Of Note Nevada

PAC Registration and Magic Words

Nevada is in the midst of one of the first high-profile election law cases since the United States Supreme Court decided Citizens United v. FEC.  A Virginia corporation called Alliance for America's Future aired a pro-Brian Sandoval ad in Nevada.  (There is nothing to suggest the group is affiliated with the Sandoval campaign).  The Nevada Secretary of State filed suit and obtained a temporary restraining order.

In Citizens United, an outright ban on corporate expenditures on political advocacy was overturned.  However, the Court left reporting and disclosure requirements in place.  In the Alliance matter, the Nevada Secretary of State alleges that the Alliance violated the law by failing to register as a PAC before airing its advertisement.  It's a bit different from the underlying issue in Citizens United because there is no outright ban on airing political advertisements, but instead there is a rule that groups such as Alliance who engage in such activity must register as a PAC and disclose certain information, including contributors to the PAC.

Regardless, the main defense raised by Alliance doesn't turn on whether disclosure and registration itself is unconstitutional.  Instead, the Alliance argues that registration and disclosure are only required by Nevada law if the Alliance engaged in "express advocacy."  Although it seems obvious that any Nevadan paying even remote attention to politics would realize that the ad is intended to support Sandoval's gubernatorial candidacy, the Alliance cites to numerous published cases holding that express advocacy requires certain "magic words" like "elect," "vote for," support," etc.  And because the ad carefully avoided the use of such "magic words," the Alliance argues that it cannot be required to register as a PAC.

So what does it mean in terms of ramifications?  After Citizens United, non-Nevada groups already have the ability to spend money to influence elections here.  If the Alliance or Secretary push the present dispute to the Nevada Supreme Court and the Alliance prevails, those groups will also be able to avoid registration and disclosure requirements by carefully phrasing the language in their advertisements.  To some, such a result is cause for dismay as relatively-anonymous corporate dollars would be used to influence elections.  To others, it would be cause for rejoice as individuals and corporations would face less obstacles to expending their money to engage in political speech.  And to others, it won't really matter one way or another because those who want to spend money on elections will generally find a way.

The Impact of Apathy

An interesting article appeared today in the Reno Gazette Journal regarding voter turnout. According to the article, in 2008 there was a 59.9% voter turnout in the general election, the 10th worst state turnout in the country.  The 2008 primary turnout was even lower, with only 17.97% of registered voters casting a ballot.  I don't know where that stands in terms of state rankings, but it sounds dismal.

In 2010, the results of several primary races will almost certainly decide the results of the general election.  In the Governor's race for example, polling shows Rory Reid defeating Jim Gibbons in the general election, but losing to Brian Sandoval.  As a result, both Gibbons and Sandoval continue to tack to the right in an attempt to cater to primary voters.  The same phenomenon is occurring in several other races (and of course has always been the case in primary elections).  Taking extreme positions in order to survive a primary election can have consequences in the general election, when more moderates and independents head to the voting booths.

In terms of voter choice in the general, what this means is that the choices available to general election voters may not be much of a choice at all.  Although over half of voters may cast a vote in the general, their options have already been limited by votes cast by less than 1 out of every 5 voters.

Senate Candidate Debate

Earlier today Nevada Newsmakers hosted a raucous and informative debate with the Republican candidates for state Senate District 4.  The seat, located in a heavily Republican district, is open as the incumbent Senator Randolph Townsend is term-limited.  You can watch the debate at www.nevadanewsmakers.com.  It provides some good insights into the platforms and personalities of the various candidates.

Now What?

As all remain hopeful that the recent special session will keep the state budget in the black through the biennium, the looming problem of a budget deficit that could reach $3 billion (around 50% of the general fund ) in the next biennium inches closer.  Anjeanette Damon wrote a comprehensive overview of the situation here.

The stimulus crutch will be gone, and most of the temporary tax increases from the 2009 session are set to expire.  The fiscal problem facing the state is severe and the solutions that come out of the 2011 session will surely reverberate for years.  Going into an election year, candidates are loathe to discuss specific ways to solve the problem, as nearly all solutions will be difficult and unpopular.  Other states have enacted a variety of solutions, including tax increases and spending reductions, to solve their budget problems. 

But the sheer magnitude of the upcoming deficit in Nevada means even a combination solution will require dramatic action on both the spending and revenue fronts.  Consider that the two largest tax increases in Nevada history occurred in the past decade, each being around $1 billion.  Another tax increase of that size would only go to about 1/3rd of the budget deficit.  Consider also that the SAGE Commission recommendations are estimated to be $2 billion.  And given that much of the SAGE recommendations are long-term savings, even implementing every recommendation in the next biennium (which is impossible anyway) will not solve the budget shortfall.

With respect to existing revenues, the state is projecting general fund revenues of approximately $2.7 billion for the 2011-2013 biennium.  In terms of actual dollars, that equates to revenues received in the 1995-1997 biennium.  In terms of dollars adjusted for inflation, it's equivalent to revenues received in the 1989-1991 biennium.  (Information courtesy of the Nevada Department of Administration).

