Will Fernley Revive Tax Reform? (?!!)

My goodness, it feels like we've been riding a roller coaster this year when it comes to the whole matter of "The T Word". Ever since the year began, we've seen so many up's and down's with it. First, Kermitt Waters shook things up with his controversial tax initiative. Then, the AFL-CIO made some noise about its own margin tax initiative. Then, Monte Miller's coalition started winning some legal battles.

And then, Brian Sandoval seemingly sucked all the political air out of the tax reformers' room by making his own big move on the 2009/2011 "sunset taxes". But then, a couple Legislature candidates started having some "candid moments" that reignited the conversation. And then last week, Brian Sandoval didn't really have to do anything, as the AFL-CIO's fledgling margin tax coalition looked to be falling apart.

However, is "The T Word" about to cause trouble for Brian Sandoval yet again? And is it about to come from the unlikeliest of places? Yes, believe it or not, the City of Fernley has filed a federal law suit against the State of Nevada and Nevada State Treasurer Kate Marshall (D) (because she handles the state's finances). Why? Well, you have to read this to believe it.

The city of Fernley has filed a lawsuit against the state of Nevada and Treasurer Kate Marshall, alleging it has been shorted on tax proceeds while it has grown during the last decade and a half, raising an issue that could very well affect other municipalities.

The suit is over the so-called Consolidated Tax (nicknamed the "C-Tax") that has been the subject of much legislative wrangling during the last few sessions. It is an amalgam of taxes distributed to local governments.

Here's the nub of the suit: "Despite experiencing population growth of approximately 250% since the C-Tax system was established, Fernley’s current C-Tax distributions are not significantly different from what it received as an unincorporated town in the late 1990s."

The suit lays out stunning comparisons to other cities and says Fernley has been "rebuffed" by lawmakers, who have not given the issue a meaningful vote.

So Fernley is actually claiming that the state is violating both the 14th Amendment of the US Constitution (equal protection under the law) and Article 3, Section 1, of the Nevada Constitution (separation of powers) by giving the city only $143,143 of C-Tax revenue last year when other cities of comparable size receive far more. (Elko received $11,015,989, while Boulder City received $7,935,323.) Fernley also argues that the state is violating Article 4 (Sections 20 & 21) of the Nevada Constitution by developing a system like the C-Tax that collects taxes and distributes revenue in an unequal and unfair manner. These are some serious allegations here.

And if somehow Fernley succeeds in declaring Nevada's C-Tax system unconstitutional, then it may set a major precedent... And perhaps reshape Nevada's entire tax code. Think about it. The Nevada Supreme Court already rebuked the Legislature for the infamous Clean Water Coalition money grab in 2009 because it was considered an unequal and unfair tax. So actually, there may already be a precedent at the state level for the federal courts to look at. And if this suit succeeds, then it may end up punching a huge hole in the state budget structure that can't be filled by another gimmick "quick fix".

So what will the Legislature and the Governor do if this law suit "grows legs"? Will Brian Sandoval really be able to push aside all that "crazy talk" of tax reform, after all? If the current C-Tax system is blown up by federal courts, then the state will have to create some sort of alternative going forward.

It's strange. So far this year, there have been plenty of twists and turns that have threatened to kill talk of imminent progressive tax reform. Yet just as all hopes progressive tax reform are about to die, something else emerges that seemingly brings them back to life. Will Fernley's law suit do the trick, just as the Clean Water Coalition law suit forced Sandoval to deal on the state budget last year?