Commerce tax repeal likely dead after Supreme Court ruling

The Nevada Supreme Court dealt a potentially deadly blow to efforts to repeal the state’s new commerce tax today, ruling that the description included in the petition is misleading and signatures collected thus far must be thrown out.

That gives a group led by state Controller Ron Knecht just more than a month to re-write the petition’s description and start over in gathering the required 55,233 valid signatures by the June 21 deadline, a virtual impossibility at this point.

The ruling comes as a relief to opponents of the tax, who sued to prevent it from going to the November ballot. The group — which dubbed itself the Coalition for Nevada’s Future, comprised of gaming, mining, labor and business interests — feared losing no matter the outcome if the repeal appeared on the ballot. Under Nevada law, if voters approved the repeal, the tax would be erased. But if voters rejected the repeal, the tax could not be changed — even in the smallest detail — in the future without another vote of the people, a hurdle that would have proven difficult to meet.

Although the court ruled that the form of the petition was valid — organizers simply reprinted the relevant text from the 2015 bill that established the commerce tax — it concluded that the 200-word description of effect was not. Because the petition would have cost state coffers nearly $75 million in the next two years, and even more going forward, voters should have been told that voting yes on repeal would result in an unbalanced state budget.

“But nowhere does this description reveal the significant practical ramifications of the measure’s disapproval,” six of the court’s seven justices wrote. “Eliminating the commerce tax thus will unsettle the balanced budget for this biennium, fiscal years 2015/16 and 2016/17, causing financial uncertainty for the government, and thus the people, of this state.”

And, the court majority added, “the description of effect makes no mention whatsoever of this critical consequence. Accordingly, we conclude that the referendum’s description is deceptive for failing to accurately identify the practical ramifications of the commerce tax’s disapproval, and any signatures obtained on petitions with this misleading description are invalid.”

Justice Nancy Saitta went even further in a brief concurring opinion: “I write separately to point out that by ignoring the significant effect the referendum would have on the balanced budget mandate, the description of effect suggests that no such effect exists and is thus materially misleading,” she wrote. “As a result, the petition’s signers have been both deceived and misled.”

Attorney Matt Griffin, who argued the case in front of the court on May 2, said the ruling reaffirms several precedents that require petitions to level with the voters about their true effects.

“We’re very pleased with the Supreme Court’s decision today,” he said in a statement. “We’ve argued all along that the RIP Commerce Tax petition would have grave and lasting consequences to the state of Nevada, and that the proponents of this measure were deceiving Nevadans about what they sought to accomplish. The state’s high court agreed with us today and ordered the proponents of this petition to be honest with Nevadans about their intentions. The referendum unbalances the state’s budget and takes money from Nevada’s education programs, and the Supreme Court has ruled the proponents cannot hide from these real and inevitable consequences. Nevada’s parents and school children can celebrate today’s decision, the referendum is invalid and can’t go forward in its current form.”

The ruling sends the case back to the District Court in Carson City so the petition can be re-written to comply with the high court’s mandate. The case is Coalition for Nevada’s Future v. RIP Commerce Tax, Inc., No. 69501. You can read the 10-page ruling for yourself here.

UPDATE: Gov. Brian Sandoval, who pushed for the commerce tax as part of his education reform package in 2015, praised the Supreme Court’s ruling in a statement. “I appreciate the Nevada Supreme Court for moving quickly to resolve this important issue,” he said. “The sponsors of this referendum owed it to the voters to explain the effect signing this petition would have on the state budget and most importantly, students and classrooms across Nevada. This decision is a victory in the fight for transparency and a citizen’s right to accurate and truthful information.”

Sandoval and Knecht had earlier exchanged words over the effects of the commerce tax repeal, with the governor challenging the controller to explain where cuts would be made if the tax was repealed. Knecht promised to produce a list of cuts.

But at the same time, Knecht has insisted the Legislature could make up for the cuts that would have taken place had the referendum passed.

In the meantime, the court’s ruling contains several other notable things.

1. The form of the petition passes muster. Griffin had contended that the petition was unconstitutional because referendums are allowed only on “statutes,” and the RIP Commerce Tax authors had instead inserted the language of a Senate bill. Griffin contended that a bill is not a statute, and that it was easy to comply with the language of the constitution by identifying specific statutes that voters could be asked to repeal.

But the court disagreed. “…the petition is not infirm for referring a senate bill, as the senate bill became a statute when signed into law by the governor on June 9, 2015.” Justices noted that the Nevada Legislative Manual defines a “statute” as “a bill passed by both houses and approved by the governor….”

Griffin had also contended that, by referring the exact text of the Senate bill — complete with strikethrough text and bolded text to indicate what sections of law were being removed and what sections inserted — voters could be confused as to precisely what they were repealing. Again, the court disagreed.

“When read as a whole, it is sufficiently clear that the petition is referring SB 483 to the voters for approval or rejection of the commerce tax, and the Nevada Constitution requires no particular form for a referendum petition, except that it include the full text of the proposed measure, as this petition does,” the ruling reads. This ruling, then, could be used as a guide for future tax-repealers to submit a petition that might pass legal muster.

2. At least one important question is still unresolved. Griffin, in his attack on the petition, contended that it was unconstitutional because it unbalanced the state budget, and the Legislature is required to balance the budget every biennium. That requirement is also a burden borne by the people, if they seek a change in law through initiative or referendum that results in an unbalanced budget. Petitioners who do so must also be required to specify how the budget may be brought back into balance, either through cuts or alternative revenue.

The court declined to rule on that issue, saying the question was premature. “While we may consider a pre-election challenge to the description of effect under NRS 295.009(1)(b), we may not review a pre-election challenge to a referendum’s substantive constitutionality, including whether the referendum violates Article 9, Section 2(1) of the Nevada Constitution [i.e. the balanced budget requirement] by unbalancing the state budget, because it is not ripe.”

That means even if the referendum had passed muster, gathered enough valid signatures and been approved by the voters, it still may have been rejected on constitutional grounds after the election. And that could mean future petitions that seek to repeal taxes and result in an unbalanced state budget could be vulnerable to the same attack.

UPDATE: Knecht, aided by a Koch brothers-funded group, says he’s not ready to surrender just yet. “We’re working with them [Americans for Prosperity] to determine the probability of success if we have to go the new petition route,” Knecht said. Given the tight deadlines, the number of signatures required, and the demonstrated competence of the organizers, success does seem quite out of reach.