Nevada Republican business tax lawsuit on hold

CARSON CITY, Nev. — The Republican lawsuit seeking to rule two tax bills passed by a simple majority unconstitutional is on hold until a judge decides whether LCB Legal can effectively represent the Democrats.

That issue will be argued before Carson District Judge Todd Russell November 19.

Until that question is resolved, both sides have agreed to stay further action in the case.

In the lawsuit filed in July, all eight Republican Senators charge that Democrats violated the Nevada Constitution by passing bills delaying a sunset that would reduce the Modified Business Tax and a similar sunset on the technology fee DMV is using to pay for a new computer system.

While the DMV fee is relatively small, keeping the higher MBT rate will generate generate more than $100 million Democrats and the governor dedicated to K-12 Education.

Article 4 of the Nevada Constitution says a two-thirds vote is required, “to pass any bill or joint resolution which creates, generates or increases any public revenue.”

SB551 and SB542 were passed 13-8 in the Senate, one short of that mark.

But progress toward a hearing on the issue came to a halt after Legislative Counsel Brenda Erdoes filed documents September 16 that the Republicans argue makes LCB the counsel for Senate Democrats.

That prompted an October 24 motion by the Republican plaintiffs to disqualify LCB Legal as counsel for Senate Democrats.

Republicans led by Minority Leader James Settelmeyer of Gardnerville argue LCB can't represent one group of lawmakers against another.

“It is a violation of an attorney's ethical duty to represent a client if a conflict of interest exists,” the motion to disqualify states. “LCB is statutorily required to represent the Legislature as a whole and members of the Legislature cannot represent one member of that legislative body against another in an adversarial action. LCB's representation of defendants Cannizzaro and Clift is directly adverse to the Plaintiff senators in this action.”

They argue LCB Legal must be disqualified as counsel for the legislative defendants, “because a concurrent conflict of interest exists in violation of the Nevada Rules of Professional Conduct.”

LCB Chief Litigation Counsel Kevin Powers on November 6 officially filed a brief arguing that LCB has the absolute right to intervene on behalf of the Legislature.

“The statute confers an unconditional right to intervene when a party in any action or proceeding alleges that the Legislature has violated the Nevada Constitution or alleges that any law is invalid, unenforceable or unconstitutional,” he wrote.

Powers also pointed out that the Legislature, “has substantial interest in the subject matter of this case, which may be impaired if the Legislature is not permitted to intervene and which may not be adequately represented by existing parties.”

The issue was raised after LCB was asked during the 2019 Legislature whether the two-thirds requirement applied to, “a bill which extends until a later date — or revises or eliminates — a future decrease in or future expiration of existing state taxes when that future decrease or expiration is not legally operative and binding yet.”

“LCB concluded that such a bill did not need the required constitutional two-thirds majority,” according to court documents in the case.

Republicans warned at the time that, if the majority used that opinion, the issue would wind up in court.

Senate Democrats say overturning those pieces of legislation would strip more than $100 million from the K-12 budget.

Ironically, Nevada's treasury contains more than enough excess cash to cover the money that would be lost if Republicans win the lawsuit.