THE THIRD DAY
Carson City (Thursday), June 5, 2003
Senate called to order at 9:27 a.m.
President Hunt presiding.
Roll called.
All present.
Prayer by the Chaplain, Pastor Albert Tilstra.
God of our fathers, deliver us from futile hopes and from
clinging to lost causes. Where we cannot convince, let us be willing to
persuade, for small deeds done are better than great deeds planned. We know
that we cannot do everything. But help us to do something. May Your will be
done here, and may Your programs be carried out, above party and personality,
beyond time and circumstance for the good of this great State.
Amen.
Pledge of allegiance to the Flag.
Senator Raggio moved that further reading of the Journal be dispensed with, and the President and Secretary be authorized to make the necessary corrections and additions.
Motion carried.
MOTIONS, RESOLUTIONS AND NOTICES
Senator
Raggio moved that the Senate resolve itself into a Committee of the Whole for
the purpose of considering various revenue plans and the unresolved issues of
the Seventy-second Legislative Session, with Senator Raggio as Chairman
and Senator McGinness as Vice Chairman of the Committee of the Whole.
Motion carried.
IN COMMITTEE OF THE WHOLE
At 9:47 a.m.
Senator Raggio presiding.
Various revenue plans and the unresolved issues of the Seventy-second Legislative Session considered.
The Committee of the Whole was addressed by Senator Raggio; Charles Chinnock, Executive Director, Department of Taxation; Senator Mathews; Senator Care; Senator Townsend; Senator Amodei; Richard S. Combs, Deputy Fiscal Analyst; Senator Nolan; Senator McGinness; Senator Cegavske; Senator Coffin; Senator Titus; Senator Rawson; Senator Hardy; Senator Tiffany; Senator Washington; Senator Carlton; Russell J. Guindon, Deputy Fiscal Analyst; Senator O'Connell; Senator Rhoads; Senator Shaffer; Senator Neal and Jeremy Aguero.
Senator Raggio:
I have been
meeting with our staff to get things in order so we can work more efficiently
and to get some information from those individuals who would have to implement
some of these matters. This has necessitated the delay in starting. You have
been given a list on the potential components of a tax revenue plan approved by
the Senate Committee on Taxation. The sheet is titled, “Estimated Revenue
Generated from Increase in Rates of Selected Taxes,” dated June 3, 2003.
Attached is the background information on all of these potential components.
Assuming we
are able to meet our major goals, the Governor indicated he might request to
add bills on which there was a consensus, but may have fallen through the
cracks during the regular session. This does not mean bills not agreed to can
be added. I am not certain of the Governor’s intentions.
The net
profits, or business income tax, was discussed yesterday. Information was
brought to our attention that should be understood. There is a document from
the Department of Taxation titled “Business Income Tax.”
This is a work
session of the Committee of the Whole. If there is any misinformation,
information the committee would need to know or would impact any component that
the committee is discussing, those individuals should come forward with such
information.
Charles Chinnock (Executive Director,
Department of Taxation):
Our first
concern was to have sufficient time to implement a business income tax. Looking
at the basis of our concerns is the number of accounts we would have to administer
on early implementation. At the beginning of the regular Legislative Session,
we were talking about 140,000 businesses, and we have since received
updated information from the Internal Revenue Service (IRS) that there are over
200,000 businesses with which we would have to work. To implement any major tax
would be difficult because our current Automated Collection Enforcement System
is limited. We testified this Session that if there was a major tax we would
need to receive appropriations to implement new technology and to have time to
implement the new technology. Then we could implement a new and more complex
tax. We have been discussing a couple of dates. One was July 1, 2005. After we
received our cost estimate and indications from vendors, we realized we would
need to move the implementation date to January 1, 2005, for a major tax.
Senator Raggio:
You said, “No
doubt the best way to implement the net profits tax would be to make it
effective as of January 1, 2004, with first collections on January 1, 2005.”
Even if you tried to implement this, there would have to be some kind of
“bridge” funding to accommodate the full funding of our budget.
Mr. Chinnock:
Yes, if
January 1, 2004, were the date, they would begin reporting their income; January 1, 2005,
would be the date they would begin to file their returns.
Senator Raggio:
Do you have a
major issue in determining a manner in allocating or apportioning income for
interstate and international businesses?
Mr. Chinnock:
The issue is
how do you determine the income that was earned in Nevada with a corporation
that is interstate or international but is doing business here. If you look at
California or other states' regulations, there are substantial laws and
regulations to define how it would be accomplished. Once the statute is
established, there is another issue in turning it over to the Nevada Tax
Commission so they can write the regulations for its implementation. Without
sufficient time, it would be difficult for the Nevada Tax Commission to write
the necessary regulations for implementation.
The next issue
addresses our programmers. Presently, we have four programmers. We did put more
programmers into our budget, but they would be tasked to do the other taxes and
implementing new technology which would make it difficult for our programming
section.
We would have
to have some understanding as to the application of the business tax and the
need to have some definitions on income and deductions. Reference has been made
to the complexity of this procedure. We could use a certain line item off one
of the forms for a corporation, partnership or a sole proprietorship. We could
consider looking at other states and see how they handle income and deductions.
If it became very complex, our current technology would not be sufficient and
provisions would be needed.
Statutes and
regulations need to be addressed on apportionment and implementing the business
income tax through the Nevada Tax Commission.
Senator Raggio:
There are
various forms of business entities that file on different IRS forms. You
indicate that a definition would be necessary to determine income. Your
suggestions are the net income would be business income less all ordinary and
necessary business expenses. Your memo indicates that for various types of
business entities the IRS definition is different for each entity.
Mr. Chinnock:
You are
correct in order to be sure we picked up from the business income form the
various incomes, especially on the sole proprietors. We did not get into the
personal incomes or wages. We need to be careful where we do that and what we
select from the different forms. We see this as an annual filing. Businesses
have different fiscal years. Sole proprietorships’ fiscal years coincides with
the calendar year. There are different filing requirements with the IRS. We
would propose to coincide our returns and filings with the IRS.
Senator Mathews:
Did you
prepare a “white paper” for all the broad-based taxes?
Mr. Chinnock:
Throughout my
testimony, I have presented several booklets. I do not have a separate “white
paper” on every tax.
Senator Mathews:
What prompted
this “white paper?”
Mr. Chinnock:
Each time the
Department of Taxation was aware there was a tax that might be considered, we
would discuss implementation issues and timeframes. This one was not singled
out but was the most recent.
Senator Care:
Would the
complications make any difference if we had a net profits tax in the statute
and it stated, “not all businesses have to file just those that meet the
threshold.” The problem then would be if you could spot-check businesses that
did not file but you believed they had met the threshold. Does the number of
businesses you have listed present a problem? Are the problems you have
detailed the same regardless of a universal business tax (UBT) or gross
receipts tax? How difficult would it be to enforce a provision, “no business
may hire an independent contractor, unless the contractor has proof of having
paid the last quarter’s business license tax (BLT)? This is to prevent the sole
proprietor or a one-person corporation from not paying the BLT.
Mr. Chinnock:
Referring to
the threshold, with approximately 140,000 to 200,000 businesses in the State,
we would have a large task. The other issue with respect to the net income tax
was the complexity of the task. I am not certain how this would be structured,
what deductions and what additions would be included. If there were sufficient
restrictions, there might be a way we could implement that in a shorter timeframe.
Senator Care:
How difficult
would it be to have a provision that could be enforced which says you cannot
hire someone unless that person has paid the last quarter’s BLT?
Mr. Chinnock:
We would
administer the program through our audit program. Such a program could be
established.
Senator Townsend:
Would you give
the Committee dates of implementation with which the Department is comfortable?
Senator Raggio:
We have a
chart showing the cost of implementation. Would you go through the chart for
the committee?
Mr. Chinnock:
I submitted a
memorandum dated May 30, 2003, to the chairmen of the Senate Committee on
Taxation and the Senate Committee on Finance. When they were submitted, these
were the tax proposals as we saw them. We had Senate and Assembly approved tax
proposals and various versions of other taxes that had been discussed. We
composed a spreadsheet that showed the cost, the manpower and the date of
implementation for the various taxes.
Senator Raggio:
Are the
estimates still viable?
Mr. Chinnock:
Yes, they are
still viable.
Senator Raggio:
Would that
change depending on the combination of taxes?
Mr. Chinnock:
Yes, if there
were new taxes requiring programming changes. The Senate plan had less new
taxes and the Assembly plan had more new taxes. We indicated we could
accommodate them, but it would stretch our capabilities.
Senator Raggio:
Was the
business income tax included in your list?
Mr. Chinnock:
I was not
aware of the business income tax when the memorandum was submitted.
Senator Raggio:
Do we have the
numbers and the personnel that would be required?
Mr. Chinnock:
It would be
the same as the Senate version for the service tax, a total of 90,000 accounts;
35 people would be needed in 2004, but in reality, a total of 81 people
would be needed.
Senator Amodei:
I have
compared you present figures with ones you gave us earlier in the session.
There seems to be a migration in the numbers. Would you explain the change in
the cost of the implementation numbers?
Mr. Chinnock:
We are aware
of some changes, but most of the taxes are not changed. The service tax was
reduced. In our initial information, there were 120,000 accounts to implement
which was reduced to 90,000 accounts. The rest of the taxes should be close to
the prior information. There was some restructuring of the support group. In
earlier presentations, our support personnel within each of the taxes was
included.
Senator Amodei:
Do you have an
opinion as to the ease of implementation of the broad-based taxes?
Mr. Chinnock:
Early
implementation on any broad-based business tax would be difficult. Any
broad-based business tax takes regulations. If there would be a desire to
implement the tax within six months, there would need to be restrictions to
make it possible to implement the tax with our present information technology.
Senator Amodei:
Would our fall back position be the numbers and the information
obtained in the information provided to us today?
Mr. Chinnock:
Are you asking
if we stand by our numbers?
