State Supreme Court temporarily blocks lower court ruling, will hear appeal on decision over legislative attorneys role in payroll tax lawsuit

The Nevada Supreme Court agreed to temporarily block a lower court’s ruling prohibiting state legislative attorneys from representing individual lawmakers in a major lawsuit over payroll taxes and will hear oral arguments on the case next month.

In an order issued Friday, the seven-member court granted a stay blocking implementation of Carson City District Court Judge James Russell’s order preventing the Legislative Counsel Bureau from representing individual lawmakers in a payroll tax lawsuit — filed by Republican state senators challenging a 2019 bill that removed a scheduled decrease in the state’s payroll tax rate without a two-thirds majority usually required for any change in taxes.

The court also scheduled 30-minute oral arguments in the appeal for Feb. 11 in Las Vegas.

The order itself comes after the interim Legislative Commission — which typically reviews and accepts regulations by state agencies — voted along party lines in late December to file any and all appeals deemed necessary to appeal the lower court’s order. Legislative Counsel Bureau (LCB) attorneys told lawmakers that if Russell’s order stood and was not appealed, it could raise “serious questions” as to the agency’s ability to draft bills and perform legal work for state lawmakers.

LCB attorney Kevin Powers wrote in his appeal to the state’s highest court that the District Court made a “manifest abuse of discretion” in disqualifying the LCB from representing individual lawmakers in the case, saying that his rationale of relying on rules of professional conduct for attorneys could threaten the structure and operations of the Legislature’s nonpartisan legal staff.

He also claimed in the appeal that the Republican senators who filed the initial lawsuit made a “calculated and tactical litigation decision” to name individual lawmakers in the lawsuit despite them not being “necessary parties” as a way to “intentionally (introduce) the conflict of interest into this litigation.”

“Under such circumstances, the Plaintiff Senators cannot complain of a conflict of interest that they intentionally introduced into this case by naming the Legislative Defendants in their official capacity when the Plaintiff Senators were not required to do so in order to litigate their claims,” he wrote in the appeal.

Attorneys for the Republican senators wrote in a response that a stay would “unnecessarily” delay the court case and that the LCB’s work as attorneys for each individual lawmaker created a confidential relationship that should require them to not be involved in any litigation between lawmakers:

“Because their legislative counsel refuses to honor its ethical obligations, the Court must protect Real Parties in Interest Senators’ legitimate expectations of loyalty in this instance and uphold the district court’s order disqualifying legislative counsel to avoid undermining public confidence in the legal profession and the judicial process.”

A ruling on whether or not attorneys employed by the legislative branch can represent legislators in a legal action brought by other legislators would not resolve the initial conflict,  brought 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, which is constitutionally required for any tax increase. 

Relying on a legal opinion from Legislative Counsel Bureau lawyers, legislative Democrats 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 state’s current payroll tax rate was set in 2015 as part of a move by Gov. Brian Sandoval and lawmakers to raise $1.1 billion in new and extended taxes for K-12 education funding, but included a provision allowing the rate of the payroll tax — also called the Modified Business Tax — to automatically decrease if newly created taxes outperformed projections. 

The automatic buy-down was triggered in late 2018 and scheduled to take effect in July 2019, but Gov. Steve Sisolak and legislative Democrats opted to try and maintain the tax rate, setting up an 11th-hour showdown that saw state senators on the last day of the legislative session vote along party-lines to maintain the tax rate. The bill keeping the tax rates constant also earmarked tens of millions of dollars in tax revenue toward school safety initiatives ($16.7 million), teacher raises ($72 million) and the Opportunity Scholarship program ($9.5 million).

Senate Republicans countered that most of those expenses could have been covered through existing revenues, or by not spending $55 million in a last-minute spending blitz.

NV Supreme Court Stay LCB Payroll Tax by Riley Snyder on Scribd