with the calls and complaints we received, and we usually answer calls in a timely fashion, but we could not get to 50 percent of the callers. We are currently in the transition process of a new commercial recording system, and these changes will require a change request with our new vendor. The system is expected to be finalized in September 2003, and we have given them the requirements based on current fees. The other issue is whether we need additional technology staff.
Chairman McGinness:
When you get the changes finalized, let our staff know.
Senator Neal:
May we take a look at section 147, associated with NRS 90.530, on page 73, dealing with the language of nonissuer transaction?
Ms. Parker:
The following are exempt from NRS 90.460 and NRS 90.560, these are securities statutes.
Senator Neal:
Why would you have a charge for those transactions if they are nonissued?
Ms. Parker:
We will have to get back to you on this.
Chairman McGinness:
Are there any other questions for our guests?
Senator Neal:
Mr. Hillerby, how did the Governor arrive at the 50 percent increase instead of 20 percent or 100 percent as it refers to the Office of the Secretary of State?
Mr. Hillerby:
The Governor adopted the recommendations from the task force, you will find this in section 7 of their report. This is where the number came from.
Senator Neal:
Thank you.
Ms. Vilardo:
This is a very extensive bill and was brought about from what appears to be a need due to experiencing a cyclical shortfall again. One of the reasons we have this shortfall is the fact business and individuals are not spending in the same patterns, which has caused a reduction in tax revenues. Generally speaking, there are a couple of sections we do support but overall, the rate increases are too high given the current state of the economy. If this were a policy decision on what you needed to do, I would urge you to review the rates or phase in the rates. There is no question, with some of these increases and new taxes, there is a “sticker shock” element which will have an effect on the projected revenues.
I would like to start with the gross receipts tax (GRT). Our board was polled when this issue first came up and recently did a re-poll; the board is still opposed to the provisions on the GRT. There are numerous problems with the language. There is a definition in section 8, page 2, line 27, which speaks to “gross amount received or receivable” and becomes problematic. You have a tax not based on the ability to pay. If you show a receivable entry for the collection of an amount that you might not collect for up to a year, you would be required to pay this without having received the money. This could affect your cash flow and is a major concern for a number of businesses.
There is also the issue of bad debt. Because you are talking about received and receivable, you have a difference in how this would be audited, based on whether a business does accrual accounting for IRS purposes or cash-basis accounting.
In section 9, page 3, paragraphs (f) and (g), we are providing an exemption because gross receipts, by definition, does not include what is paid by slot machine operators nor what is not paid on the gross gaming tax. If we are looking at gross fees, I wonder why the boxing and wrestling fees were not included in this, because they are based on gross.
In section 12, page 3, we have authority given to the Department of Taxation and provisions in section 18, page 6 and in section 20, page 8, which address apportionment and control groups. There is the issue of a regulatory environment created by this bill and the number of regulations needed. I suggest the part-time tax commission will not be part time. In reality, they will become a full-time tax commission. They will be tied up with provisions, particularly on apportionment and with changes in the amusement taxes. If the commission or the department felt they could get this done without undue burden by adding a few days a month, I believe the collectors need to be paid more than $80 per day for the work involved.
In section 17, page 5, provides imposition of GRT and if we look at the issue of bad debt and the way reconciliation is done, the way I read this, you could have an adjustment in the fourth quarter, but because it is within that fiscal year, you are not allowed to carry it forward. I am not sure it is fair. When you are allowed to make the adjustments, in this bill, for each quarter as long as the quarters are within the existing fiscal year, to determine the cash flow or what you anticipate in receiving and not having major changes in what would be received.
In section 18, page 6, we have regulatory authority to adopt criteria in determining the gross receipts attributable to business conducted in this State. There was discussion about this when the committee heard testimony.
Senator O’Connell:
When you go back to bad debt and read section 23, page 9, do you not feel the language would allow the credit for this?
Ms. Vilardo:
What happens, in section 23, you get a refund, but there is a difference in accounting methods and this needs to be explained. Generally if you are a business and maintain an inventory for purposes of IRS reporting, you report on an accrual bases, and this means if you have a bad debt, you are going to be able to write this off on your federal income tax return. Most service business are on a cash-basis reporting. Therefore, there is a receipt that has come in and the bill does not allow me to do this because it speaks to receivable. If I pay on a cash basis, I never get to take the debt. I may wind up having to adjust or create a settlement, but if I am going to be audited because of receivables, I am going to need two sets of books due to the way the definition is worded.
