Revenue and Taxation Interim Committee

end of the year. The losses in motor fuel tax have been offset by special fuel tax increases, resulting in an estimated $1.5 million excess in the transportation fund. Mr. Macdonald also reported that multifamily starts and non-residential construction are up significantly.

2.    Background and Introduction to Studies on Income Tax Credits for Research Equipment and Increasing Research Expenses
    a.    Review of Legislation -- Rebecca L. Rockwell, Associate General Counsel, reviewed S.B. 47, Research Tax Credit, and S.B. 220, Research Tax Credit For Machinery And Equipment, which provide individual income tax and corporate income tax credits for certain expenses incurred in conducting research activities in the state. Both bills authorizing the credits each contain: (1) eligibility provisions; (2) carry forward provisions; and (3) two study requirements. Ms. Rockwell reviewed the study requirements and commented that the legislation provides that the committee may request assistance from the Tax Review Commission ("TRC") in conducting the studies. The second study is required to be conducted by the TRC on the earlier of October 1 of the year after the year in which the tax commission reports a modification or repeal of a federal tax credit under Section 41, or October 1, 2004.

    Rep. Valentine recommended the committee review the technical issues that have been raised regarding the base year computation. Currently, the state tax credits adopt the federal base year. Rep. Valentine commented that some companies do not maintain records extending back as far as the federal base year, so the base year may need to be modified for purposes of the state tax credit. Sen. Blackham recommended the committee review other states' studies of research tax credits. Chair Nielson noted that the legislation passed with strong support and should be considered a priority item.

    b.    Background Information--Bryant R. Howe, Research Analyst, provided background information on studies on the federal research credit and state research credits in the handout Background, Research and Development Tax Credit.

3.    Background and Introduction to Study on Manufacturing Machinery, Equipment, and Normal Operating Replacements Sales Tax Exemption
    a.    Review of Legislation -- Ms. Rockwell reported that currently certain purchases or leases by a manufacturer are exempt from the sales and use tax. Because of the fiscal impact of the normal operating replacements portion of the exemption, the Legislature phased in its application. The exemption is scheduled to be fully phased in beginning on July 1, 1998. She noted that the major change made by S.B. 185, Sales and Use Tax Exemptions Amendments Study, is that beginning on or after July 1, 1999, only 80 percent, rather than 100 percent, of the sales or leases of normal operating replacements will be exempt from the sales and use tax. S.B. 185 also requires the Revenue and Taxation Interim Committee to study the manufacturing exemptions, beginning on the May 1998 interim meeting and ending on or before the November 1998 interim meeting. Ms. Rockwell reviewed the study requirements and commented that the

legislation contains a provision allowing the committee to seek assistance from the TRC in conducting the study.

    Chair Nielson recommended the committee not seek assistance from the TRC with this study because data prepared by the Tax Commission is already available for review by the committee. Sen. Stephenson asked about hiring a consultant for the study. Mr. Asplund stated that the Legislative Management Committee has made a commitment to fund hiring a consultant, if needed.

     MOTION: Rep. Garn moved that the Revenue and Taxation Interim Committee retain a consultant to review the manufacturing sales tax exemption and the pollution control equipment sales tax exemption.

     Sen. Stephenson requested that the motion be divided.

     Rep. Garn withdrew his motion.
    
    b.    Background Information -- O. William Asplund, Assistant Director, highlighted the material in the handouts titled FACT SHEET and Tax Recodification Commission Sales and Use Tax Policy . He referred to a list of 17 reviews conducted by the Legislature in the past ten years concerning the sales and use tax exemption for manufacturing machinery and equipment. Mr. Asplund stated most of the study has been focused on differentiating between the exemptions for machinery and equipment used in new expanding operations versus normal operating replacements. He noted that the TRC studied the pollution control sales tax exemption which resulted in tightening the definition of pollution control equipment.

4.    Background and Introduction to Study on Pollution Control Equipment Sales Tax Exemption
    a.    Review of Current Law -- Ms. Rockwell explained that the sales tax exemption for property, materials, or services used in the construction of, or incorporated into, pollution control facilities expires on July 1, 1999. She noted that legislation proposed during the 1998 Annual General Session to extend the exemption did not pass. Because of the July 1, 1999 expiration date, the exemption has been under consideration for study.

    b.    Background Information -- Mr. Howe reviewed the information from the handout Background Information, Sales Tax Exemption for Pollution Control Equipment, including arguments for and against the exemption from the Sales and Use Tax Task Force, as well as recommendations from the TRC in 1993.

     MOTION: Rep. Garn moved that the committee retain a consultant to review the manufacturing sales tax exemption and the pollution control equipment sales tax exemption. The

motion passed unanimously. Sen. Blackham, Rep. Jones, and Rep. Short were absent for the vote.

    Sen. Stephenson requested that the pollution exemption be studied first and presented to the committee as early as possible.

5.    Taxation of Campers, Boats, and Off-Highway Vehicles
    a.    Review of Proposed Constitutional Amendments -- Ms. Rockwell made a presentation to the committee regarding the classification of property under Utah Constitution Article XIII, Section 14. After reviewing provisions in the Utah Constitution, Ms. Rockwell explained that it is unclear whether Utah courts in interpreting the uniformity requirements of Article XIII, Section 14 would permit the classification of property. She noted that during the April meeting the committee requested that she draft a constitutional amendment allowing for the classification of property and legislation to repeal the uniform fee and registration requirements for campers. She then explained the constitutional and statutory issues that arose in the drafting process. Following Ms. Rockwell's presentation, the committee discussed their concerns relating to the taxation and registration of campers.