Senator Amodei:
I have a
concern about the implementation of these taxes. Which of the taxes would be
the easiest to implement? If we go by this, are we not breaking faith with the
Department in terms of cost and timing issues for implementation?
Mr. Chinnock:
I believe we
can implement on the timeframes presented. The broad-based business taxes are
more difficult to implement. The taxes on page 3 of the handout would be easy
to implement.
Rick S. Combs (Deputy Fiscal Analyst):
Earlier in the
regular session, there was a combined cost estimate from the Department of
Taxation relating to the business license tax and the business license fee. It
included the expansion of both of those provisions to sole proprietors, and the
figure is significantly higher than the present figure for just the business
license fee.
Mr. Chinnock:
You are
correct. In our present plan, we do not show an expansion to sole
proprietorships. The business license fee is shown.
Senator Raggio:
It would be
helpful to add the business income tax to the list you have provided to give us
the full-time-equivalents and the cost associated with implementation. Look
over your proposal plan and see if there could be any adjustments made.
Senator Nolan:
Which plan
would be the easiest transitional tax for us to impose to enable your
Department to gear up and prepare for a more broad-based tax?
Mr. Chinnock:
The easiest
would be the payroll and property taxes.
Senator Nolan:
Would the room
tax be difficult to implement?
Mr. Chinnock:
The room tax
would be administered through the local level. There is an infrastructure in
place for this to be accomplished. There is one person who could oversee the
room tax.
Senator Mathews:
Would the
Senate or the Assembly tax plan be easiest to implement?
Mr. Chinnock:
The costs
would be the same. I commented earlier the Assembly’s tax plan had more new
taxes and would be more difficult to implement.
Senator Mathews:
Why is this
being called an income tax when we referred to it as net profits tax?
Mr. Chinnock:
I was aware of
an issue on the tax. I did a workup to be ready in the event of questions.
Senator Mathews:
Why was this
not done for the other broad-based taxes?
Mr. Chinnock:
The Department
did a booklet and presentation on every tax for the taxation and finance
committees in both Houses.
Senator Raggio:
Could you
provide us with workups on the other taxes?
Mr. Chinnock:
I will make
them available to you.
Senator McGinness:
During our
discussions concerning the payroll tax and the discontinuation of the BLT, you
stated you could make the transition without any new employees. Is that still
possible?
Mr. Chinnock:
We determined,
if you implemented a payroll tax and discontinued the BLT, it would be a “wash”
as far as the number of personnel.
Senator Cegavske:
Were you
referring to a “wash” as to implementing and administering the tax or the
amount of revenue it would produce?
Mr. Chinnock:
It was a
“wash” in the manpower needed to administer the tax. The amount of revenue from
the business tax would be $80 million, and depending on the implementation of
the payroll tax, the revenue could be $100 million or over $200 million a year.
Senator Raggio:
I propose we
start compiling a matrix for a revenue plan. My suggestion would be to look at
the taxes on the list the Senate Committee on Taxation had a unanimous opinion
on and include them in the tax plan. We could plug in a rate whether it was the
rate in the tax plan that was being considered or not. We then can look at the
other components such as a broad-based business tax, gaming tax, room tax and
others. Are there any other suggestions?
Senator Cegavske:
Did we receive
a list of what was passed out of the Senate Committee on Taxation?
Senator McGinness:
We did provide
that information. The committee started out with a 35-cent tax on cigarettes
and then went to 40 cents. I agree with the Chairman we should put the “easy”
taxes together. We could offer a couple of different rates then ask staff to
give us the scenarios. Once we get down to a payroll tax or a net income tax,
then we can go back and forth. Everyone has opinions concerning removing some
of the collection fees.
Senator Raggio:
Let us start
with the reduction of the cigarette stamp fee. The current fee is a 3-percent
collection allowance to the dealers and every 1 percent brings in $400,000 a
year.
Mr. Combs:
I would advise
that you come to a decision as to whether you want to reduce the allowances or
eliminate them without regard to the revenue they generate. The revenue would
change based on what rate you place on the cigarettes or whatever the reason is
for the allowances.
Senator Raggio:
Let us start
by determining figures that have a majority vote.
Senator Coffin:
Since each of
the first four allowances affects all industries or a specific industry, we may
want to determine the tax burden each of them would bear.
Senator Raggio:
Whatever
figure we determine as common ground can be changed later depending on the
larger components.
Senator Coffin:
The Senate
Committee on Taxation ran into problems by using that method.
Senator Raggio:
Starting with
the broad-base taxes the discussion would not go far.
Senator Titus:
We give people
the fee or allowance to compensate them for doing the work of collecting the
taxes and sending it on to the State. All of the taxes are going to rise, but
the difficulty in collection and filing the reports and sending it in is going
to be the same. I would suggest 1 percent of the new tax, which would be 3
percent of the tax at present. What was the committee’s rationale concerning
the percentage?
Senator Townsend:
The committee
reasoned there was a cost in producing the stamp. The rest are collection
allowances, and the individuals who collected those fees had the use of the
money; therefore, the cost was offset.
Senator Rawson:
There is a
basic cost for the tax collection. If the tax is raised that would not change
the basic fee.
Senator McGinness:
If the cost of
the cigarettes is increased, and the cigarette stamp fee is reduced some of
that will come back as increased revenue. I agree with Senator Titus. There is
a cost to the sales tax collection, and the reason we reduced the rates is
because it was a revenue generator. I was not comfortable with some of the zero
rates. We should allow the retailers some opportunity to cover the costs of
getting the form together.
Senator Raggio:
The tax
committee’s proposal was to zero out the allowances on tobacco, liquor and the
collection of retail sales tax. How much Committee support is there for zeroing
out those items? We are leaving out the cigarette stamp fee collection.
Senator Townsend:
I would
suggest cigarette stamps, all other tobacco, liquor, and State/LSST sales tax
collection allowances be reduce to the rate of 1 percent across-the-board.
Senator Raggio:
Is there
anyone who does not support the proposal? There is unanimous support for at
least reducing all of those collections to a 1-percent collection allowance.
Senator Coffin:
There needs to
be an incentive for early payment of the sales tax. Senator Townsend said that
there is a tremendous float in some businesses of holding the entire sales tax
amount up to 60 days before it is remitted. We have had suggestions from
various sources to place an incentive for paying the tax early. If the rate is
reduced to 1 percent then it should be paid within 10 to 15 days of the end of
the month or electronically filed sooner. Those suggestions were discussed.
There is a little labor involved in filing the returns.
Senator Raggio:
Based on the
interest rate on savings accounts, the float does not mean too much.
Senator Coffin:
The float
would mean a lot if you are dealing in millions of dollars or hundreds of
thousands of dollars in an interest bearing account.
Senator Care:
There was a
recommendation from the Task Force that the sales and new tax collection
allowance be permitted only when the tax is remitted in a timely manner.
Senator McGinness:
The cigarette
tax allowance is 3 percent; tobacco collection is 2 percent; liquor tax is
3 percent; but the sales tax collection is only 1.25 percent. A 0.5
percent would leave opportunity for collection and gives the State the
opportunity to gain revenue.
Senator Raggio:
A suggestion
has been made that the allowance on cigarettes, tobacco and liquor would be
1 percent; on the sales tax collection the allowance would be 0.5 percent.
Senator Townsend:
I would
suggest all be the same, 0.5 percent across-the-board.
Senator Raggio:
The issue now
before us is an alternate suggestion; all allowances be reduced to 0.5 percent.
Senator Mathews:
Most retailers
sell cigarettes and other goods. I am in favor of one allowance for all.
Senator Raggio:
The alternate
suggestion before us is that all collection allowances are reduced to 0.5
percent.
Senator Mathews:
I believe we
should stay at 1 percent. The retailers are the only group that the State is
asking to pay the tax and collect it as well.
Senator Rawson:
Could we add
“if timely” and define an appropriate time.
Senator Raggio:
Who does not
support reducing the allowances to the same level of 0.5 percent collection
allowance? Senators Cegavske, Rhoads, Mathews and O'Connell are in opposition;
therefore, the majority of the Committee members are in support of all
allowances being 0.5 percent. The other suggestion was “if made in a timely
manner.”
Senator Coffin:
What we do not
know is whether any of the four categories encounter more difficulty in
preparing their returns.
Senator Mathews:
No, it is all
reported on one sheet.
Senator Coffin:
I would
suggest taxes be submitted within 15 days of the end of the month. Are all the
tax collections due at the end of the next month?
Mr. Chinnock:
Yes, the taxes
are due at the end of the next month. We presently have a business process
which identifies those taxes submitted timely or on time and those taxes
submitted late. If we were to implement a system that also measured taxes
submitted early, it would be a difficult procedure. This could not be
accomplished without a change in our business process and a delay to some
future time.
Senator Coffin:
If a person
submits a return on the 29th or 30th day of the month and it is received on the
31st day after the close of the month, you know whether they have submitted
timely, correct?
Mr. Chinnock:
Yes.
Senator Coffin:
If the 15th
day was timely and it came in on the 17th day, would you not know it was
timely?
Mr.Chinnock:
No, because 75
percent of our returns go through a lockbox operation. We would need to look at
every postmark because of the statuary definition of timely is based upon the
postmark. In the process of having three different time periods: early, timely
and those taxes that are late, in terms of archiving, we would need to image
every envelope with a postmark.
Senator Coffin:
I am
suggesting the 15th day and the 30th day after the month for which the tax is
due. The tax would be either late or early. Do you always look at the
postmarks?
Mr. Chinnock:
We only look
at the postmarks for those taxes which are late.
Senator Rawson:
We are talking
about timely being not late. If it is not timely, it is late. If it is late,
the 0.5‑percent allowance does not apply.
Senator Titus:
If the tax is
paid late, they are not entitled to the allowance.
Senator Raggio:
Would there be
a penalty if the tax were paid late? Would the penalty remain?
Mr. Chinnock:
Yes, there is
a penalty for late payment, and it would remain in effect.
