Legislative attorneys warn payroll tax lawsuit could threaten whole structure of Legislature’s legal system
Attorneys for the Legislature warned that they may be unable to draft bills or provide legal opinions after a judge’s ruling that the agency could not represent individual lawmakers in a lawsuit challenging a continuation of the state payroll tax.
Legislative Counsel Bureau (LCB) attorney Kevin Powers last week told members of the Legislative Commission — an interim body that typically reviews and approves regulations by state agencies — that Carson City Judge James Russell’s decision in November to disqualify the legal division from representing individual legislators in a court dispute over payroll taxes could have a “significant implication” for the ability of the Legislature's nonpartisan lawyers to continue normal operations.
“There’s been a lot of focus on whether or not LCB can represent Senator (Nicole) Cannizzaro and Secretary (Claire) Clift,” Democratic Sen. Julia Ratti said during the meeting. “But the bigger concern is that while we’re all fighting with each other over this one specific issue, we don’t tear down the whole fabric of the nonpartisan LCB legal structure.”
Russell’s order prevented the legal division from representing individuals named in the lawsuit (namely Democratic Senate Majority Leader Cannizzaro and Senate Secretary Clift) but allowed it to represent the institution of the Legislature as a whole, with Russell saying the legal division “shouldn’t be in the middle of this thing representing one state senator against another state senator,” according to the Nevada Appeal.
But Powers said the rationale used by Russell in the order — based on rules of professional conduct for attorneys meant to prevent conflicts of interest — meant that the disqualification of the legal division in the case could apply to “all legal work performed by a lawyer,” which could include drafting bills or offering legal opinions that could be seen as adversely affecting another legislator’s interests.
“It raises a serious question as to whether LCB legal will be able to provide bill drafting and legal opinions to a legislator, if that legal work would be directly adverse to the interests of any other legislator,” he said.
Powers said that the judge’s order would be “binding” unless the commission granted the legal division the ability to pursue an immediate appeal with the state Supreme Court. Lawmakers on the commission approved that motion on a party-line vote.
Republican senators opted not to follow a LCB legal division recommendation to abstain on the vote (all eight members of the Republican caucus are plaintiffs in the lawsuit) because of a potential conflict of interest. Republican Sen. Joe Hardy said he was concerned with the legal division’s advice to not vote on the matter, and the general appearance of following the will of the Democratic majority in the Legislature rather than providing equal advice and access to all members of the body regardless of party affiliation.
“This is a chilling concept that is happening, that one...philosophy can be represented adequately, and another philosophy is screened out and can’t be represented adequately,” he said.
Hardy also raised concerns that Republican lawmakers had received an email from the legal division of LCB advising them not to vote on the matter of appealing a lawsuit (brought by Republican senators) where the senators and LCB were on different sides of the lawsuit. Legislative Counsel Brenda Erdoes said the emails were sent by an LCB attorney not involved in the litigation.
But the simple act of voting could have consequences down the road for Republican senators. Assembly Speaker Jason Frierson, who called the matter a “sad day for our state,” asked legal staff pointedly what the consequences would be for legislators to ignore the advice of legal staff.
The conflict stems from a lawsuit filed by state Senate Republicans in July over a pair of bills — one removing a scheduled decrease in a payroll tax and another extending a $1 per transaction DMV technology fee — passed during the 2019 Legislature with less than a two-thirds majority, constitutionally required for any tax increase.
Legislative Democrats, in part relying on a legal opinion from Legislative Counsel Bureau lawyers, argued that removing a scheduled decrease in a tax rate was not the same as voting to raise an existing tax or enact a new one.
The current payroll tax rate, also called the Modified Business Tax, was set in 2015 as part of a move by former Gov. Brian Sandoval to raise more than $1.1 billion in new and extended taxes for education funding, but included provisions automatically lowering the rate if certain tax sources brought in more revenue than projected.
That “buy-down” was triggered in late 2018 and was set to take effect in July 2019, but Gov. Steve Sisolak and legislative Democrats made maintaining the tax rate a priority and a way to retain tens of millions of dollars in tax revenue, earmarked toward school safety initiatives ($16.7 million), teacher raises ($72 million) and the Opportunity Scholarship program ($9.5 million).
An estimated 22,000 businesses pay the tax, a 1.475 percent payroll tax assessed on businesses with more than $50,000 in taxable wages per financial quarter. Finance and mining businesses pay a 2 percent rate.