    MOTION: Rep. Garn moved to move to the next item on the agenda.

    SUBSTITUTE MOTION: Rep. Pace moved to draft legislation to tighten statutory provisions to enforce the registration of campers. The motion failed.

    SUBSTITUTE MOTION: Rep. Jones moved to prepare legislation proposing a constitutional amendment to remove the uniform fee for campers. The motion failed.

    The committee then voted on the original motion. The motion failed.

     MOTION: Rep. Valentine moved to require a $10 registration fee on campers and that the fee be divided equally between the county in which the camper is registered and state parks and recreation. Rep. Jones spoke against the motion. The motion failed.

    b.    Review of Proposed Legislation Regarding Taxation of Campers -- Ms. Rockwell noted that copies of the constitutional resolutions and the draft legislation were included in the packet titled Proposed Legislation.

     MOTION: Rep. Garn moved to have the Constitutional Revision Commission review the draft legislation Resolution Amending Revenue and Taxation Article to Allow Classification of Property and make recommendations. The motion passed unanimously. Sen. Poulton, Rep. Jones, and Rep. Short were absent for the vote.

    c.    Options for Taxation of Boats and Off-Highway Vehicles -- Mr. Howe reviewed several fee options listed in the handout Fees on Boats and Off Highway Vehicles Possible Fee Options. He also discussed a segmented fee based on the length of a boat and a segmented fee based on the age of off-highway vehicles. He discussed a potential revenue loss to Kane County under one of the proposals.

    d.    Comments from County Assessors _ Barbara Kresser, Summitt County Assessor, stated that because camper registration is inequitably enforced and because the lack of revenue from camper registrations, she recommended repealing the registration requirement for campers. David Haun, Weber County Assessor, also spoke in support of repealing the requirement.

    e.    Committee Discussion and Action -- Sen. Dmitrich requested that staff research a comparison of fees or taxes on boats in Arizona, Nevada, and Wyoming.

     MOTION: Sen. Blackham moved to table the issue of taxation of boats and off-highway vehicles. The motion failed.
    
6.    Commercial Waste Facility Issues
    a.    Additional Background Information -- Mr. Howe highlighted for the committee the information regarding the Environmental Quality Restricted Account contained in the handout Environmental Quality Restricted Account. He then explained that the speakers for this issue were asked to present their answers to the questions listed in the document Commercial Waste Fees, Witness Questions.

    b.    Perspectives from the Department of Environmental Quality ("DEQ") -- Diane Nielson, Executive Director, presented to the committee information from the handout Discussion of Commercial Waste Fees addressing the questions from the committee. She explained that the DEQ relies on the revenue generated from waste disposal fees, appropriated from the Environmental Quality Restricted Account, to fund the state portion of the solid, hazardous, and radioactive waste programs. Ms. Nielson recommended that the Legislature not use fees, at their current levels, to fund other new programs or functions, including general state purposes, because the current fees are at levels that meet the needs and expenditures as defined in the law. She said the DEQ monitors fees and revenues on a regular basis and is prepared to make recommendations to the governor and the Legislature if adjustments in fees are needed to appropriately fund these programs. She also recommended the use of weight as an appropriate measure for fees because it is simple and cost efficient to administer . Rep. Short asked Ms. Nielson to provide the committee with additional information regarding the monies expended to administer programs.

    c.    Perspectives from the Commercial Waste Industry:
        (i) Dave Fisher, Utah District Manager, ECDC Environmental / Allied Waste Systems, Inc., distributed The Impact Of State Disposal Fees On The Amount Of Revenues Generated For The State of Utah and Related Issues and ECDC Environmental, More than a landfill. A system. Mr. Fisher explained that the profit margins on nonhazardous, nonradioactive waste is already small and that any increase in the current tax rate could severely impair ECDC's ability to attract business in a highly competitive market. He said the current state tax on all private landfills for municipal solid waste is $.50 per ton while public landfills pay no fee to the state. He recommended that the Legislature require all landfills to pay an equitable fee for the state's costs of regulatory oversight.
                             (ii)        Ken Alkema, Director of Government Affairs, Envirocare of Utah, distributed and presented the material from handouts Envirocare, Key Issues and Supplementary Information Testimony Regarding Fees on Commercial Waste Facilities. He stressed that there is substantial competition for the radioactive wastes Envirocare receives and explained that it should not be compared to facilities that accept wastes with much higher levels of radioactivity. He reviewed the classifications of radioactive waste and the disposal options for each. Mr. Alkema said that while Envirocare supports fees to cover costs of regulation, it is currently paying significant taxes and is opposed to additional tax increases.
                             (iii)    Lowell Peterson, Director of State Relations, Laidlaw Environmental Services, Inc., will make a presentation to the committee at a future meeting due to lack of time.

    d.    Committee Discussion and Direction for Future Action - Rep. Garn asked that staff prepare a comparison of fees on class A hazardous materials.

7.    Other Business _ Chair Nielson reminded the committee that they have been invited to attend TRC meetings. The committee agreed to hold the remaining additional Revenue and Taxation Interim Committee meetings on August 5, October 7, and November 4, at 2:00 p.m. in Room 403.

8.    Adjournment --

     MOTION: Rep. Walsh moved to adjourn the meeting at 12:00 p.m. The motion passed unanimously.