Judge needs more time to rule on wording of business tax petition

CARSON CITY – After hearing short arguments pro and con on the wording of a petition to impose a 2 percent business margins tax, District Judge James Wilson said Tuesday he needed more time to decide whether to allow it to be circulated without changes.

But Wilson asked many questions of Nevada State Education Association lawyer James Penrose that suggested the petition’s 200-word description of effect must be changed so voters can understand better whether they should sign it.

Wilson questioned why the description did not inform voters that even businesses operating at losses would face the tax. He also asked why the teachers union and the AFL-CIO require in the petition that the names of businesses and the amount of taxes they pay be shown on a Department of Taxation website.

The description of effect is the short summary that voters read before deciding whether to sign a petition.

The two unions must collect 72,324 valid signatures by Nov. 13 to force the Legislature in 2013 to consider adopting the business margins tax – a proposal sought by some Democratic lawmakers last year that went nowhere.

If legislators, as expected, reject the tax proposal, then the matter would be placed before voters on the ballot in 2014. With the margins tax, the unions hope to raise $800 million a year for the state’s public school fund. Unlike a profits tax, only some of the expenses of businesses would be deducted before the tax is levied. The first $1 million in revenue would be exempted.

After the hearing, NSEA President Lynn Warne said public education in the state is being financed at 2003 levels because of legislative cuts in recent years. She said her polling shows voters support by a 2-to-1 margin tax increases that provide a stable source of education funding.

But during the hearing, Reno lawyer Josh Hicks, representing petition opponents, said that there is no guarantee that funds raised by the tax would go to public education.

"These funds can be used for anything," said Hicks, representing the Las Vegas Chamber of Commerce, the Nevada Taxpayers Association, Retail Association of Nevada and other business organizations. "Education funding could go down with this petition."

Warne acknowledged after the hearing that legislators could "back out" funds they now spend on public education and use that money for non-education purposes. But she hopes legislators would not take that step and use both existing funds and money from the new tax to increase education spending.

In response to Wilson’s questions, Penrose noted the petition runs more than 20,000 words and supporters were required by law to summarize its effects in a 200-word description.

"We did our best to express what the petition will do," he added.

Penrose also said that supporters want the public to know what businesses pay in taxes to guarantee there is no tax evasion.

If one business is paying five times the taxes as a similar business, then he pointed "that obviously causes concern" and should be investigated by the state.

Although Wilson took the case under advisement, he probably will make a decision in a few days.

Aware his decision could be appealed to the Supreme Court, Wilson asked lawyers about the deadlines the unions face in gathering signatures.

Warne said after the hearing that her organization has not collected any signatures. If Wilson requests changes, then they may draw up a new petition that reflects the changes Wilson wants and immediately begin collecting signatures, rather than waiting for the Supreme Court.

Hicks and the companies he represents probably would challenge any new petition in court. If either a district judge or the Supreme Courts makes only a one-word change, then any signatures gathered by the unions would be voided.

Contact reporter Ed Vogel at evogel@reviewjournal.com or 775-687-3901.