Senator Raggio:
What is the
penalty?
Mr. Chinnock:
The penalty is
1 percent a month.
Senator Townsend:
I would
suggest we consider the business license fee and the Secretary of State fees.
Senator Raggio:
Do we have a
proposal?
Senator Townsend:
I would move
that the business license fee proposed at $100 annually and the Secretary of
State fees, which were in A.B. No. 536 of the 72nd Session, be put into this
proposal.
Senator Raggio:
What was the
proposal for the one-time business license fee of $25?
Senator Townsend:
The proposal
was to raise the fee to $100 per year.
Senator Raggio:
How many
members on the Committee do not support that concept? Senators Tiffany, Hardy,
Amodei, Washington, McGinness, Neal, Cegavske and O'Connell do not support the
concept. We have a majority but not a two-thirds vote on the proposal.
Senator Hardy:
If there are
going to be additional business taxes then we need to see them.
Senator Raggio:
We are trying
to do a matrix. None of these proposals are set in concrete. By working with a
matrix, we can revisit these proposals. I have been given a suggestion that the
business license fee be $50 annually. Who would be in opposition to that
suggestion? There does not seem to be any opposition.
Senator Tiffany:
Do we ever get
to a point where the fee is too low?
Senator McGinness:
If the fee
goes below $50, the administrative costs do not make it worthwhile to collect.
Senator Raggio:
Many
businesses file in this State but do not do business here. Would they be in
this group? Would they be the bulk? The answer seems to be, yes.
Mr. Combs:
Our estimates
were approximately $20 million a year with a fee of $100; therefore, it would
be $10 million on a fee of $50. There would be many people paying the fee
because of the manner in which that provision was handled in S.B. No. 298 of
the 72nd Session and A.B. No. 536 of the 72nd Session. There is also
the issue of the sole proprietors as well as the businesses that actually pay
the BLT. Clarification is needed as to whether you wanted us to remove the
direct sellers. It will not affect the estimate because we have not been
including them since it is difficult to track them.
Senator Raggio:
The
understanding was the fee would not be imposed on direct sellers.
Senator Titus:
Who would be a
direct seller?
Mr. Combs:
There is a
definition in chapter 612 of the Nevada Revised Statutes (NRS). It
was the easiest way to make sure we were covering the same people who are not
required to pay unemployment insurance. A question was asked yesterday. Could
an independent insurance salesman fall under the definition? After reevaluating
the issue, we discovered the independent insurance salesman would fall under
this definition. It could be anyone who does not have employees and works from
their home.
Senator Raggio:
We should make
a notation as to what can be anticipated in revenue collections. If the fee
were $50 annually, then the revenue would be $10 million.
Senator Coffin:
There are many
realtors who have offices, who are sole proprietors with no employees and have
a cubical. We would have to exclude them as well. If we are excluding direct
sellers, what we are saying is, we would exclude anyone who does not have an
employee. The term “works out of their house” should not be included. Do the
Avon ladies pay a local business license fee?
Mr. Combs:
It would be
determined by the various county and city ordinances. Section 612.142 of NRS
has been referenced in the bill language that has been drafted. Senator Coffin
is correct; if it is not a retail store and is in another location, it would be
exempt.
Senator Coffin:
The
explanation makes the case for everyone to be taxed at a minimal amount. If you
are in business, you should pay for a business license.
Senator Care:
The
legislative intent was for sympathy for the Avon ladies, but as more people
work from home, the test should be income. We do not have the capability to
determine the income of the people who are direct sellers. It would be
necessary to get all direct sellers. Many have a hefty income and escape the
fee altogether.
Senator Raggio:
I thought,
that by developing a database, there was some desire to gain revenue from all
the tens of thousands of companies that file to do business in this State. They
do not do business here but file because of the business climate. If the fee gets
down to a nominal amount, it would mean very little.
Senator McGinness:
We were trying
to capture those people through the Secretary of State fees. One thing
Mr. Combs read that would set those direct sellers apart is, “services are
not in the nature of a single transaction that is not part of a continuing
relationship.” Even if someone were operating an insurance business out of his
home, the policy would be a continuing relationship which is renewed.
Senator Coffin:
There is not a
direct seller alive that does not maintain a continuing relationship with their
customer. Once a customer base is established, they continually call on them.
This broadens the tax base.
Senator Raggio:
The suggestion
is a $50 business license fee annually with no exemptions.
Senator Washington:
I would be
opposed to that suggestion because people become direct sellers to avoid the
fees. Most direct sellers work from their homes. They do not maintain a large
inventory.
Senator Raggio:
We are not
talking about a large amount of money, $50 a year. Is there any other committee
members opposed? There a two opposed.
Senator Carlton:
Would there be
a penalty for noncompliance?
Mr. Combs:
The Department
would not be able to implement a penalty at the start. It would take time for
people to learn about the law. There needs to be a system in place to track
this procedure. The Department has testified there would be little cost benefit
in tracking down all the Mary Kay ladies. After the first year, there would be
a penalty. It would be the same as the fee for not paying.
Senator Raggio:
We will now
consider the Secretary of State fees. What are the fees?
Mr. Combs:
The proposal
was brought forward by the resident agents as a method that would, rather than
imposing a flat increase on all Secretary of State commercial recording fees,
not keep people from but would likely encourage people to organize in the
State. The Senate Committee on Taxation voted to double the securities fees.
The Secretary of State’s Office indicated the fees could be doubled and would
not be out of line with what other states charge. The Governor’s proposal had a
50-percent increase in notary fees with which the committee agreed.
Senator Raggio:
Are there any
Committee members who would not support those proposals? We will include those
proposals. Did someone raise a question about the resident agent fees? Are they
included?
Senator McGinness:
S.B. No. 298
of the 72nd Session went through the Senate Committee on Judiciary. Resident
agents proposed to lower the fees on the front end so we would be competitive
with other states. Money could be generated when the list of officers changed.
Senator Amodei:
We should
check. As a result of the securities amendments, it was our understanding, when
the original bill was processed and from the conference committee report for
S.B. No. 536 of the 72nd Session, the net effect of the conference report plus
the original bill would be approximately $50 million a biennium. The
numbers before us are approximately $19 million less. The bill was
comprehensive because it included the notary, resident agents and the increase
in the security fees.
Mr. Combs:
Mr. Guindon
can explain a minor change made because of the $100 fee.
Russell J. Guindon (Deputy Fiscal
Analyst):
S.B. No. 298
of the 72nd Session would allow us to generate more money from the filing fees
and the various changes they undergo with the Secretary of State’s Office. The
annual filing fee was changed so that all the limited-liability partnerships
and limited-liability companies pay $125. In the resident agents’ bill, the
business license fee was to be $50, which was raised to $100 at the end of
session. They tried to maintain the fee as an annual renewal since the business
license was being raised $50; the $125 was lowered to the original $85 fee. The
Committee should be aware that by reducing the fee to $50 you may want to
restore the $125 fee for the limited-liability partnerships and
limited-liability companies to maintain a competitive package which the
resident agents proposed.
Senator Amodei:
If the
conference committee report for S.B. No. 536 of the 72nd Session would have
been adopted, it would have restored that fee back to $125 because the
reduction was about $10 million for the biennium. That concern was
addressed in the conference report.
Senator Raggio:
What would be
the suggestion? Since we have adopted the $50 annual fee for a license, the fee
under discussion should be augmented with respect to the annual filing fee.
Mr. Guindon:
We would want
to raise the annual filing fee with the Secretary of State’s Office to $125.
Senator Raggio:
Is there any
objection?
Senator Rawson:
Would that
bring revenue to approximately $50 million a year?
Mr. Combs:
The business
license fee would be $10 million. We need to calculate what the Secretary of
State’s fee line item would bring. It will be higher than the numbers on your
sheet, but the total will not come to $50 million.
Senator Raggio:
We will
discuss the live entertainment tax (LET). At present, this is collected as a
casino entertainment tax. Is there a proposal to enter this into the matrix?
Senator McGinness:
The Senate
Committee on Taxation decided to include this tax because the same entertainer
appearing at a casino, where the tax is paid, could also be appearing at the
Silver Bowl, the Thomas and Mack Center or the Lawler Events Center where the
tax would not need to be paid. Therefore, it was changed to a LET to capture
that revenue.
Senator Raggio:
What was the
rate?
Senator McGinness:
The rate is 10
percent, the same as the casino entertainment tax.
Senator Raggio:
Is the tax on
the admission charge and any products sold during the time the live
entertainment is occurring?
Mr. Combs:
The proposal
includes merchandise, food and drinks under the definition of an admission
charge. It would apply to the ticket or admission charge plus food, drinks and
merchandise.
Senator Raggio:
Is the casino
entertainment tax collected only during the time that the entertainment is
occurring?
Mr. Combs:
Yes. The tax
on the drinks, food and merchandise is collected if they are sold at specific
times surrounding the actual performance of the entertainment.
Senator Raggio:
Would the tax
be based on the admission charge at places such as the Lawlor Events Center or
the Thomas and Mack Center?
Senator Townsend:
The definition
of live entertainment would include entertainment that took place inside a
casino, outside of the casino but on the casino’s property, any live
entertainment promoted by an unrestricted licensee or a licensee controlled by
the State Gaming Control Board. The State Gaming Control Board has a mechanism
for collecting revenues from gaming establishments, and the LET on non‑gaming
enterprises would be collected by the Department of Taxation.
Senator Raggio:
Would this
apply on an admission charge or during the time the live entertainment is being
provided? Would it be on the same basis as the casino tax?
Senator Townsend:
Yes, that was
the proposal.
Senator Raggio:
How would the
tax apply in cases such as a Celine Dion concert, rodeos or boxing?
Senator Townsend:
The tax would
be applied across-the-board without exemptions.
Senator Titus:
I support that
concept. When this tax goes into effect, will the casino tax be removed?
