State Supreme Court hears arguments over business tax initiative

Nevada Supreme Court justices grilled attorneys Wednesday in a high-profile case that will put to rest whether 150,000 Nevadans were duped into supporting a business tax initiative that was "incomplete, deceptive, (and) misleading," in the words of a lower court judge who threw out the petition in October.

The Nevada State Education Association, which has pushed the 2 percent margins tax on businesses making $1 million or more annually to support education, appealed the judge’s October decision and made its case Wednesday to the state’s highest court.

"I don’t think anybody is being deceived," argued teachers union attorney Francis Flaherty, responding to a justice’s concern that signatures were obtained with the "hook" that the tax’s revenue would increase K-12 education funding.

"In fact, it may absolutely have no effect (on education funding)," Justice Ron Parraguirre said.

Though the tax’s revenue – estimated at $800 million to $1 billion – would be placed directly into the state’s account supporting public schools, the Legislature could take away an equal amount from its budget that now goes to education and use it for something else – a wash.

Both Flaherty and opposing attorney Joshua Hicks, representing the business group Committee to Protect Nevada Jobs, agreed on the hypothetical wash. What is at issue is whether signers should have been told that.

State law requires the major effects to be described in a petition, but was it the union’s responsibility to disclose that possibility to those asked to sign the petition?

"This should be disclosed to people," Hicks contended. "It absolutely is a hook to get people to vote for it."

But several justices suggested that the listing of hypothetical effects is too much to ask in the 200-word petition limit.

"When do the hypotheticals end?" Justice James Hardesty rhetorically asked. "They just go on forever."

Justice Michael Douglas told Hicks, "You’re presupposing what a future Legislature might do."

But the leading questions of other justices fell in line with Hicks’ assertions that unchanged education funding levels are "a very real possibility" that would have taken away the reason for many signatures. Therefore, the petition is "misleading by omission" and provides "half-truths," Hicks said.

Hypotheticals dominated questioning Wednesday, but one fact also was in dispute for not being explained in the petition. All businesses, even those operating at a loss, would be forced to pay the 2 percent tax, Hicks said.

"Isn’t it ‘material’ that losing businesses still pay?" Parraguirre asked union attorney Flaherty.

Flaherty argued that there is only so much room within 200 words to list effects, and nowhere did the petition claim it was just a "profits tax."

A date was not specified for the release of a ruling.

Chief Justice Michael Cherry said the court would do its best to expedite the case seeing that the Legislature reconvenes Feb. 4.

If the appeal is granted and the signatures verified, the Legislature must immediately take up the tax initiative, giving it precedence above all other legislation. If the Senate and Assembly fail to pass it with a two-thirds majority, the tax initiative would be placed before voters in the 2014 general election.

Contact reporter Trevon Milliard at tmilliard@reviewjournal.com or 702-383-0279.