I suggest you will need some language that says, the business, or entity responsible for remitting the tax under these provisions, will remit the tax and be audited based on how they filed the IRS return. Otherwise, there is very unequal treatment of businesses, based on whether they are accrual method of accounting or cash method of accounting.
If you can prove something according to statute as it is written now, you would be able to get a refund, after any other application to taxes owed.
Going back to section 18, unless you clarify a business as being an economic or a physical nexus, I wonder how this would apply to a company like Avon? I am not sure this individual files any returns which makes this a business, or if they are filing what they received from Avon. As part of an individual income, which goes on line 1 on a 1040 Form, they would not be captured with this. There is a policy decision to make: Was the intent to leave the language broad enough to capture a company that does not have a physical nexus in this State, but systematically solicits to sell products in this State, and suddenly capture?
I have had so many varying opinions from our accounting and attorney members and most feel you could go out and capture a company without a physical nexus. This obviously becomes a concern in the way this provision is written.
In section 19, we speak to the deductions being allowed for various taxes. In subsection 1, we allowed a deduction for fuel taxes and I understand the rationale based on how much of the fuel price the fuel tax represents. But if you look at this as a policy issue, why would you put a GRT on the taxes or fees that are collected for the government? We have fees like the changes on telecommunications devices for the hearing or speech-impaired (TDD) on phones; we have 9-1-1 fees collected and remitted back to government by the private collecting entity, and a host of fees such as these being collected. Therefore, why should fuel taxes be the only one? I think this becomes another policy decision for the committee to look at. Would you not exclude taxes, in general, that are collected on behalf of a governmental entity, from the provisions of this section?
In subsection 5, page 8, you have “public utility” and we have a couple of definitions in the statute. What is the definition of a public utility? Is it something similar to what we have in NRS 358 for collecting excise taxes? This is not clearly defined and I think you will want to make this clear and who is excluded in this provision. I wonder why telecommunications were excluded but some services were provided but not regulated. So if not a NRS 354 definition, would you look at NRS 704? It is open to such different interpretation within our existing statutes and this is an issue that would tie up the tax commission on a number of appeals. Or when you spoke of public utility, did you mean a municipal?
Other issues of consideration discussed before the task force was health care and hospitals in subsection 6. We have presented some information to the tax force because of the comments made that if you went with the GRT, the cost of this tax is an expense to a business and will be rolled into the price of the goods. The concern in the hospital issue is an unlevel playing field. If you have a nonprofit hospital currently not subject to a head tax or GRT, then you have a for-profit hospital subject to this, they are going to be paying a higher level of tax versus no tax, therefore their prices are going to be higher. When you have competition between a private entity and a public entity, would you exclude the private entity from the tax, or subject the public entity to the tax?
Senator Neal:
Your statement in reference to gross receipts being a cost to the business, therefore will be rolled into that cost, let me direct you to section 11 of the bill, page 3, which is the legislative finding, are you saying this would have no effect, if we pass this?
Ms. Vilardo:
Senator, you raise an interesting point on discussions we have had on this bill. I read it one way and it is quite a bit different than the way others are reading it. This is one of the problems we have found consistently throughout the writing of the gross receipts.
I read this as I cannot line item the GRT on the bill, but I do not believe the rest of the language says I cannot look at it as an expense and have my price reflect this expense. Although I might not line item it on the bill, if this has cost me another 1 or 2 percent of my gross margin, I am going to raise my price to cover this expense. If I do not have this ability, you are talking about a marginal business being put out of business. There are other people who have read this and they believe they have to absorb the cost.
The bill is not clearly written, therefore it proves my point and brings me back to the tax commission and it not being able to be a part-time commission.
Senator Neal:
I believe you are right, and if the legal committee would look at this, they would find some court cases that will justify your position.
Ms. Vilardo:
As you can see from some of these policy issues, the potential problems for audits when I refer to cash-based businesses and how bad debts would be impacted. I can see this being a problem with attorneys and accountants who will go to settlements and make adjustments on the original billing and you will have this on medical, also.