In hopes of an economic turnaround, the state has swept nearly every reserve fund possible in forestall further cuts to operating expenses.  While this action has allowed the state to keep it's budget balanced for the current biennium, it leaves a significant funding cliff for 2011-2013.  The budget decisions that seemed so contentious and difficult in 2009 and 2010 will likely seem easy compared to what is to come in 2011.

Of Note Nevada Now On Twitter

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The Bigger Question in the Health Care Debate

The vigorous debate on the health care bill has largely focused on policy.  Questions such as whether the bill will help or hurt and how expensive it will be for Americans are important and strong arguments have been made on both sides.  But there is a deeper more fundamental question on the bill that has little to do with policy and more to do with the scope of Congressional authority.

One aspect of the health care bill in particular brings this question to light.  The bill includes a mandate, effective in 2014, that Americans obtain health insurance or face monetary penalties.  This part of the bill was enacted by Congress under the authority of the Commerce Clause of the United States Constitution.   While the scope of Congressional authority under the Commerce Clause is undoubtedly broad, some legal scholars have opined that Congress has exceeded the limits of their power with the insurance mandate. 

The analysis goes like this.  The Commerce Clause has traditionally been used to regulate economic activity of an interstate nature.  For example, Congress has passed legislation limiting the amount of wheat that a farmer could grow in an attempt to avoid wheat surpluses.  That legislation was upheld under the Commerce Clause because farmers were willing participants in the wheat industry, and wheat prices had national economic impacts.    Congress has also used the Commerce Clause to pass legislation regulating the growth and possession of home-grown marijuana for personal medical use.  As with the wheat legislation, the marijuana legislation was upheld because it regulated a class of willing participants engaged in the production of a tangible good.

Critics of the health care bill point out that the difference with the insurance mandate is that instead of regulating economic activity, Congress is attempting to regulate economic inactivity.  In other words, Americans will be required to enter into private contracts with insurance companies not because they are willing participants in a particular economic industry, but because they happen to be Americans.  

Those critics point out that if there is a justification under the Commerce Clause for such legislation, there are effectively no limits on what Congress can do under the Commerce Clause.  For example, could Congress seek to stimulate the economy by passing a law that every American must buy a new car or face a monetary penalty?  It might sound far-fetched but it's a similar Commerce Clause rationale as the insurance mandate.   

At the end of the day, and despite how one feels about the policy of the health care bill, the legislation raises fundamental questions about the limits of federal power.  The answers to those questions hold significant ramifications for Americans both today and tomorrow. 

Who Can Represent the Governor in a Lawsuit, Redux

With the passage of the health care bill, the Governor has renewed his call for the Attorney General to file suit to challenge the legality of the bill.  Earlier in this blog, I wrote a post about what might happen if the Governor demanded the Attorney General file a lawsuit and the Attorney General refused.  Now that the health care bill has been signed into law and other states have already filed legal challenges and the Nevada Attorney General has refused to comply with the Governor's request that Nevada join in the litigation, that question deserves further scrutiny.

You can see a copy of the primary legal challenge to the health care bill here.  Thirteen states joined in this lawsuit, and you can see that the plaintiffs are each respective state "by and through" their Attorney General.  The case was filed in a Florida federal court.  Another case is pending in Virginia.

NRS 228.110(2) says that ""[n]o officer, commissioner or appointee of the Executive Department of the Government of the State of Nevada shall employ any attorney at law or counselor at law to represent the State of Nevada within the State, or to be compensated by state funds, directly or indirectly, as an attorney acting within the State for the State of Nevada or any agency in the Executive Department thereof unless the Attorney General and his deputies are disqualified to act in such matter or unless an act of the Legislature specifically authorizes the employment of other attorneys or counselors at law."   (emphasis added).

Because the litigation in which the Governor wants to join is pending outside of Nevada, the general prohibition on hiring outside counsel in the statute may be inapplicable.  In that case, the Governor could be within his legal authority to utilize outside counsel to join in the pending litigation over the health care bill, so long as that litigation is conducted outside of Nevada.  On the other side of that argument however, NRS 228.110(1) says that the Attorney General is the legal adviser on "all state matters arising in the Executive Department," which could be interpreted to mean that only the Attorney General can represent the state outside of Nevada.  The issue is uncharted legal territory in Nevada, and it will be fascinating to see how this one unfolds.

On the political side of the issue, the Georgia Attorney General is facing talk of impeachment after he refused a similar order to file suit from the Georgia Governor.  You can read about it here.  Governor Perdue has since talked about hiring outside counsel to represent the state.  The Nevada Attorney General will likely catch similar political heat over her decision in the months to come.

The Internet Tax

The Governor's callfor the recent special session asked that the Legislature consider extending the use tax to online vendors.  The Legislature did not take action on this issue. 

Currently, online vendors without a nexus in Nevada are not required to remit sales or use taxes to Nevada and consequently the purchasers of goods from those vendors do not pay the tax either.