Mr. Combs:
The casinos
would immediately, on the effective date, start collecting tax on the new
definition of live entertainment. The reason for the delay until January 1,
2004, is the Department of Taxation would be required to collect the tax for
non-casino properties, and they would not be able to get on-line by July 1,
2003. There have been discussions concerning the issue of two regulatory
agencies for the same tax. There would be a refined definition of entertainment
that would be consistent with the definition in the bill the Nevada Tax
Commission would be responsible for constructing. The definition would apply to
casino and non-casino events.
Currently, the
State Gaming Control Board is not required to submit their regulations for
review by the Legislative Commission, but the Nevada Tax Commission is required
to submit their regulations for review. The way the bill is drafted it would
require the State Gaming Control Board to submit their regulations about this
particular tax to the Legislative Commission for review. This would insure the
regulations of the two agencies are consistent.
Senator O'Connell:
The taxation
committee made the tax broad because we were concerned about gentlemen’s clubs
offering free admission and then inflating the cost of any thing sold within
the club.
Senator Rawson:
I need
clarification on nonprofit events. There is a significant nonprofit community
that puts on plays and other events, would they be exempted from this tax?
Mr. Combs:
There is no
specific exemption for nonprofit events. If there is no admission charged, then
the tax would not apply. In the event a show is being put on for charity
reasons and there is an admission charge, then the Committee would need to
exempt that type of activity.
Senator Rawson:
Nevada has a
very large nonprofit community that uses these types of events for their annual
fund raising. I am concerned about this issue. Events such as National Finals
Rodeo (NFR), boxing and racing are competitive events. Many of these events
have signed contracts well in advance of the event which could produce an
insolvent situation. We need to consider these issues.
Senator Care:
Did the
taxation committee discuss the threshold question? When considering an
entertainment tax you must consider whether the event is open to the public.
This might address the trade show issue. There are conventions that are closed
to the public at which entertainment takes place, but they are not soliciting
the public to come. Was there any discussion between the difference in college
and professional sporting events for the purpose of imposing an entertainment
tax? My definition of live entertainment is expansive. A live event is not
restricted to just music, concerts or plays but encompasses racing cars and
sporting events as well. We should be discussing events that if the public
wishes to attend, they must pay a tax.
Senator Nolan:
I see the LET
as problematic. It may not be the expense of the tax but the collection may be
a problem for organizations holding a once-a-year fundraiser. I am a board
member of Las Vegas Events, which is a collaboration of businesses and hotels
that finance these types of events to be promoted in the southern Nevada
community. There are events, taking into consideration the overall ticket
price, that would consider another venue. We were able to capture the National
Finals Rodeo (NFR) from Oklahoma City about 12 years ago by a small margin. Not
all events would be affected by a tax. People might be willing to pay extra for
the environment of southern or northern Nevada. There should be a way to
petition for an exemption if the venue can demonstrate the event would be a
loss and there would also be a loss of additional ancillary revenue.
Senator Rhoads:
About 10 years
ago, I introduced a bill that would have increased the price of rodeo tickets
to help the high school and county rodeo programs. I was to meet with the Reno
Rodeo people. When I attended the meeting, the CEO from Denver and their
attorneys threatened to move out of Las Vegas because of the increase in tax.
Recently, the Dallas cowboys met with NFR people from Denver to discuss
building a 100,000-room pavilion to entice the Las Vegas rodeo to Dallas. This
tax would have a negative effect on keeping the NFR in Las Vegas. I would vote
for other taxes.
Senator Shaffer:
I believe
events such as air shows and bowling tournaments should be included.
Senator Neal:
Would it be
easier to exempt the 501(c)(3) organizations?
Senator Raggio:
Should all the
organizations that are filed as 501(c)(3) be exempted? We will add it to our
list of concerns.
Senator Cegavske:
I was
concerned about having the collection of the tax done by two different
agencies. Could this be collected by the agency that presently collects the
sales tax?
Mr. Chinnock:
Implementing
the tax by January 1, 2004, in concert with gaming would make it easier. If the
Committee decided the Department of Taxation should have control, we could do
so at some future time.
Senator Cegavske:
Are you saying
it would be easier to implement this with the gaming revenues than to include
it with the sales tax or adding the tax on to an admission ticket?
Mr. Chinnock:
Yes, because
we are not collecting sales tax on some of these events, now. We are talking
about a process of discovery. We are going to use the sales tax and look at it
as well.
Senator Coffin:
Many events
are interstate competitive. There is a mechanism for granting an exemption for
a short term from certain taxes. This is an enticement for people to come to
our State. We could put the same principal in place here. We could start with
this statute and exempt the events we know are in jeopardy of being lost to
other states. We could create the mechanism in existing statute. Then either
the Economic Development or Tourism Commissions could research these events and
bring a list to a future Legislature for consideration of any additional
exemptions.
Senator O'Connell:
I would like
to respond to a concern Senator Rawson raised. The nonprofit organization that
is sponsoring the event does not charge for admission, but if the entertainer
or event is trying to sell any product that is not sold through the
organization then there is a tax on the product. If the proceeds were not going
to the nonprofit organization, then it would be taxed.
Senator Washington:
If we impose
the 10-percent rate on products and there is currently a 7.25-percent sales
tax, would that be 10 percent in addition to the sales tax; therefore, it could
be 17.25 percent as opposed to 7.25?
Senator Care:
The current
casino entertainment tax statute would dovetail with what ever we do. The
statute gives a list, which we could debate, but in the second part for
example, “Entertainment is also not subject to the casino entertainment tax if
the entertainment is presented in or about a swimming pool, water park or on a
natural or artificial beach.” Are we referring to those exemptions now being
taxed?
Senator Rhoads:
I support the
suggestion the LET should not include competitive events.
Senator Rawson:
Would there be
any consideration to clarify that 501(c)(3) organizations are not included
because they are normally not taxed?
Senator Raggio:
With those
types of broad exemptions, is there any way to really ascertain the potential
revenue from this source?
Mr. Combs:
I am not sure
the amount of data Jeremy Aguero has complied on competitive versus
noncompetitive events and whether exempting those would leave a base to be
worthwhile.
Senator Titus:
I would oppose
exempting competitive events. Any event could say they would leave the State if
you tax us. If you exempt competitive events, then we will have the problem of
defining what is a competitive event?
Senator Nolan:
Nevada
competes for special events. There would be some events just by their nature
and volume that when they contract and see the overall price, it might have
significant results. I would be in favor of exempting the 501(c)(3)
organizations and allowing organizations to apply for an exemption if they
could demonstrate the tax in a competitive environment would deter the event
from coming into our State.
Senator Townsend:
All the points
made are important. If the issue of competitiveness is one concerning the rate,
then we should stay with the no exclusion policy. We should keep it broad-based
and lower the rate to a figure that is acceptable to everyone. If the goal is
to stay broad-based and keep the rates as low as possible then we should keep
within our goal. Every time we attempt to do the right thing in any one item
and reduce any of the proposals, the difference needs to be made up elsewhere
because we have $360 million in revenue responsibilities in the first fiscal
year of the budget.
Senator McGinness:
Currently, the
casino entertainment tax is at 10 percent. We found going below 8 percent would
cause a loss of revenue on this proposal. We need to stay at the 10 percent
rate to gain some revenue.
Senator Raggio:
What is the
committee’s consensus? Shall we keep the 10 percent rate with no exemptions,
keep the rate at 10 percent with some specific exemptions across the board or
lower the rate and apply to all without exemptions?
Senator Townsend:
I move we
leave the live entertainment rate at 10 percent with no exemptions except for
the 501(c)(3) organizations.
Senator Raggio:
It would
include boxing, rodeos, auto racing, basketball and football. Who of you are
opposed to the motion? Senators Care, Coffin, Washington, Shaffer, Rhoads,
Nolan and McGinness are opposed.
Presently, the
cigarette tax is 35 cents per pack. There have been various proposals to
increase it to 65 cents per pack of cigarettes. The Governor’s
recommendation was to increase the tax to $1.05 per pack.
Senator Townsend:
I move we
increase the cigarette tax by 70 cents.
Senator Raggio:
Are there any
Committee members opposed to the increase of 70 cents? Obviously, this proposal
does not have majority opinion.
Senator Care:
On taxes like
alcohol, cigarettes, restricted slots and the BLT, we should look at the last
year these figures were set and make adjustments for the consumer price index.
The tax on cigarettes would rise from 35 cents to 55 cents; then we can add
more. My proposal would be to increase the cigarette tax to 65 cents.
Senator Raggio:
Are you
recommending a 30-cent increase?
Senator Care:
Yes.
Senator Townsend:
The previous
motion was a 70-cent increase, which took the total to $1.05. Are you
recommending a 65-cent increase, which would take the total to 90 cents?
Senator Care:
I would like
to change the motion to what was proposed in S.B. No. 382 of the 72nd Session.
A 40-cent increase was proposed, which would increase the cigarette tax to 75
cents over a 2‑year period. We proposed a 25-cent increase in the first
year and 15-cent increase in the second year.
Senator Raggio:
Was your
motion a 25-cent additional increase in the first year and 15-cent increase in
the second year? Who on the committee objects to the proposal? Senator
Townsend opposed the proposal. Can the revenue be calculated for the increase?
Mr. Combs:
This would
require a volumetric adjustment to be factored in. Therefore, I will bring the
Committee this information later. A total of $39.8 million would be generated
the first year with an increase in the cigarette tax of 25 cents. To determine
the revenue for the second year with a 15-cent increase we need to apply the
formula, for every 10 percent increase we assume there is a reduction in volume
of 4 percent. I will bring the Committee the figures.
Senator Nolan:
We assume a
percentage loss of those who use tobacco products as the price is increased.
There are hundreds of Internet web pages selling brand-named cigarettes from
$1.50 to $2.20 a pack. We will not be losing people in the way of revenue who
will cease using the products, but we will lose them to another source over
which we have no control. This has happened in retail businesses in every
industry. Is it possible to calculate that factor in as well? I would
caution us to consider this when projecting revenues because it is a legitimate
market to which people have access.