In section 23, page 9, if there were a refund allowed, the department would certify whether the tax should be refunded back to the person. But then it says, if approved by the State Board of Examiners, and thenthe excess amount must be paid back. If the department absolutely proves the tax was erroneously collected, why is the discretion then given to the State Board of Examiners as to whether or not they want to pay it back? If it was wrongly collected, it should be paid back, period. I think the language should be changed to read “upon approval of the State Board of Examiners,” and you are not giving them the discretion to decide not to pay the refund if they think it is too high.
Senator Neal:
I think they would credit it to what is due, or at least this is what it seems to be saying.
Ms. Vilardo:
Again, one of the issues we have in section 23 speaks to the fact that you can get a refund. Normal procedure for the other taxes has been, if a credit is due, it is first applied to whatever tax may be due in subsequent filings and would be applied to another tax in another area, or the person might request a refund. We have allowed a request of a refund here in this section.
I am reminded of the quarterly payments on this, because of the way the liability section is worded. Example: relative to the reconciliations, let us say I go out of business in the third quarter and I would have had an adjustment that could have been made in the fourth quarter, I am still within the fiscal year, there are no provisions in this bill to accommodate this. It needs to be accommodated, even if it goes outside the fiscal year.
Most of the other provisions through section 33 are dealing with administrative procedures and track fairly consistently with existing tax law.
Section 34, page 12, is the amusement tax. We are part of the business representative group committed to looking at taxes last year and coming back with some recommendations. The current entertainment tax does not reflect the economy of the State. We are a tourist-and service-based economy, yet, a great deal of what we use to attract tourists are attractions that are not being taxed. The proposal made to the task force was to eliminate the current entertainment tax and expand the transaction tax to all amusements and admissions. The point was to show how important it is when the tax reflects the economy. Currently structured at 10 percent, this tax generates roughly $64 million. When you expand this tax base, at a medium-range level, to all amusements and admissions, you can generate the same $64 million with a rate of 3.7 percent. I think this is a very dramatic explanation on showing how important it is for taxes to reflect your economy. When taxes reflect your economy you can have the lowest rates possible with an element of stabilization that you do not have as the rates continue to go higher and higher.
We recommended to the task force, both spectator and participatory events, I would urge this committee, when you work with this particular section of the bill, you include participatory. There has been some misunderstanding and misinformation. I do not believe you can have video and CD rentals included within this section, because we already taxed them under the sales and use tax provisions, I would see transaction and sales and use tax as double taxation, and needs to be eliminated. This has a chilling effect on some people and it will have an impact on them. If the concern is, lower-priced entertainment such as movies and bowling, one of the things you might consider is exempting movies and bowling alleys. This seems to have generated the most adverse positions. I do not think a case can be made for exempting golf courses and golf fees, or paying $50 for a sporting event or $300 for some of the fights we have.
The other thing important to realize in looking at the expansion of the sales tax base is we found the category of amusements and admission is very progressive and is not regressive. This information is available on the task force web site and our web site. In the definitions in sections 36 through 38, “Admission charge,” “Commission,” and “Group entertainment,” was there not a consideration for pay-per-view. There was some discussion before the task force, and now this has been termed “group entertainment,” it would eliminate pay-per-view television programs tourists might want while in their hotel rooms. Another look needs to be taken in addressing the entertainment and amusement tax.
When you realize the tax commission is going to have to further define exactly what is meant by these provisions, I submit to you, they should probably be asked if they can remain part-time and if so, they should receive more than $80 per day.
In section 74, page 28, in reference to the business license tax, I think this fee is too high. We supported an increase in the business license tax and it was a recommendation we made to the task force to create an annual renewal off of the business license fees. We did this because we have no database, nor do we have the ability to integrate any of the databases in current use. We do not have a common number, which is used by every agency who might report, such as federal tax ID numbers, and social security. Many times an agency’s programs use a corporate name or a federal tax identifier; it is an issue we will have to get straightened out.
