Years-long legal battle over Opportunity Scholarship growth freeze continues in the Nevada Supreme Court

Jazmin Orozco Rodriguez
Jazmin Orozco Rodriguez
EducationLegislatureState Government
Photo of the top front of the building with the words Supreme Court of Nevada

A scholarship program for students attending private K-12 schools in Nevada is at the center of a tangled legal debate about whether the Legislature’s decision to freeze the program’s growth two years ago ran afoul of a high bar for raising taxes. 

The Nevada Supreme Court heard arguments for nearly an hour on Monday on whether AB458 is unconstitutional. The bill, passed along party lines during the 2019 legislative session with Democrats in favor, froze the Opportunity Scholarship program’s more than $6 million credit cap and eliminated the 10 percent annual increase in tax credits available to the program through the modified business tax (MBT), which is a tax on payroll. Private businesses fund the scholarship program through donations, and receive tax credits in return. 

In the Senate, Democrats were one vote short of attaining a supermajority when they passed the bill. Joshua House, an Institute for Justice attorney representing Nevada families whose children are enrolled in the program, argued that the Legislature needed a supermajority to pass the measure because it generates state revenue. 

“Nevada requires that a bill that creates, generates or increases any public revenue in any form to pass by two-thirds supermajority of each legislative house,” House said during his argument. “When the Assembly Bill 458 was proposed, everybody understood that it was going to be a revenue-generating bill. The bill sponsor repeatedly stated that it was intended to increase tax revenues.” 

Under the “Gibbons Tax Restraint Initiative” added to the Nevada Constitution in 1996, measures that raise taxes require two-thirds approval by the Legislature rather than a simple majority.

House asserted that because participating businesses received fewer tax credits as a result of the eliminated 10 percent annual tax credit increase, that money was funneled back into the state, resulting in revenue generation.

Nevada Deputy Solicitor General Craig Newby countered that adopting the bill did not change a state tax method, and added that as the program is operated through private organizations and funded by private businesses, the state is not responsible for any harm to the plaintiffs in the lawsuit. 

“The tax credits for subsection four (of the Nevada Revised Statutes) remain the same and identical from year to year. They have not changed in any way, shape or form,” Newby said. “They just have not increased indefinitely into the future, as plaintiffs would desire and would prefer as a policy outcome.” 

Newby also questioned whether the plaintiffs had legal standing in suing the state. 

“There must be harm, and those arguments have been addressed in the record, but it must be fairly traced to the actions of the executive defendants,” Newby said. “Respectfully, the actions that plaintiffs, parents, contend have harmed them are fairly traced to the private scholarship organization based on the structure of the statute in the program, not the Department of Taxation, not the Department of Education.” 

Kevin Powers, general counsel for the Legislative Counsel Bureau, also weighed in during the oral arguments and said that the bill created a change in appropriation of funds, not an increase, calling AB458 a “revenue-neutral measure.” 

Powers cited cases from state courts in Oklahoma and Oregon to drive his argument forward. 

“Those courts made clear that their constitutional supermajority requirements did not contemplate that a reduction in tax credits or tax exemptions increased revenue, because the underlying computation base for the tax didn't change the taxable subject,” he said. 

The Legislative Counsel Bureau wrote in an opinion in May 2019 that the supermajority rule did not apply to the bill. 

The legal battle began in August 2019, when Nevada parents and participating program businesses sued State Superintendent Jhone Ebert, the Nevada Department of Taxation and state tax commissioners. A Clark County judge ruled against them, deciding the supermajority provision did not apply to the bill. 

The Nevada Supreme Court has not yet issued a decision on the case. 


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