Senator Titus:
I request
calculations be done for an increase of 50 cents, 25 cents and 25 cents over a
2-year period.
Senator Raggio:
The next topic
for discussion is the sales tax. This tax would be limited to the portion that
is the local school support tax (LSST). What is the present rate on the local
school support tax?
Mr. Combs:
The LSST is
2.25 percent.
Senator Raggio:
What does each
1 percent produce?
Mr. Combs:
A 0.25 percent
would generate approximately $65.6 million in the first year because of the
loss of a quarter of the year and $92.4 million in the second full year.
Senator Raggio:
The proposal
is to add 0.25 percent to the sales tax for this purpose.
Senator Townsend:
I recommend we
discuss the liquor tax and slot tax to get a base.
Senator Raggio:
A 10-percent
increase in tax, per gallon, per type of liquor would generate over $2 million
a year. Were we considering a 50-percent increase?
Senator McGinness:
The Task Force
recommended an 89-percent increase, the committee proposed 100 percent,
I would suggest an 89-percent increase.
Senator Raggio:
What would the
increase generate in revenue?
Mr. Combs:
It would be approximately $18 million in the
first year and approximately $18.6 in the second year.
Senator Care:
On the theory
we will not revisit this tax again for some years, the easy figure to use would
be a 100-percent increase, which would generate $20 million a year in
additional revenue.
Senator Raggio:
An issue to
keep in mind is that a large volume of liquor sold is “border sales.” There are
people coming from Oregon and California to buy liquor. How do we compare with
our border states? Would people accept an 89-percent increase in Nevada over
the rate imposed in California? It is a concern to those selling liquor to
tourists.
Senator McGinness:
During the
committee hearings, we did not look into the rates of surrounding states. We
did have testimony that 5.5 cents would be added to a six-pack of beer.
Senator Raggio:
Liquor is the
larger issue. We will have committee staff research the comparison with
California’s rate.
Senator Titus:
I thought it
was illegal to buy liquor without a stamp. I would not want to be encouraging
illegal behavior.
Senator Raggio:
There may be
restrictions on other items but not liquor being brought across state lines.
Our next tax
for discussion is the quarterly restricted slot tax. Presently, the rate is $61
per machine for the first 5 machines and $106 per machine for 6 to 15 machines
per quarter on establishments with not more then 15 slot machines,
which is considered restricted slots. In this situation, a 10-percent increase
would bring $700,000 a year. Does the Committee have a proposal?
Senator Care:
The Task
Force, the Governor and S.B. No. 382 of the 72nd Session recommended a one-time
increase of 33.3 percent, per machine, which is my proposal.
Senator Raggio:
What would be
the revenue generated by that proposal?
Mr. Combs:
The revenue
generated would be $2.3 million in the first year and $2.4 million in the
second year.
Senator Raggio:
What are the
feelings of the Committee? Are there any opposed to the increase?
Senator Cegavske:
If the
convenience stores can only have up to a certain number of machines, I would ask
the Committee to make the increase of $106 per machine starting with the 7th
machine.
Senator Raggio:
Where they now
have five machines, they are paying $61 a machine. The proposal would be to
make a third increase on that, those having more than five machines the
percentage increase would be the same, but they already pay the $106 per
machine. The proposal does take into consideration those that are five machines
or less.
Senator Cegavske:
My suggestion
was to bring it up one more machine.
Senator Raggio:
It is open for
discussion. The proposal will remain as a 33.3 percent increase for restricted
slots that are now fixed fees. The amount of revenue generated is $2.2 million
in the first year and $2.4 million in the second year.
Senator Townsend:
The proposals
left for discussion are: the local school support tax, the gaming percentage
fee tax, the BLT, the state room tax, the bank franchise tax, the real property
transfer tax, the payroll tax, the service tax and the net profits tax. These
items are either new taxes or generate a large amount of revenue. It would be
in the Committee’s interest to get a tabulation on revenues raised so far.
Senator McGinness:
I have been
able to obtain information on liquor tax rates in surrounding states. The excise rate
per gallon of liquor in Arizona is $3.00, and California is $3.30. Using the 89
percent rate discussed, Nevada would be at $3.87.
Senator Raggio:
The Governor
has sent an additional item within his proclamation, which is S.B. No. 191. The
bill addresses the No Child Left Behind Act and other matters pertaining to the
non-Titled I schools in the State. There have been some amendments proposed by
the Assembly. This is one of the matters we are trying to resolve to make sure
that we have a full agreement. This has been accomplished in principal. There
is a bill being drafted for that purpose; therefore, we will set aside the
matter for today.
Last evening,
the Speaker and the Majority Leader in this House met with representatives of
the two sectors having the most concern with any potential revenue plan. The
Governor met with them as well. The message was that the gaming industry and
the business sectors have been far apart on what they have been willing to
recommend or accept. The message to them was, at this stage, you never know
what might be the result of a legislative process. Some felt there were items
under consideration which were out of the question, and therefore, they did not
have to be concerned. In the legislative process items which may seem dead
suddenly have a new life. The suggestion was made for them to reach an accord
about their concerns which then could be considered by the respective
committees in this process. The message was delivered with the understanding
that we are in a first special session. Time is valuable, and if there were
items that can be considered that might help the process, these committees
would be interested in them. Jeremy Aguero will advise this Committee and the
select committee in the Assembly as to what is being proposed.
Jeremy Aguero:
I served as
the coordinator for the technical working group for the Governor’s Task Force
on Tax Policy, but I am here to review some estimates that have been presented.
The tax regime I am discussing with you has three parts.
Senator Raggio:
Did you work
with both the business sector and gaming industry representatives?
Mr. Aguero:
They gave
input to the information I will present. The first part is a franchise fee.
Those groups view it as the stabilizing element of the tax. This imposes a
quarterly rate of $0 for companies with less then $20,000 of gross business
receipts.
Senator Raggio:
Is the
principal component a net profits concept?
Mr. Aguero:
Yes. The tax
is a net profits tax with a stabilizing element and a capping element. The net
profits portion of the tax is somewhere between 3 and 7 percent using a
graduated rate.
With the
franchise fee, the taxpayer would approach the tax and look at the first
element I have previously mentioned. They would look at the total of their
business receipts for the year and would determine and make quarterly payments
of between $0 for businesses with less than $20,000 of gross business
receipts to $2,500 per quarter for businesses with greater than
$10 million worth of gross receipts.
The first
element is based on the fact a business exists. Each business has tax
liability. It is not based on their business receipts. It uses them to create
different thresholds of industries. The second element is the business profits
tax. The business profits tax has three tiers. The first tier is from $0 to
$50,000 worth of profit, which would be taxed at 3 percent.
Senator Raggio:
Are you
referring to net profit defined for that particular business by the Internal
Revenue Service Code?
Mr. Aguero:
Yes. Whatever
the net profit would be, it would be as reported to the federal government and
would be the exact net profit upon which they would pay these factors to the
State of Nevada.
Senator Raggio:
This could not
be implemented until January 1, 2005.
Mr. Aguero:
Yes. The first
tier a business would calculate is a flat fee. Businesses that have a lesser
amount of business activity will pay a smaller quarterly fee. Businesses with a
larger amount of business activity will pay a larger quarterly fee. Businesses
that have less than $20,000 worth of business receipts will pay nothing.
Senator Amodei:
How is the
business activity in this plan measured?
Mr. Aguero:
It is measured
in terms of business receipts or revenue.
Senator Raggio:
The principal
part of this proposal is a net profits tax, which cannot be implemented until
January 1, 2005. This is a flat fee based on receipts. Let us discuss the net
profits tax component.
Mr. Aguero:
The
centerpiece of the tax is a net profits tax. Net profits are defined for all
businesses with activity in the State of Nevada exactly as it is defined for
federal income tax reporting purposes.
Senator Raggio:
A business
entity would use their net profit definition under the IRS Code that would be the
net profit on which the tax would apply. What would be the rate of tax and the
threshold for each rate?
Mr. Aguero:
The first tier
of business profits up to $50,000 would be taxed at a rate of 3 percent; from
$50,001 to $100,000, the tax rate is 5 percent; for all business profits in
excess of $100,000, the tax rate is 7 percent.
Senator Raggio:
There are
three rates, which apply to the federal definition of net profit. Any business
entity would be allowed to make deductions based on the IRS Code for any type
of business to reach the profit on which this rate is applied, am I correct?
Mr. Aguero:
Yes.
Senator Raggio:
What
adjustments would be permitted?
Mr. Aguero:
There are
three types of adjustments. The first type of adjustment is for businesses that
pay an industry specific tax. This would include mining, insurance,
construction industries and gaming. They are not exempt from the tax but would
be required to separate the portions of their business that are currently taxed
under those industry specific regimes versus the portions of their business
that are not taxed under those regimes.
Senator Raggio:
Give the
Committee an example about gaming.
Mr. Aguero:
Gaming
revenues are split approximately 50 percent for gaming operations and 50 percent
for non-gaming operations at $9 billion each. This figure is gross business
receipts not profits. The $9 billion upon which the 6.25 percent gross gaming
tax is applied would not be subject to this tax regime, but the revenues and
expenditures from food, beverage, rooms, entertainment and anything else which
is part of what they do would be subject to the net profits tax and the balance
of this regime.
Senator Raggio:
How would the
insurance and construction industry be affected?
Mr. Aguero:
The insurance
industry is currently subject to the insurance premium tax. Any revenues
generated from that portion of their business would all be exempt from this
regime. The construction activity deals specifically with the existence of the
real property transfer tax to the extent that income is derived from the sale
of real property upon which the real property transfer tax is applied at the
gross level. Those revenues, less those expenses that gave rise to that portion
of that company’s income, would not be subject to this tax.
Senator Raggio:
Explain how
mining would be affected?