Ms. Vilardo:
The recommendation we made for the annual fee in section 76 was to create an annual renewal fee at $25 to get a decent database that would allow us to send out a notice once a year to businesses to remind them they owe the use tax. Because some businesses may make a nominal purchase within the year, but there is still a use tax owed if they did not pay Nevada sales tax on the item purchased.
The concern I have with this is when the secretary of State’s fees were increased last session, a provision was put in stating if you registered with the Office of the Secretary of State, you also had to register with the Department of Taxation. I do not know what this does to the renewal fees or how it expands the number. When the recommendation was made, we did not look at the provision of registering, we were reading the current law as saying, “if I am going to go into business, I pay a $25 fee at the Department of Taxation and never have to come back again. If I am the sole proprietor or an out-of-State business, I never pay this fee.” Therefore, we lose track of this person. Again, this is the reason we suggested putting on sole proprietors and also including the first person of a noncorporate entity. We believe this provision should go forward.
In reference to the business tax and the fee of $300, given the current economy and the lack of revenue in some businesses, this would create additional problems. I urge you not to consider this amount.
On the excise tax for alcoholic beverages in section 81, it is a bad idea. In sections 82 through 84 dealing with the cigarette tax, there are major problems due to having alternative purchase choices which are not necessarily at locations in Nevada. One of the problems will be due to Internet sales, along with other cross-border sales. I do not think it is realistic with the tax increase on cigarettes to think this revenue projection will hold.
If we look at some of the miscellaneous provisions found in section 61 and section 71 of the bill referring to the use of payment for taxes through electronic submissions, we support them. They were part of the recommendations we made, what we termed “passive revenue generators.”
I found another provision where the director of the Department of Administration will adopt other regulations. It is the only agency equipped to do electronic transfers, although it is voluntary. I question the need for a provision for gaming control to adopt these regulations.
Senator Tiffany:
One of the items mentioned was the passive revenue generator. When you were looking at this, how did you plan on paying for the new computer systems for the use of the credit cards and debit cards?
Ms. Vilardo:
The Department of Taxation has a collection allowance against local governments for what it collects. The last legislative session, there were $13 million transferred from the allowances received to the State General Fund. I would submit to you, the agency would keep the money to fund its own purchases and further, could reduce what is being charged to the local governments for collections since it is higher than what was needed.
Senator Tiffany:
You would not use the existing revenue exchange, because this is probably not going to be enough.
Ms. Vilardo:
If it were $13 million each year, you would probably come close to the numbers. The point is, as an association, we have been talking about this since 1991, and we are losing money from our agencies that are not given the necessary equipment to do the job they are supposed to do. The Department of Taxation is a revenue-collecting agency and does not have the equipment to do its job efficiently. This becomes a problem and at some point you have got to spend some money.
Senator Tiffany:
The Department of Motor Vehicles also collects revenue by credit cards, therefore, it is not just the secretary of State, but yes, we are slow in our agencies to move toward this.
Ms. Vilardo:
The reporting is important and it will hold the line on the level of expenses at one point and allow for less transposition errors. If you are doing electronic reporting, you do not need anyone inputting. I concur with the comment made by Mr. Chinnock in reference to the collection allowance.
In section 157, page 84 in reference to the exemptions to the tax, we support the committee. There is an irony between the section, which speaks to exemptions, and all the exemptions contained in the GRT, not only defined, but in the threshold. The concern is exemptions erode the base and require a higher rate. The $450,000 threshold exempts 62 percent of the people who would normally pay the tax, this is to say nothing of all the numerated exemptions already in the bill. It makes no sense to say we need to get rid of exemptions and then to create so many.
The public body and the contractor provisions are very important and will work and we support them.
In closing, I would like to make some general comments. The only part of this bill which attempts to stabilize the revenues to the State would be the amusement tax, if it included participatory events. What you have missed is the stability, which would come from expanding the sales tax base in the existing format to services, and would allow the reduction of the rate. The closest you come to this is the amusement and admissions tax, but you are missing half of the equation. The other issue is an acknowledgment gaming is not done in a manner which reflects the economy today. I recommend, in issues of gaming taxes, you put a couple of lines on a form filed annually giving specific information to be evaluated and possibly help in restructuring this tax. You have not changed anything. You are still going to have sales and gaming taxes as your largest revenue sources, but the way both are designed, they are very volatile. Thank you.