The use tax in Nevada is commonly misunderstood in its application.  The use tax is a compliment to the sales tax.  The sales tax is due when tangible goods are sold in Nevada and is paid by the customer to the retailer who in turn pays the state.  However, when tangible goods are sold from outside of Nevada (and in some other circumstances), such as in an online transaction, the retailer has no legal obligation to pay the state and therefore does not require payment from the customer.  But that does not mean the tax is not owed.  In those situations, the customer directly owes the state the use tax on those goods.  However, because the use tax in this situation is only collected if self-reported by customers, and because enforcement is effectively impossible, many use taxes go unreported and uncollected.  Moreover, many Nevadans are simply unaware that they even owe the state a tax in these situations.

Under the interstate commerce clause of the United States Constitution, states have generally been prohibited from taxing out of state vendors without a nexus in the state.  However, with the recent budget shortfalls across the country states have been more aggressive about trying find ways around that prohibition and to impose use taxes on out of state vendors.  In several states, rather than litigate against such rules, online vendors have simply terminated relationships with in-state affiliates, which has the negative effect of shutting down business for those affiliates.  The vendors thereby eliminate any potential nexus with the state and are able to avoid taxation under the interstate commerce clause.   

Some legislators in Colorado are trying a new tactic.  Instead of requiring online vendors to collect and pay the tax, the proposed legislation would require online vendors to turn over a list of customers and purchases to the state taxing authority, and to provide those customers with a tax invoice showing what they owe on their purchases.  Presumably, the taxing authority would then proceed to collect directly from those customers or alternatively, the online vendor would instead collect and pay the tax as a matter of convenience to its customers.  If that legislation proceeds, it could become a model used by other states looking to shore up declining sales and use tax revenues.  But, the streamlined sales and use tax act under consideration by Congress could accomplish the same result, and in a much cleaner and more uniform manner.  It will be interesting to see if the Colorado legislation gains any steam as Colorado's legislative session goes on. 

Another Special Session?

One instance of action and one of inaction at the recent special session may be grounds for another special session in 2010.  At the session, the Governor and Legislature approved the transfer to the general fund of approximately $62 million from a fund designed to build a wastewater pipeline in Clark County in order to help with the budget crisis.  Now, multiple groups who have either paid into that fund or oversee that fund have filed lawsuits against the state to prevent the transfer of those funds.  Jon Ralston has copies of the lawsuits here.  If those lawsuits are successful, it would create a $62 million dollar hole in an already tenuous patchwork of budget solutions.

Inaction by the Legislature may also result in a further special session.  The Governor asked that the Legislature consider a clarification of water law in response to a recent water decision from the Nevada Supreme Court that could jeopardize long-existing water applications.  The Legislature focused its energies on the budget solution and did not address the water case.  However, numerous water rights advocates, including former state engineers, testified yesterday in favor of another special session to address the issue.  You can read Cy Ryan's account of yesterday's hearing here.  Further hearings will likely be held and ultimately a formal recommendation from the state engineer will be presented to the Governor.

The odds of a special session happening anytime soon, however, are likely remote.  Because of the prohibition on fund-raising before, during and after a special session, and because of the many heated primary races, there will likely be little appetite to go back into special session until after the June primaries at the earliest.

Tax Amnesty

The recent legislative special session resulted in some good news for Nevada taxpayers in the form of a tax amnesty program to be implemented this summer.  Details are below:

Nevada Taxpayers Receive Relief from Penalties and Interest on Outstanding Taxes

On March 12, 2010, the Governor of Nevada signed Assembly Bill 6. One section of the bill enacts a new tax amnesty program in Nevada, allowing for the waiver of all penalties and interest on certain outstanding Nevada tax liabilities in exchange for full payment of the tax due. Applications for amnesty will be accepted from July 1, 2010 to October 1, 2010.

The Nevada Department of Taxation has not yet declared what tax liabilities will be covered by the amnesty program. However, it appears that the covered taxes will likely include:

• sales and use taxes;
• modified business taxes (i.e. the payroll tax);
• certain aviation and motor vehicle fuel taxes;
• net proceeds of minerals taxes (i.e. the mining tax, which also applies to geothermal projects);
• the financial institutions tax;
• certain live entertainment taxes;
• liquor and tobacco taxes;
• estate taxes;
• generation skipping transfer taxes;
• city-county relief taxes;
• certain taxes for special purposes; and
• certain infrastructure support taxes.

This tax amnesty program will be broader in scope than a prior amnesty program implemented in 2008. The 2008 amnesty program covered only sales and use taxes, modified business taxes, city-county relief taxes, certain special purposes taxes and certain infrastructure support taxes.

The amnesty program will apply to any business or individual owing the covered taxes in Nevada, regardless of whether that business or individual is still doing business in Nevada. The program applies to any covered taxes that were due and payable before July 1, 2010.

Certain restrictions apply to taxpayers who have already entered into settlement agreements or offers in compromise with the Nevada Department of Taxation.

This document is intended to provide you with general information about issues related to Nevada Assembly Bill 6. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorney listed below or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

Joshua J. Hicks jhicks@bhfs.com T 775.850.5851

Reno Office 9190 Double Diamond Parkway Suite 128 Reno, NV 89521-4842 T 775.850.5850