Lawyers for the Nevada State Education Association filed their response Monday to the court challenge of their business tax initiative, contending that the arguments to bar it from the ballot are misplaced and, in one case, "specious."
The initiative petition demands that lawmakers impose a 2 percent business margins tax on all businesses in Nevada including professionals such as lawyers, architects and engineers. The tax attempts to generate at much as $800 million a year for K-12 education.
But a group representing a variety of Nevada businesses challenged the tax as "deeply flawed and misleading," saying it would allow a decrease in classroom funding.
"Quite clearly, this initiative is designed solely to increase general tax revenues and to take advantage of citizens' concerns about education in order to mislead them into signing the petition and, later, into voting for it," said Josh Hicks, lead attorney for the challengers.
He asserted that the petition improperly addresses more than one subject, in violation of Nevada's single-subject initiative petition statute; that its 200-word description of effect doesn't inform voters of the effects and consequences of the petition; and that it would effectively allow the money to be taken to support any state program, not just K-12 education.
But lawyers Jim Penrose and Mike Dyer, representing the teachers' union, argued in their response that the petition is actually simple, doing nothing more than imposing a margins tax on businesses.
"The initiative is no more ambitious and no more complex than that. It does not attempt to mandate that overall funding for the schools be increased or maintained at some specified level. Nor does it attempt to prohibit the Legislature from using the revenue generated by the new tax to replace (supplant) sources of revenue now being used for the support of schools, they wrote, adding that that would "likely require a constitutional amendment."
They also argued that the description is designed as a summary for voters and can't possibly explain everything the petition contains and would do.
The petition would charge the 2 percent either on 70 percent of a business's total revenue or on total revenue minus the cost of goods sold and expenses, including compensation to owners and employees.
If enough signatures are gathered and the legality of the petition is upheld in court, it would be presented to the 2013 Legislature to impose the tax as written. If lawmakers refuse to do so, the issue would go on the next general election ballot in 2014.
The issue that has doomed several previous petitions is the single-subject requirement. Opponents of the tax argue that, by adding a new chapter and amending 23 chapters of state law, the petition violates that requirement.
The union response, filed Monday, says the petition is clearly one single subject because all it does is impose a margins tax on business and provide the necessary mechanisms for collecting it. It says all the provisions in the initiative are "functionally related and germane to the implementation of the margin tax" and therefore not separate subjects.
The response also rejects the concern that the money could be taken for other purposes, saying it clearly goes to the General Fund Distributive School Account. But the response admits that existing school funding could be redirected and used elsewhere - something that can't be prevented without a constitutional change.
The response rejects the argument that imposing the margins tax on sole proprietors amounts to a personal income tax, which is prohibited in Nevada's Constitution. It points out that people not engaged in a business are exempt.
Also exempt are entities with total revenue of less than $1 million a year, as well as credit unions and nonprofit corporations. Casinos are also exempted, since net gaming revenue is already taxed at a maximum 6.75 percent.
It described as "specious" the notion that the Taxation Department could take a huge chunk of the revenue for its own purposes, because the petition language allows taxation to keep only an amount sufficient to cover costs of administering and collecting the tax.
Business entities objected to the language requiring Taxation to disclose the names of the businesses paying and the amount paid each year. Dyer and Penrose, the lawyers for the teachers' union, said that's necessary because "members of the public and other taxpayers have a clear and legitimate interest in knowing what has been paid or not been paid and by whom." That requirement, they argued, would help ensure that the tax operates fairly and that businesses under-reporting their income or failing to pay are found and prosecuted.