Senator Coffin:
In 1991, the Governor proposed a revenue-generating tax bill and it died. We substituted the bill with sales and BAT. When you go to measures to raise funds, do you think a net tax makes sense? This may be the only way to tax businesses.
Ms. Vilardo:
We have had extensive discussions and it is not supported. One of the first criteria we looked for was volatility, and during the last 2 years it has proved itself to be more than any State has. Before you look for new taxes straighten out the existing structure, otherwise you are constantly building on a problem never solved.
Senator Coffin:
Do you think the bill we have is more stable than relying on a net federal?
Ms. Vilardo:
Actually, the GRT would be more stable, because it is not based on the ability to pay, therefore, you can go out of business, and file for bankruptcy, but you are going to have this tax liability. Where it becomes problematic is the income tax is unstable because it is market-driven. This is what happened to capital gains. When many states tried to track a percentage of the federal tax through income taxes it all went to hell, along with the State revenue. There is not a perfect tax. We believe the problems have to be cleaned up within our existing system. We may find, after cleaning up, we can generate a fair amount of revenue. Is this easy to do? Absolutely not.
Senator Coffin:
Were you surprised to learn we were not tracking our business licenses with the local county and city municipalities?
Ms. Vilardo:
No, I was not. This is why we have been making recommendations for computer programs, so we could create something. We have been involved with the “253 Committee” and looking at how we could possibly track this. There are a number of changes we will need to make before we have any sort of good tracking.
Senator Coffin:
You recall the projections made in 1991, and we are nowhere near there. For all the grief the Legislature and the business community took, the projections might have been correct if we had tracked from the beginning.
Ms. Vilardo:
You make a point, 1981 and 1991 taxes were played with to generate more revenue, and we came out in those sessions with an economy that went to hell with across-the-board reductions both times. This time around, 2003, we are playing with taxes again, trying to generate huge revenues knowing the economy is not good, which is our concern for “sticker shock.” We acknowledge something needs to be done, but you cannot be as dramatic with these bills and expect these revenues to hold.
Jerry Threet, Secretary Treasurer, Rally Corporation:
I would basically go over what the impact would be on our company. Some of the problems I have had with the GRT, especially dealing with the state of New Mexico, are it is going to cost me about $50,000 I think this is relative. The GRT is offensive due to it being based on the gross sales and not the net. In the heavy equipment business, I deal with high sales amounts with low profit margins. It is based on volume, therefore, I have a small profit margin, but I would pay on the gross amount and believe it is unfair.
The other problem is the way the law is written. It is difficult to collect the tax. Some of the issues I have run into before is trying to collect from customers, especially dealing in New Mexico are they see this as a privilege tax and yet, it is my cost of doing business and not something that can be passed through as a line item; therefore, they are not going to pay it and it becomes my problem. Unless we increase our prices and bury the cost, it will create problems. When we try to collect this in other states, they claim there is no legal basis for collecting it.
This leads to the next problem of competition. Out-of-state contractors come into the State and they do not charge a GRT. This gives them an advantage. The Department of Taxation just testified to having a problem with enforcement and not knowing how much money was being lost over the years due to not having the ability to connect with a broad database. In addition to the tax, the structure and the ability to enforce and regulate this are going to be a burden.
I have concerns with regard to control groups. As you pass ownerships down to different generations, some of the ownership between an entity in the controlled group will change. I am concerned where, if the ownership changes, it will affect the owners’ ability to maintain their status in a controlled group. Maybe I do not understand what I read, but I just want to make sure the controlled group goes from the original user to the end user, and the steps in between are not taxed over and over again.
When I addressed this in New Mexico, I can buy a piece of equipment and they start getting into regulations for resale, similar to what we do with the taxation board. When I spoke with the tax department and explained the scenario where I pay taxes on an item, then I pass it onto someone else, who then pays taxes on it, and the end user pays taxes on it again. My answer from the taxation board was “yes,” because it is not a sales tax it is strictly a privilege tax and everyone pays for the privilege of doing business here. It is an unfair tax and a burden on the small businessperson.
Senator O’Connell:
Would you happen to know if New Mexico has the same language that is in section 11 of the bill, which does not allow the identification of a billing of a tax?