Mr. Aguero:
Mining pays
the net proceeds of the mining tax for all their operations that are subject to
that portion of the tax they would not be subject to this portion of the regime.
Senator Rhoads:
They would
subtract the expense columns and pay on the balance.
Senator Care:
Is this tax
different from the net profits tax proposed by the teachers two years ago?
Mr. Aguero:
I believe, it
is different.
Senator Care:
The non-gaming
side would have fallen under the net profits tax. I do not recall discussing
the mining or insurance industry.
Mr. Aguero:
I do not
recall.
Senator Raggio:
Is there a
franchise business tax that all businesses pay?
Mr. Aguero:
Yes.
Senator Raggio:
Is it proposed
that whatever they pay would also be deducted from this net profits tax?
Mr. Aguero:
Yes.
Senator Titus:
Would a
banking franchise tax be the same as the mining, gaming and construction
industry? Do they pay a banking fee not a net profits tax?
Mr. Aguero:
Yes. They are
part of the regime.
Senator Raggio:
Let us discuss
the franchise or business fee.
Mr. Aguero:
The franchise
or business fee is a quarterly rate. It ranges from $0 for small businesses
with business receipts of less than $20,000 to a flat fee of $10,000 per year,
or $2,500 per quarter, for businesses with revenues in excess of $10 million
annually. The effect of this is to establish a base upon which stability could
be achieved. This tax on the base of 107,000 businesses would generate
approximately $102 million per year and would provide the base upon which
everything else would generate more revenue.
Senator Raggio:
Go through the
tiers so the Committee will know what would be the flat quarterly rate. You said,
up to $20,000 in gross receipts, the business would pay nothing.
Mr. Aguero:
The businesses
with $20,000 to $50,000 would pay $150 a quarter. From $50,001 to $100,000,
they would pay $200 per quarter. Businesses with $100,001 to $500,000 would pay
$250 per quarter. Businesses with $500,001 to $1,000,000 in total business
activity would pay $325 per quarter. Businesses with $1,000,001 to $1.5
million would pay $375 per quarter. Businesses with $1,500,001 to $2.5 million
would pay $625 per quarter. Businesses with $2,000,001 to $5 million would pay
$750 per quarter. Businesses with $5,000,001 to $10 million in total business
activity would pay $1,250 per quarter. Businesses with more than $10 million in
business activity would pay $2,500 per quarter. These revenues would be
credited against any company that incurred net profits tax liability.
Senator Raggio:
Would they
have the right to take that as a credit against whatever the computation is on
the net profits tax?
Mr. Aguero:
Yes.
Senator Raggio:
Is there a
cap?
Mr. Aguero:
Yes. The third
element of the tax regime is a cap, which effectively limits the liability of
any specific business in any specific year. It states the total liability from
all the taxes we have discussed cannot exceed 0.25 percent of total business
receipts.
Senator Coffin:
The quarterly
rate on the gross flattens out so fast the percentage of payment by the larger
businesses are considerably less than the smaller businesses. Would the BLT be
in addition to or part of the total?
Mr. Aguero:
It was my
understanding the idea behind having it fall off is because larger industries
would have a tendency to bear a greater burden from the net profits tax.
Senator Coffin:
Have you
worked out the allocation of profits on large businesses multistate?
Mr. Aguero:
We know how
profits are distributed. The tendency is for the top 1 percent of businesses to
have between 54 and 60 percent of the total amount of taxable income in any
year.
Senator Raggio:
What would be
the net profits tax yield in January 1, 2005?
Mr. Aguero:
Based on
preliminary information, the combined regime would yield between $200 million
and $250 million per year.
Senator Raggio:
What do you
mean by combined regime?
Mr. Aguero:
The combined
regime would be all these items taken in combination: the franchise tax fee,
business profit tax, as well as the capping.
Senator Raggio:
What would the
net profits tax yield on its own?
Mr. Aguero:
In a normal
tax year, the yield would be between $125 million and $150 million. In the mid‑case
scenario, the yield would be approximately $131 million.
Senator Raggio:
How much would
the quarterly franchise tax yield annually?
Mr. Aguero:
The franchise
tax would yield approximately $102 million annually.
Senator Raggio:
Are the
businesses that have a net profit entitled to deduct the amount they pay on the
franchise tax? If you get $131 million from the net profits tax and take a
credit for what you paid on the franchise tax, there would be a net difference
of $30 million. How do you arrive at the figure of $131 million? You would only
get the larger of the amounts.
Mr. Aguero:
The reason is
that they are additive. A gross profits tax under the rates we have discussed
without any credits or deductions would yield $250 million per year. We
subtracted the cost of the adjustments, credit for the paid flat tax and the
revenue cap of 0.25 percent.
Senator Raggio:
The figures
have been adjusted.
Senator Rhoads:
What will this
do to the high volume, low margin industries such as groceries, automobile
dealers and agriculture?
Mr. Aguero:
The high
volume, low margin industries would take advantage of the business profits tax
regime. By having high volume, they are disparately impacted by the
0.25-percent gross receipts tax. They would fall under the business profit tax
paying 3, 5 or 7 percent depending on their profit, which would be less than
what their gross tax liability would have been.
Senator Care:
Were your
discussions limited to determining an agreeable formula? We had testimony from
Mr. Chinnock that there were 210,000 businesses. You referred to 107,000
businesses. What type of businesses did the figure include?
Mr. Aguero:
We considered
corporations and partnerships. It is important to distinguish the difference
between the number of business licenses issued and the number of business
entities existing. For example, if I owned 10 McDonalds, it may be considered
one business or 10 businesses depending on how it is viewed. If Mr. Chinnock
believes the number is 210,000 businesses and the tax would be imposed on each
individual business, the yield would be greater. The high range considered was
160,000, and the low range was 85,000 businesses. We choose a middle figure as
a starting point.
Senator Neal:
Is the UBT and
the gross receipts being referred to as the business profits tax?
Mr. Aguero:
This proposal
does not include the UBT or the gross receipts tax.
Senator Neal:
Explain what
you mean by tiers?
Mr. Aguero:
The tiers are
a way of measuring business activity in the State. It is determined by using
gross receipts, but it is not a percentage fee applied to the gross receipts.
It is a rate measuring the size of the business activity.
Senator Neal:
What do you
mean by, this could not exceed 0.25 percent of business receipts?
Mr. Aguero:
The 0.25
percent is used as a base in the UBT, the gross receipts tax, or the Governor’s
Task Force proposal. In this proposal, it is a ceiling. It is stopping how much
a business can pay opposed to establishing how much you would pay. It affects
those businesses that are low volume, high profit.
Senator Neal:
What happens
if a business is high volume, low profit?
Mr. Aguero:
A business
that is high volume, low profit would use the business profits tax.
Senator Neal:
What companies
would this benefit?
Mr. Aguero:
Services
industries such as doctors, lawyers and accountants who have a relatively small
practice and little expenses would benefit. The alternative would be companies
benefiting from the business profits tax such as automobile dealers, petroleum
distributors, grocery stores and others that have high volume but marginal
profits.
Senator Neal:
How would the
tax affect a cattle ranch or agriculture?
Mr. Aguero:
Could you give
me an example?
Senator Rhoads:
A typical
ranch might gross $500,000 in a normal year and net $10,000 or $20,000.
Mr. Aguero:
You would
benefit from the business profits tax.
Senator Amodei:
What
coordination does this have with the Department of Taxation for implementation?
Mr. Aguero:
I have not
spoken to the Department of Taxation; therefore, none.
Senator Amodei:
What would a
return look like?
Mr. Aguero:
To the extent
the BLT existed, the proposed quarterly franchise fee would be paid in
conjunction with the BLT. Each year or when a company paid its business profits
tax to the IRS, it would do a second calculation and subtract what was paid for
the franchise fee.
Senator Amodei:
In the first
two regimes, the franchise tax business is measured as a function of receipts,
and in the final regime, business is measured as a function of receipts, but in
the middle tier, business activity is measured as a function of profits, is
this correct?
Mr. Aguero:
Yes.
Senator Raggio:
Mr. Chinnock
can you shed any light on the implementation or forms that would be necessary
for this procedure?
Mr. Chinnock:
I would need
time to go over this information.
Senator McGinness:
Has there been
a new concept introduced to the Committee concerning the real estate transfer
tax being industry specific to construction?
Mr. Aguero:
Based on the
parameters provided to me that it is born by the construction industry, it is
my understanding real property transfer tax is joint and severally liable, and
that it is negotiated in the transaction to the extent the tax is actually paid
by the construction industry, that it would be a credit.
Senator Nolan:
Is the method
by which a business would pay optional, or does it depend on where their net or
gross profits fell?
Mr. Aguero:
It does not
become optional. There is a minimum and a maximum they are required to pay.
Businesses operating as profit maximizing firms would not opt to pay greater
taxes.
Senator Nolan:
Is it possible
for businesses whose profits vary to fluctuate between a net profits tax and a
gross profits tax?
Mr. Aguero:
Yes, it could
fluctuate. If a company had no profits one year, they would pay the minimum,
the franchise fee. In the following year, the company had profits of 90 percent
of its business activity, they would pay the 0.25 percent cap.
Senator Neal:
Could Mr.
Chinnock give us an idea of the obligation the Department of Taxation would
have to implement this?
Senator Raggio:
This is a
proposal, but the revenue from the business tax and the net profits tax would
not begin to come in until January 1, 2005. We still need to fund our budget.
There needs to be a bridging type of revenue until we reach that point in the
collection process. The fixed franchise tax is effective immediately on all
businesses unless they have receipts of less than $20,000. Does everyone pay
this tax?
Mr. Aguero:
The intention
is to have the tax become effective as soon as possible.
Senator Raggio:
If the
Committee wanted to establish this concept, we would need to have the revenues
to meet the needs that occur until that point.