Mr. Threet:
I have spent thousands of dollars on attorneys trying to get answers and a determination on this, and what the state of New Mexico said was it can be put down as a line item, and if you collect it as a line item, we will not charge you gross receipts on the tax collected. In other words, if their GRT was 6 percent, and I charge $106, I could list it and would only have to pay gross receipts on the $100 and not the additional 6 percent.
Senator O’Connell:
They are using theirs as a sales tax rather than an additional tax of any kind?
Mr. Threet:
I would say this is more accurate than not.
Senator O’Connell:
In section 165, page 91 requires that any out-of-state person who is contracting must pay the out-of-state tax. Would you happen to know if New Mexico has something like this and it is not being enforced?
Mr. Threet:
I do not know for a fact, but they probably do have some language to this effect, but their ability to enforce the regulation and keep track of it might be overwhelming.
John L. Wagner, Lobbyist, Nevada Republican Assembly, and The Burke Consortium of Carson City:
Our organizations feel the cart is before the horse. The Governor has made a nice budget, and he wants you to tax and fill it up. If you were to deny the Governor some of the money he wants, he would find more cuts. The last time he said he would cut spending, what did he do with the money? He gave salary increases to his staff.
The business tax is the one I feel the worst about, although I do not have a business. But the business tax will hurt businesses in the long run. I have a friend who has a business in Dayton and states that if the GRT goes through he would have to lay off an employee. This is one concern caused by the GRT. Experiences with this tax have not been great in Washington state. Microsoft has moved one of their divisions to Reno. If we want to put a GRT on this, I am sure Microsoft can pick up and go to Utah or Idaho or some other state that does not have this tax.
The GRT is like an income tax with another name on it. Now, Senator Townsend sells used cars. Are they used cars or are they pre-owned cars? All the ads say pre-owned cars, we all know they are used cars. We are upset with this tax. This does not mean we are against all taxes. I heard from the Assembly about spreading the sales tax around and I think this can be done. Being retired, we looked at the budget at home, and decided we did not need the extra vehicle and sold it. In doing so, we save on taxes with Department of Motor Vehicles and on insurance. Unfortunately, when governments have a crunch, they look for ways to increase the taxes, and our organizations believe things should be reduced down. There are things we can do without having these huge tax increases. I do not have any numbers nor am I that well versed on this subject. The amusement and room tax for hotels are taxes we can live with; also spreading the sales tax more broad based is a good idea. But as far as anything to do with businesses, we feel it will hurt. We want people in our State to have jobs and to spend money. If we have to lay off people, this means they are going to spend less money and may have to leave the State to get jobs elsewhere, and this is not right.
Richard Dieleman, Dielco Crane Service Incorporated:
We are in the heavy equipment business and over 25 percent of our equipment is sitting and we still have to make our monthly payments on them. Right now, we can handle what we have if another tax is not imposed on us. If we have to pay a GRT on something where we are just breaking even, it could put us into a loss, and I think you are supposed to pay taxes on profits, not when you are breaking even or at a slight loss, how long can you continue to operate like this.
Now is not a good time to be hit with this tax. Two years ago, we may not have fought this, but now, businesses are not in good condition. We have our affiliate in New Mexico and between a couple of lawyers and the state we have tried to interpret how we are going to pay this tax. It is so gray everyone is trying to get new departments to enforce these taxes and it is costing the state more money than it is worth.
Senator O’Connell:
Since you mentioned the fact you have attorneys working on some issues, could you inquire about the language in section 11, page 3, of our bill and see if the New Mexico language is anywhere near or the same. Have you seen this section of the bill?
Richard Dieleman:
I have not. But I will tell you, we will check this out and be in touch.
Senator O’Connell:
Also, if you would check out the section, which deals with construction, I believe it was section 165 of the bill and see if this is being enforced for the protection of the people doing business there. I think this will be helpful to us here in order to see how this language is being interpreted.
Mr. Dieleman:
Senator, we will be in touch with you.
Janine Hansen, Lobbyist, Nevada Eagle Forum:
I want to speak a few minutes on the GRT. One of the only states who have a GRT is Washington state. A blue ribbon commission has found this tax to be problematic. I will leave a copy of this with you and it is a summary by the Nevada Policy Research Institute, “The Destructive Impact of a GRT” (Exhibit C). One of the things happening in Washington state is businesses are leaving and this is not increasing the revenues, but resulting in a decrease in revenues. Not only does this hurt the state when tax revenues are decreasing, but when you have businesses leaving, you have jobs leaving; you have gross income for the state as a whole going down, and this hurts families.
Fifty to sixty percent of all income for a family goes to federal, state, and local government taxes. This is more than they pay for their home, education, health care, for food, and all other things. One of the problems in other areas like Los Angeles, where they have put in a GRT, as high as 40 percent of these obligated to pay simply do not pay it and find a way to avoid paying this tax. There is a tremendous problem with enforcement.
The thing I find most objectionable with the GRT is the cooperation with the IRS, where we are creating a State IRS. It was heard the other day there will be 71 new employees needed to enforce this tax. One of the problems that can come from this is auditing, which can be used to discriminate against a particular business, although these things are supposed to be done on a random basis. We cannot assume there will not be abuses in a State IRS as there are with the federal system. I encourage you to oppose this tax.
What has happened in Washington state is it has hurt business growth. It is absurd we are taxing businesses that do not have profits. Do we want to stop business growth in Nevada? In another study done by the American Legislative Exchange Council, “States Can’t Tax Their Way Back to Prosperity: Lessons Learned from the 1990-1991 Recession” (Exhibit D. Original is on file in the Research Library.), they talk about roughly a dozen governors who signed tax increases in their states. What happened to these states who increased their taxes is that during times of economic problems, the rates of economic and income growth, along with revenue, went down. Revenue did not increase and these states recovered more slowly from recession. This bill will become a destructive factor as well as a depressant on the economy, if it is passed.
Ms. Hansen:
In this same study (Exhibit D), the states that cut taxes had an increase in revenue, the number of businesses coming into their state, and an increase in jobs and income. If you want to help our State, decrease taxes which in turn, will increase revenue. I believe we really need to look at the factors that are going to impact those who have to survive economically on the 40 percent left to us by the government.
There is another interesting study, “Show Me the Money: Budget-Cutting Strategies for Cash-Strapped States” (Exhibit E. Original is on file in the Research Library.), which shows strategies for budget cutting. One of the things that cost more money is hiring new employees. What are we going to do with this tax? We are going to hire more employees. It is going against the very thing which would help us cut unnecessary expenses.
How do you feel about the IRS? Do you have good feelings about it? Do you want this kind of feeling exhibited toward the State and toward the committee for this invasive tax? This tax bill speaks of auditing all of the books and about sharing information with the IRS. One thing I found objectionable is the burden of proof is on the taxpayer to show clear and convincing evidence the tax imposed on them has been a mistake. Have you ever had an experience with the government and do you know how much it costs to hire an attorney to prove anything with an unresponsive and unaccountable administrative board where none of your constitutional rights are recognized? There is no due process, you are not innocent until proven guilty, you do not have the right of trial by jury, and you do not have the protection of the Fourth Amendment, with regard to search and seizure.
Let me give you an example; there was a problem a few years ago with a person dealing with Occupational Safety and Health Authority (OSHA) involving a $1200 fine. By the time it went through the courts and OSHA admitted it was wrong, it cost the person $50,000. This person wanted to take the case to the U.S. Supreme Court, knowing he would win, but could not because he ran out of money. What little business can protect itself against the new IRS you would create in the State of Nevada? There is no one protecting the taxpayers.
I have a small business that makes no profit. I cannot figure this out, but with all the new rules and regulations being applied to sole proprietors, I am going to eliminate this business and go under my nonprofit corporation and do it that way. A lot of people are going to do the same thing, due to the fact they will not be able to afford all the new taxes and fees being imposed on them. If you want to kill business in Nevada, this is the way to do it.
The greatest threat to the family today is government. We cannot have a full‑time parent in the home, why? Because one of them has to be working just to pay the taxes. Why do you think there are so many social problems? The government is always trying to solve social problems, cut the taxes so a mother can be in the home and you will solve a great deal of social problems.