Senator Care:
When the
industry specific taxes, credits or adjustments; mining, construction and
insurance industries file a return in Nevada is it based on the return filed
with the IRS? When filing their federal return do they apply these credits to
their overall obligation? If they take these credits on the federal level and
we turn around and give them credit when they file with the State, are they
getting the credit twice?
Mr. Aguero:
No, because they
would need to back it out. For those industries, filing the return would be
different from all other industries. They would need to segment out taxes paid
for different departments. There was no intention of allowing a double
deduction. If it was simply done, yes, there is a line item on the 1120 form,
which corporations file for example, that is taxes and fees.
Senator Mathews:
For businesses
that are not mining, insurance, gaming or construction, do they get a federal
credit?
Mr. Aguero:
A federal
credit for taxes paid?
Senator Mathews:
Yes, state
taxes paid.
Mr. Aguero:
In this
regime, there is no additional credit for other taxes other than the ones I
have mentioned.
Senator Mathews:
I need
something in writing with firm numbers to review.
Senator Raggio:
If we are
going to consider this proposal then Mr. Aguero can return with a sheet for the
Committee.
Senator Mathews:
I need to see
the numbers before I can consider the proposal.
Mr. Aguero:
It is
necessary to draw the line between what we did for the Governor’s Task Force on
Tax Policy and the work we are doing here. These are totally unrelated efforts.
I was asked to put this together within the last 24 hours.
Senator Titus:
Can a company
deduct payments that it has made for other taxes from its bottom line on which
it owes federal tax?
Mr. Aguero:
Generally,
yes.
Senator Titus:
Is the figure
they use as their net to pay the federal tax the same as the State would be
using to calculate the State tax?
Mr. Aguero:
Yes.
Senator Titus:
Would this not
allow them to deduct the State tax before they calculate the federal tax?
Mr. Aguero:
States
compensate for this by requiring an adjustment.
Senator Titus:
Are you
referring to a regulation that the Department of Taxation would impose?
Mr. Aguero:
Every state
that has a net income tax deals with the situation differently.
Senator Raggio:
If there were
Committee interest in this proposal, it would be better to ask Mr. Aguero to
return tomorrow. Tell us when you could return with a handout?
Mr. Aguero:
I could have a
handout prepared by 8 a.m. tomorrow.
Senator Coffin:
If you had a
$100,000 gross in insurance commissions before the various taxes are deducted
then you would pay $800 a year?
Mr. Aguero:
Yes.
Senator Coffin:
The business
license tax and fee would be in addition to that. Therefore, the business would
pay approximately $1,000 a year even though your adjusted gross income might be
$50,000 because of various expenses incurred.
Mr. Aguero:
It would
depend on whether the business could take advantage of the cap.
Senator Coffin:
You have the
business profits components. If the business was between $50,001 and $100,000
in profit and had 3 percent, would I add the 3 percent to the $800 a year?
Mr. Aguero:
You would
calculate the 3 percent and subtract the $800 from it, not to exceed 0.25
percent of the total.
Senator Coffin:
Is the
business profits tax a credit?
Mr. Aguero:
No, the
business profits tax is a tax. The franchise fee would be taken as a credit to
the extent you had liability in excess of the fee.
Senator Coffin:
If there were
$50,000 net profit on which I paid federal income tax, I would take
3 percent of $1,500 before I paid my federal income tax. I would deduct it
as a state tax, leaving approximately $48,000. I would pay $700 instead of
paying $1,500. If my gross was $100,000, my gross receipts cap is $250. Would
my tax be reduced to $250?
Mr. Aguero:
The franchise
fee becomes the floor. Therefore, you would pay the franchise fee.
Senator Coffin:
Would it be
the franchise fee minus the credit? What is the franchise fee?
Mr. Aguero:
No, you would
pay the franchise fee. The franchise fee were the rates depending on the total
amount of business activity reported in the State of Nevada. Whether you were
at $100,000 or $500,000, you would be paying $800 because of the measure of
business activity.
Senator Coffin:
Would I pay an
$800 franchise fee because my floor was based on gross business receipts? Would
my profit or loss be ignored?
Mr. Aguero:
Yes. This
creates a stabilizing factor.
Senator Coffin:
Would the cap
apply in my case?
Mr. Aguero:
It would not
apply.
Senator Coffin:
Why not have a
flat tax on the portion relating to business profits? Most states take a flat
percentage on the federal income tax.
Mr. Aguero:
I have no
opinion on that.
Senator Coffin:
Could we
create a matrix to know the difference in revenue if we used a flat rate?
Mr. Aguero:
If we looked
at the gross business income, the gross income in the State of Nevada is
approximately $3.7 billion. We would multiply whatever rate is determined by
$3.7 billion, and it would give us the revenue.
Senator Coffin:
Has the
proposal been written to yield a certain dollar amount as the result? Would
this be inserted into a total tax package?
Mr. Aguero:
Yes. There was
no discussion of how this would factor into an entire tax package.
Senator Mathews:
Who was
involved in getting to this point?
Senator Raggio:
The people who
came forward with this proposal were from the Las Vegas Chamber of Commerce and
the gaming sector. They had reached a tentative accord and wanted to suggest it
to the Committee.
Senator Mathews:
When we came
to the 19th Special Session, it was my understanding we had advanced beyond taking
any plans from outside sources.
Senator Raggio:
The Assembly
took the payroll tax off the table. The Senate took the gross receipts tax off
the table. We were heading for another impasse. We asked the two business
sectors if there was a proposal they could put forward. The Committee is not
required to implement this proposal. We still must get a bill that passes both
Houses.
Senator Mathews:
I am still
concerned because this Special Session was supposed to be in the hands of
Legislators.
Senator Raggio:
Is the
Committee interested in seeing something more on this proposal? There are seven
Committee members not interested. Let us consider the sales tax that would go
toward the local school support.
Senator McGinness:
A 0.25 percent
would yield $65.6 million in the first year and $92.4 million in the second
year in revenues. I would propose to include 0.25 percent in the sales tax
effective October 1, 2003. It would offset the local school support tax, which
would then allow that 0.25 percent to come into the General Fund.
Senator Cegavske:
The Senate
Committee on Taxation discussed exemptions. How would the exemption list affect
the sales tax revenue?
Senator McGinness:
The exemptions
we discussed were not huge exemptions. They will generate some additional
revenue to the General Fund, but eliminating the exemptions will not help in
balancing the budget.
Senator Raggio:
Who is opposed
to the proposal of an increase of 0.25 percent sales tax? Senators Wiener,
Neal, Coffin, Care, Carlton, Schneider and Titus are opposed. Therefore, we
will not put the proposal on our matrix. Our next item for discussion is a
state room tax.
Mr. Combs:
This would not
be imposed until the second month of the fiscal year. A 1-percent tax would
generate approximately $30.1 million for 11 months of the first year and $34.1
million in the second year for a full year.
Senator McGinness:
I would ask
that a 1-percent increase in the state room tax be considered.
Senator Raggio:
What does 1
percent yield in revenue?
Senator McGinness:
It would yield
$30.1 million in the first year and $34.1 million in the second year.
Senator Amodei:
The room tax
was created by the State in 1983 at a 1-percent rate. The State retains 3/8 of
the room tax for tourism development and the remaining goes to local entities.
Since the inception of the room tax, various counties have raised the rate they
assess for room tax from 7 percent to 10 percent. The Convention and
Visitors Authority was concerned about this because they wanted the future rate
revenues available for future convention and visitors activities. In Clark
County, 5 percent of their 9 percent in the resort areas goes to the Convention
and Visitors Authority, 3/8 of 1 percent goes to the State, 1 percent goes to
the county, 1 percent goes to transportation, 1 5/8 goes to the school
district. There is another tier that is within 35 miles; 4 percent goes to
the Convention and Visitors Authority, 3.8 percent to the State, 2 percent to
the county outside the 35-mile range, 1 5/8 goes to the school district.
In Washoe
County the rates are: 11 percent in Sparks, 12 percent in Reno, 13.5 percent in
downtown Reno, and 12 percent in the unincorporated portions of Washoe County.
Sparks is using 6 5/8 percent for the Reno-Sparks Convention Visitors
Authority, 3/8 goes to the State, 1 percent goes to the bowling stadium, 2
percent the convention center, 1 percent to the city center project. Some of
the rural counties have as much as 5 percent going into the county general
fund.
There are 17
states, which have a room tax ranging from 9 percent in Vermont to 1 percent in
South Dakota. Some of the concerns, after this was presented to the
Senate Committee on Taxation, were that the room tax rate was not asking
for any of the future, potential increase for the State. It was offered in S.B.
No. 382 of the 72nd Session. The room tax was created by the State 20 years
ago, and we have not returned to the revenue source. I believe asking for a 1‑percent
increase is not an irresponsible action to take.
I have a copy
of an article from the Las Vegas Review Journal, dated Thursday, June 5,
2003, depicting the average rise in the strip’s room rates. Travelers are
substituting overseas trips with visits to Las Vegas. Rates for Las Vegas hotel
rooms are warming up in June as Americans substitute trips to U.S.
destinations. Average room rates are the clearest barometer of demand for Las
Vegas as a destination. They increased to $146 for the week of June 23, up 16
percent from the same week in 2002 and 2001.
Senator Raggio:
How many on
the Committee would not support a 1-percent increase in the state room tax?
Those in opposition are Senators Mathews, Rhoads and Raggio. We will add a
1-percent room tax into the matrix. The reason I do not support the increase in
room tax is because Reno’s rate is already 13.5 percent.
We shall now
discuss the BLT.
Senator McGinness:
The Senate
Committee on Taxation did not consider the BLT because we were waiting to see
if it could be part of a bridge program. In the event one of the large
proposals could not be implemented until January, 2004, or July, 2004, we were
considering the BLT could go up to $140 or $160 temporarily. The Task Force
indicated it should go to $300 and then recede. Perhaps, this should be held
until the end to use as a bridge process.
Senator Raggio:
Let us
consider the bank franchise tax.
Senator McGinness:
The bank
franchise tax was proposed in the last meeting of the Senate Committee on
Taxation, but the committee members choose not to consider the proposal.
Senator O'Connell:
I wish the
record to reflect I will not be voting on this proposal.
Senator Rawson:
There was
discussion of a 7-percent bank franchise tax during regular session.
Senator Care:
I have heard
7-percent and 5-percent figures. What is the basis for those figures?
Senator McGinness:
I have no
vested interest in this tax. In California, the bank franchise tax is 8
percent. California set up a separate franchise fee because banks by federal
law are not permitted to pay a net profits tax. The committee tried to stay
away from industry specific taxes, and this is a good example.
Senator Titus:
I agree. If we
decide to implement a tax that would include banks, but if not, then we should
look at a separate bank franchising tax.
Senator Coffin:
There was
discussion about exempting industries that pay an industry-specific tax or
using them to credit the tax dollars. A bank franchise tax is industry specific
and was not prospectively added into the calculations given to us by Mr.
Aguero. It seems you would tax them and back all or a portion out.
Senator Raggio:
At this point,
we will pass on the bank franchise tax. The next item for consideration is the
real property transfer tax.
Senator McGinness:
There are a
number of proposals. One proposal for the real estate transfer tax is $1.10 per
$500 of value.
Senator Raggio:
Is this
collected for the State’s purposes at the present time?
Senator McGinness:
No. There is
also a real estate transfer tax proposal with a $100,000 exemption. This
committee has not looked favorably on exemptions, and by not exempting the
first $100,000, you will get the rate down and still have revenues of $24
million in the first year and $48 million in the second year. I would move to
include the real estate transfer tax of $1.10 per $500 of value.
Senator Carlton:
I respectfully
disagree. I support the $100,000 exemption for the first-time homebuyer to
purchase a home. We are aware of how difficult it is for people to save for the
down payment. When purchasing a second home, the money from the first home can
be applied. I would be opposed to eliminating the exemption.
Senator Raggio:
What would the
real estate transfer tax be on a $100,000 property?
Mr. Combs:
The transfer
tax would be $220 on a $100,000 property.
Senator McGinness:
The average
home in Clark County is above $100,000. By exempting the first $100,000, the
second $100,000 is going to be taxed at a higher rate of $1.80 per $500 of
value.
Senator Raggio:
The proposal
is to add a real property transfer tax component with no exemptions.
Senators Titus, Carlton, Schneider and Coffin object to the proposal. Our
next item for consideration is the payroll tax. The proposal is a 1-percent tax
on gross wages. What would be the revenue received?
Senator McGinness:
When the
proposal came out of committee, we had 0.5 percent on capped wages and
1 percent on wages over the cap. There has been criticism on both sides of
this issue. I believe it should be one rate for all wages or just put a rate on
the capped wages.
Mr. Combs:
Using the
gross wages and salaries, given such a tax could not be imposed until
January 1, 2004, you would lose the first six months of the first
fiscal year. A 0.5-percent rate would generate approximately $81.5 million in
the first year and $171.8 million in the second year.
Senator Raggio:
Would this be
on gross wages? Would it be imposed on all businesses?
Mr. Combs:
Yes. We would
advise structuring the tax in the same manner as unemployment insurance premiums.
This would be the easiest method in structuring the tax. It would make it
difficult to administer if exemptions are permitted.
Senator Raggio:
The rate is
0.5 percent on all payrolls without exemptions.
Senator McGinness:
Part of the
plan was that the implementation of the payroll tax would eliminate the BLT,
the per-employee head tax. The 0.5 percent would yield revenue of $81.5 million
in the first half‑year and $171.7 million in the second year. If the rate
is raised to 0.7 percent, the yield would be $114 million in the first half
year and $240.5 million in the second year. The payroll tax is a dynamic tax.
We could eliminate the BAT and the real estate transfer tax, and then roll the
payroll tax back to the percentage that would be needed.
Senator Raggio:
Was there
concern in the construction and mining industries because of their high
payroll?
Senator McGinness:
It would not
impact those industries any differently if we used the lower rate. This would
be the total of all wages. The criticism was we would be letting those people
with high wages escape the tax.
Senator Raggio:
Does this
affect gaming?
Senator McGinness:
Yes. We could
make a policy decision to exempt gaming employees from this tax.
Senator O'Connell:
Eliminating
the real estate transfer tax would be helpful to the construction industry.
Senator Raggio:
We have put
into the matrix a real property transfer tax and by passed the BLT.
Senator O'Connell:
It was the
understanding of the Senate Committee on Taxation that the construction
industry would be hard hit by both taxes.
Senator Hardy:
The issue is
paying twice on the same revenue.
Senator Raggio:
If a
construction company building roads has a billion-dollar payroll and has a 2-
or 3-percent profit, there is no transfer of property involved.
Senator Hardy:
If you
separate construction, it would be true, but what we are discussing is
construction/development. It is impossible to separate them. When you have a
development company that is also involved in construction, you have the cost of
doing business as a construction company and development.
Senator McGinness:
Construction
and gaming currently pay the BLT. With the imposition of the payroll tax both
industries could disappear.
Senator Raggio:
We have a proposal
of 0.5 percent on total payroll.
Senator Titus:
I oppose a
payroll tax. A tax on wages would discourage companies from giving raises and
hiring more employees. It would encourage more automation, and people would
lose jobs. A payroll tax would be counterproductive to the unemployment
problem in the State.
Senator Amodei:
At present,
the $100-head tax generates $80 million a year. It has been suggested to raise
the head tax to $200. I became convinced when staff said the payroll tax was
the most stable tax, did not require multiple returns and was not difficult to
administer. Then I heard it has the potential to remove the head tax that would
be an $80 million windfall before a business would start paying this to the
State and imposing a real property transfer tax. This sounds as though it would
keep money in the employees’ pockets and give employers an $80 million head
start on paying the tax.
Senator Raggio:
One company
could have a payroll of $1,000,000 and have a profit of $100,000. Another company
could have a payroll $1,000,000 and have a profit of $500,000. There in lies
the difficulty. We have been concerned on the gross profits tax on the same
situation. Some companies have high receipts and low margin; some have high
receipts and a large margin.
Senator Amodei:
The head tax
does not consider any of those issues. It is $100 per employee. You could have
a company that makes $1 million, has two employees, pays $200; or a company
making $1 million and has 300 employees, pays $30,000. The head tax does
not consider any of those factors. We need to examine what is currently in
place. Perhaps, we should double the head tax because that would yield $160
million a year with zero infrastructure required. The head tax has been working
for 13 years.
Senator Nolan:
I agree with
my colleague. The problem exists in that the Assembly has said they would not
consider a payroll tax.
Senator Raggio:
How many on
the Committee are opposed to a payroll tax being part of this proposal?
Senators Titus, Tiffany, Hardy, Carlton, Coffin, O'Connell, Wiener, Mathews,
Washington and Neal are opposed.
The service
tax is next for consideration.
Senator McGinness:
This would be
a dynamic tax base but difficult to administer. We would not be able to
institute this tax until July 1, 2004. A 0.5-percent service tax with no
exemptions to the taxable base would yield $324 million in the second year.
Senator Coffin:
I was not in
favor of this particular sales tax on services proposal. There was another
proposal that reduced the sales tax by 2 points a 40 percent reduction down to
5.5 percent and created a service tax, which the committee voted for. We had a
chance to help business trades help the general mercantile businesses of the
State by reducing sales tax, and the opportunity passed. The services mentioned
are a variation of other plans presented.
Senator Raggio:
We will ask
staff to compile what we have added to our matrix revenue plan. The gaming tax,
the BLT and the net profits tax are the remaining issues.
Senator O'Connell:
Was it
clarified that the convention shows would be exempt from the LET?
Senator Townsend:
The issue of
trade shows is a very important one. One draft of the LET was not clarified
relative to the live entertainment and swept in all convention space that was
leased by vendors or lessees. In our current casino entertainment tax, there is
an exemption for trade shows. It would be my understanding, where the
conventions have live entertainment to which it sold tickets to its
conventioneers, that would be exempt, but if the tickets were sold to the
public, then it would be covered by the LET.
Senator Raggio:
Was this part
of the revenues figures?
Senator Coffin:
The problem
with trying to tax live entertainment in conventions is there are hundreds of
companies hiring entertainment, and it would be impossible to determine how
they are being paid. It should be removed.
Senator Raggio:
Is there a
proposal on the service tax?
Senator McGinness:
The committee
approved the service tax with some exemptions. We should consider this in the
morning.
Senator Care:
There are
three ways to proceed. We can do an across-the-board service tax, an across‑the‑board
tax with exemptions or tax only specific services. I had a proposal to tax high‑end
services and specify in statute what they would be, for example: banking, to
exclude ATM and personal checking; management consulting fees; legal fees;
accounting fees; and security and commodities brokers fees. It is a complex
subject. To lessen the burden for the average Nevadan, we should target the
services the high-end businesses would recruit.
Senator Raggio:
Are there any
other issues to be discussed? Tomorrow is the last day the Governor has
allocated for this Special Session. We should be prepared to make some hard
decisions and be mindful of what the Assembly is doing. There must be a
two-thirds vote in both Houses to get a tax plan passed.
On the motion of Senator Townsend, the Senate did rise and return to the Senate Chamber
Motion carried.
SENATE IN SESSION
At 6:33 p.m.
President Hunt presiding.
Quorum present.
UNFINISHED BUSINESS
Signing
of Bills and Resolutions
There being no objections, the President and Secretary signed Senate Resolutions Nos. 1, 2, 3; Assembly Concurrent Resolution No. 1.
Senator Raggio moved that the Senate adjourn until Friday, June 6, 2003, at 7:45 a.m.
Motion carried.
Senate adjourned at 6:34 p.m.
Approved: Lorraine T. Hunt
President
of the Senate
Attest: Claire J. Clift
Secretary of the Senate