Find out what they are doing in Washington state. I spoke to someone recently who left California to come to Nevada because of what was going on in California, and we are ready to do the same thing here. We do not want the abuses, we do not want an IRS in Nevada, and we do not want to kill our future economy by imposing new taxes. Let us cut taxes to increase revenues and allow businesses to flourish in the State of Nevada, thereby increasing the opportunities for everyone, including jobs for families trying to live on 40 percent of their income.
Knight Allen:
I want to talk to you today about the fundamental principle of taxation in a free society. I have prepared testimony (Exhibit F).
George Harris, Nevada Republican Liberty Caucus:
I am a businessperson as well as an investor. I think this bill is bad policy. We are not looking at alternative ways. Where is the argument to when we are going to cut government? Who is going to stand up for the people? When are we going to stop all the perks going to different areas? The GRT is just bad policy in respect to cash flow. I happen to be in the retail business, and cash flow is a very important part of our business every day. What happens to the person who decides to do a capital improvement or decides to buy a piece of equipment and has to pay this tax? The money is not going to be there. What happens to the agricultural, farmers, and cattle ranchers who could make $6 million to $7 million and lose $30,000? How about the supermarket, which operates on a 1 percent margin and grosses a lot of money? I feel the whole concept of the GRT is not well thought out and needs to be revisited.
The entertainment taxes are just egregious and, from a certain point, some are absolutely ridiculous. I do not smoke, but how are we going to continue to pay for a Millennium Scholarship, according to my understanding, based on the cigarette settlement, if you raise the tax and the use goes down.
I will say, I have always been proud of Senator Tiffany when she talks about technology and what is needed to modernize government and other State agencies. In my business, we have an inventory control method where a product is bought and inputted into a program. We track items coming in, when an item was sold, what the life of that item is, and when it should be sold off. I agree the State should invest in its technology. There is a group who says the State does not have the money for technology and I think this comes about because people are afraid if you do bring this in, then jobs would be lost.
I hope the attitude will change and we will look at how we can cut government. I do not know how to make a bad bill better.
Chairman McGinness:
I do want to tell you that agriculture has been exempted from this bill and also, supermarkets have not been exempted.
Mr. Harris:
Thank you.
Mark Ireland, TAB Contractors, Incorporated, Las Vegas:
I just have a few comments I would like to share concerning this tax. In section 11, especially in our line of construction work. I read it as: if a public works contract is put out and we are taxing the revenue a contractor earns from that work, we are still taxing the people. We will not be taxing the company. The concern I have with this logic is if this tax is to work this way, it is nothing more than overhead for a company. The tax is a cost to businesses, and to say it is overhead is not a term to be used. Is it fair to say that because the State is incurring expenses, as a taxpayer should I tell the State to just consider their expenses as overhead, but do not bill me?
Using an excise tax system, the tax is only the gross receipts of a business in an excess of $450,000 makes the assumption that those businesses make profits. We have had years where there has been no profit, but yet, I am going to be taxed on my revenue. I do not feel this is fair to our business, our employees, and not fair to the citizens of this State. No one likes new taxes, but it is unfair to target a sector of certain revenue levels to absorb the majority of this proposed overall tax increase. This tax increase will cost our company over $100,000 a year, and would have to be passed along.
Although section 11 states the tax increase should be considered as overhead, there is only so much overhead you can have in a business entity and be competitive in the marketplace. When the overhead gets too high, things have to be cut and the first things cut in a business are its employees. This would be unfortunate and creates a spiral effect, where we will be hurting the economy instead of improving it.
I do not know how many more new State employees will be required to police the collection of this tax. I say police because there are going to be businesses that will do everything not to pay these taxes, and this is unfortunate. Would it lead to an employer paying its employees in cash in order to avoid this tax? Citizens will be denied medical insurance, pensions, and social security contributions. This tax should be looked at and we should consider what modifications can be made. I believe all the citizens of this State would like to spend more money. When families reach a point when their expenses are greater than their revenue, they look to cut expenses, and I believe the State of Nevada should do likewise.
Chairman McGinness:
We will be taking more testimony at our next meeting, along with more bills and an exemption bill being introduced by Senator Neal. This meeting is adjourned at 4:44 p.m.
RESPECTFULLY SUBMITTED:
Gale Maynard,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: