Sierra Pac. Power v. State, Dep't of Tax.

130 Nev., Advance Opinion 13
IN THE SUPREME COURT OF THE STATE OF NEVADA
SIERRA PACIFIC POWER COMPANY No. 61193
AND NEVADA POWER COMPANY,
JOINTLY DOING BUSINESS AS NV ;:7•1191
ENERGY, AIM
Appellants,
vs. DEC 0 4 2014
THE STATE OF NEVADA
DEPARTMENT OF TAXATION; AND
CLARK COUNTY,
Respondents.
Appeal from a district court order granting in part and
denying in part a petition for judicial review of an administrative order
that denied a use tax refund. Second Judicial District Court, Washoe
County; Janet J. Berry, Judge.
Affirmed.
John S. Bartlett, Carson City,
for Appellants.
Catherine Cortez Masto, Attorney General, and Gina C. Session, Senior
Deputy Attorney General, Carson City,
for Respondent State of Nevada Department of Taxation.
Steven B. Wolfson, District Attorney, and Paul D. Johnson, Deputy
District Attorney, Clark County,
for Respondent Clark County.
Norman J. Azevedo, Carson City; Jones Day and Charles C. Read, Los
Angeles, California,
for Amicus Curiae Southern California Edison Company.
Reese Kintz Brohawn, LLC, and Ryan W. Herrick, Incline Village,
for Amicus Curiae Council on State Taxation.
BEFORE THE COURT EN BANC.
OPINION
By the Court, HARDESTY, J.:
Appellants Sierra Pacific Power Company and Nevada Power
Company, doing business jointly as NV Energy, bring coal into Nevada to
produce electricity. Pursuant to NRS Chapter 372, NV Energy pays a use
tax for its coal consumption. NRS 372.270 exempts from the use tax the
sale, storage, or use of the proceeds of Nevada mines. The district court
found, and the parties do not dispute on appeal, that NRS 372.270's tax
exemption for locally mined minerals violates the dormant Commerce
Clause of the United States Constitution, which prevents states from
unlawfully discriminating against interstate commerce. We therefore do
not consider the lawfulness of the statute as a whole, but instead limit our
review to the two primary issues raised in this appeal—whether the
offending language in NRS 372.270 is severable and whether NV Energy
is entitled to a remedy.
We conclude that NRS 372.270 is not severable because it is
clear that the legislative intent of the statute was to protect local mines,
and thus, the district court properly refused to extend the exemption to all
mine and mineral proceeds. Violations of the dormant Commerce Clause
are remedied by compensating for the negative impact to the claimant as
measured by the unfair advantage provided to the claimant's competitors.
SUPREME COURT
OF
NEVADA
2
(0) I947A
See McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, Dep't of Bus.
Regulation of Fla., 496 U.S. 18, 31, 40-41 (1990). But because no
interstate discrimination actually occurred here and NV Energy
demonstrated no deprivation as a result of the statute's enforcement, we
further conclude that NV Energy is not entitled to a refund.
FACTS AND PROCEDURAL HISTORY
NV Energy owns and operates electricity-generating plants in
Nevada, two of which are at issue, and both of which it fuels with coal. If
NV Energy had obtained the coal it needed from Nevada mines, the coal
would have been subject to taxation under NRS Chapter 362, which
governs the taxation of Nevada mine and mineral proceeds and would be
exempted from Nevada's sales and use tax under NRS 372.270. 1 Indeed,
Article 10, Section 5 of the Nevada Constitution bans additional taxation
of the proceeds of Nevada mines. Because Nevada coal mines do not
supply the necessary quantity or quality of coal, however, NV Energy
obtains all of its coal from mines outside Nevada. Accordingly, NV Energy
pays a use tax on the coal used at its electricity plants. See NRS 372.185
(imposing an excise tax on the use or consumption of personal property
that is purchased in another state for use in Nevada).
Arguing that the NRS 372.270 exemption for locally produced
mine and mineral proceeds discriminates against interstate commerce in
violation of the dormant Commerce Clause and that the exemption should
therefore apply broadly to all such proceeds, regardless of the location of
1 In
the same manner, NRS 374.275 exempts Nevada mine and
mineral proceeds from the local school support taxes imposed by NRS
Chapter 374.
SUPREME COURT
OF
NEVADA
3
(0) 1947A
their extraction, NV Energy petitioned respondent State of Nevada
Department of Taxation for a $25,932,735 refund for the use taxes NV
Energy paid on coal purchased between April 2002 and October 2006. The
Department denied NV Energy's request. NV Energy administratively
appealed the Department's denial, but the administrative law judge and
later the Nevada Tax Commission upheld the denial.
NV Energy petitioned the district court for judicial review of
the administrative decision denying its requests for a refund. Before the
district court, 2 NV Energy argued that to remedy the interstate
discrimination the Department would have to pay NV Energy a full
refund. NV Energy also maintained that the court should sever only the
unconstitutional language from NRS 372.270 rather than strike the
statutory exemption in its entirety. The district court reversed the
decision of the administrative law judge, concluding that the exemption
violated the Commerce Clause, and struck the statute in its entirety. The
court refused, however, to award NV Energy any refund because there
were no similarly situated competitors that received the tax exemption,
and therefore no injury to redress.
NV Energy appeals.
DISCUSSION
The primary issues on appeal are, first, whether the offending
language of NRS 372.270 can be severed, and second, whether the district
2 The district court found that NV Energy had standing to challenge
the statute as facially unconstitutional, even though NV Energy failed to
show the presence of any competitor who benefited from the tax
exemption.
SUPREME COURT
OF
NEVADA
4
(0) 1947A
court erred in denying NV Energy a refund. We review administrative
decisions under the same standard of review as the district court. Garcia
v. Scolari's Food & Drug, 125 Nev. 48, 56, 200 P.3d 514, 519-20 (2009).
Thus, like the district court, we decide these purely legal questions de
novo. Id.The district court correctly struck NRS 372.270 in its entirety
NRS 372.270 provides that "Nlhere are exempted from the
taxes imposed by this chapter the gross receipts from the sale of, and the
storage, use or other consumption in this State of, the proceeds of mines
which are subject to taxes levied pursuant to chapter 362 of NRS." The
district court struck NRS 372.270 in its entirety, rather than sever the
offending language. The contested language is the final clause: "which are
subject to taxes levied pursuant to chapter 362 of NRS." NV Energy
argues that judicial preference is to uphold legislation and, thus, the
district court should have severed only the final clause. The Department
argues that the proper remedy for a facially unconstitutional statute is to
strike the statute as per se invalid, and that the Nevada Constitution
prohibits statutes approved by referendum, like NRS 372.270, from being
"amended, annulled, repealed, set aside, suspended or in any way made
inoperative except by the direct vote of the people." Nev. Const. art. 19, §
1(3).
The severability doctrine obligates the judiciary "to uphold the
constitutionality of legislative enactments where it is possible to strike
only the unconstitutional provisions." Rogers v. Heller, 117 Nev. 169, 177,
18 P.3d 1034, 1039 (2001) (internal quotations omitted). This preference
in favor of severability is set forth in NRS 0.020(1), which charges courts
SUPREME COURT
OF
NEVADA
5
(0) I947A
with preserving statutes to the extent they "can be given effect without the
invalid provision or application."
But a preference is not a mandate, and not all statutory
language is severable. Before language can be severed from a statute, a
court must first determine whether the remainder of the statute, standing
alone, can be given legal effect, and whether preserving the remaining
portion of the statute accords with legislative intent. Cnty. of Clark v. City
of Las Vegas, 92 Nev. 323, 336-37, 550 P.2d 779, 788-89 (1976). For the
latter reason, voter initiatives and enacted ballot measures undergo
additional scrutiny before statutory language may be severed, as the court
must consider the effect of severance on the purpose of a voter-enacted
statute. See Flamingo Paradise Gaming, LLC v. Chanos, 125 Nev. 502,
515-18, 217 P.3d 546, 555-57 (2009) (discussing the severability of a voter-
enacted statute and the importance of the components and purpose behind
the statute).
There is no question that NRS 372.270 could be given legal
effect if severed. The statute would continue to provide an exemption,
albeit for all mine proceeds regardless of the mine's location. We therefore
turn to whether severance would undermine the purpose of the statute.
Mineral taxation in Nevada is governed by NRS Chapter 362,
NRS Chapter 372, and Article 10, Section 5 of the Nevada Constitution.
NRS Chapter 362 imposes a property tax on the net proceeds of minerals
extracted within Nevada. Meanwhile, NRS Chapter 372 imposes a use tax
on consumers of tangible personal property purchased from another state
and used within Nevada. Thus, proceeds from Nevada mines are subject
to Chapter 362's net proceeds tax, while proceeds of minerals purchased
out-of-state and used in Nevada are subject to Chapter 372's use tax.
SUPREME COURT
OF
NEVADA
6
(0) I947A
Article 10, Section 5 of the Nevada Constitution prevents the Department
from imposing any additional taxes on minerals that are subject to NRS
Chapter 362's net proceeds tax (minerals that are mined in Nevada) until
those proceeds lose their identity as proceeds. Accordingly, MRS 372.270
expressly exempts minerals subject to Chapter 362's net proceeds tax from
also being taxed under Chapter 372's sales and use tax. 3
The Sales and Use Tax Act, of which NRS 372.270 is a part,
was enacted by the Legislature in 1955 and approved by voter referendum
in 1956. Although there is little legislative history concerning the
enactment of the statute that is now known as NRS 372.270, it is apparent
that the Legislature originally enacted the exemption statute to avoid
taxing the proceeds of mines already subject to the net proceeds tax. For
example, during the drafting process, the Legislature deliberately changed
the statutory language to include the now contested language. See S.B.
171, 47th Leg., § 52 (Nev. 1955) (initial version of statute that is now
known as NRS 372.270); A. Journal, 47th Leg., 605-06 (1955) (revising the
statute to include the language now being contested in this appeal).
Moreover, in an attorney general opinion published at the time the statute
was enacted in 1955, it was noted that the exemption was specifically
limited to minerals already subject to taxation under Nevada's tax for net
proceeds of minerals, and that minerals not subject to the net proceeds tax
were not exempt. 55-76 Op. Att'y Gen. 120 (1955).
3 Because the tax rates imposed by the sales and use tax are higher
than the rates imposed by the net proceeds tax, and because the two taxes
are measured differently, the district court determined that NRS 372.270
violated the dormant Commerce Clause.
SUPREME COURT
OF
NEVADA
7
(0) 1947A
Because the legislative history clarifies that the narrowness of
the exemption is essential to the purpose of the statute, we conclude that
NRS 372.270 is not severable. Were the district court to strike only the
offending language, the resulting statute would exempt all sales, storage,
and use of the proceeds of mines from taxation under Chapter 372,
regardless of where the minerals are mined. Because NRS 372.270 was
enacted to prevent double taxation of the proceeds of Nevada mines
already subject to the net proceeds tax in Chapter 362—not to exempt
entire categories from taxation—such a result would not be in accord with
the Legislature's intent in enacting the exemption. Thus, for purposes of
resolving this case, the district court did not err in striking NRS 372.270
in its entirety.
The district court did not err in refusing to award NV Energy a refund
State courts have the duty of determining the appropriate
relief for Commerce Clause violations, and, to satisfy due process
requirements, courts must provide "meaningful backward-looking relief'
to correct taxes paid pursuant to an unconstitutional scheme. McKesson
Corp. v. Div. of Alcoholic Beverages & Tobacco, Dep't of Bus. Regulation of
Fla., 496 U.S. 18, 31 (1990); see also Am. Trucking Ass'ns v. Smith, 496
U.S. 167, 176 (1990) (stating that state courts are "entrusted. . . . with the
initial duty of determining appropriate relief' for Commerce Clause
violations); Tyler Pipe Indus. v. Wash. Dep't of Revenue, 483 U.S. 232, 252-
53 (1987) (same). Such relief dictates that taxpayers not only have a fair
opportunity to challenge the validity of an imposed tax, "but also a 'clear
and certain remedy." McKesson, 496 U.S. at 39 (quoting Atchison, T. &
S.F.R. Co. v. O'Connor, 223 U.S. 280, 285 (1912)). This process ensures
that the tax, as actually imposed on the taxpayer, does not violate the
SUPREME COURT
OF
NEVADA
8
(0) 1947A
dormant Commerce Clause by taxing in a way that discriminates against
interstate commerce. McKesson, 496 U.S. at 43.4
NV Energy argues that this court must award a refund
because that is the only appropriate remedy for taxes paid pursuant to a
scheme that violates the dormant Commerce Clause, citing to Worldcorp v.
State, Department of Taxation, 113 Nev. 1032, 1038, 944 P.2d 824, 828
(1997) ("When a tax statute is determined to be unconstitutional, the
taxpayer is entitled to refund." (citing Iowa-Des Moines Nat'l Bank v.
Bennett, 284 U.S. 239, 247 (1931))). We disagree. It has long been held
that a refund is merely one remedy; other remedies will equally satisfy
due process. See Iowa-Des Moines Nat'l Bank, 284 U.S. at 247; McKesson,
496 U.S. at 40-41. 5
4As required by due process, "meaningful backward-looking relief'
operates to place a taxpayer who has suffered an unconstitutional
deprivation in the same position as its competitors who were favored by a
corresponding—but unlawful—tax exemption. McKesson, 496 U.S. at 31;
Chapman v. Comm'r of Revenue, 651 N.W.2d 825, 839 (Minn. 2002). Such
relief may take various forms, including refunding "the difference between
the tax paid by the [claimant] and the tax that would have been assessed
had the [claimant] been granted the unlawful exemption," the assessment
of taxes against those who had previously been favored by the exemption
"to put them on equal footing with those who had been discriminated
against," or "a combination of a partial refund and a partial retroactive
assessment." Chapman, 651 N.W.2d at 839-40 (citing McKesson, 496 U.S.
at 40-41).
5 For example, the United States Supreme Court has stated that
"[t]he right invoked is that to equal treatment; and such treatment will be
attained if either their competitors' taxes are increased or their own
reduced." Iowa-Des Moines Nat'l Bank, 284 U.S. at 247.
9
More importantly, however, a refund is generally not merited
when there has been no actual injury. See McKesson, 496 U.S. at 31(stating that due process obligates states to provide relief when the
claimant has suffered an "unconstitutional deprivation"). The Commerce
Clause is grounded in actual harms and "real injuries." Gregg Dyeing Co.
v. Query, 286 U.S. 472, 481 (1932). "[Equality for the purposes of
competition and the flow of commerce is measured in dollars and cents,
not legal abstractions." Halliburton Oil Well Cementing Co. v. Reily, 373
U.S. 64, 70 (1963). Thus, as in both McKesson and Iowa-Des Moines
National Bank, a central consideration is whether, under the tax scheme
as actually imposed, competitors are treated equally or whether the tax
scheme effects actual discrimination. McKesson, 496 U.S. at 40-42; Iowa-
Des Moines Nat'l Bank, 284 U.S. at 244-46. Implicit in McKesson and
other similar Supreme Court opinions is a requirement that the party
injured by a dormant Commerce Clause violation must actually have a
competitor who benefited from the discriminatory tax scheme for the
injured party to merit a monetary remedy. See McKesson, 496 U.S. at 40,
42; Iowa-Des Moines Nat'l Bank, 284 U.S. at 247. If a tax, as actually
assessed, does not discriminate against interstate commerce, the tax is
lawful and does not violate due process. See McKesson, 496 U.S. at 31, 41.
Here, NV Energy has failed to show that the tax, as actually
assessed, discriminates against interstate commerce. Specifically, NV
Energy did not pay any higher tax than did its competitors—all paid the
same tax. 6 No competitor gained a competitive advantage under the
6 NV Energy's competitors also purchased coal out of state and paid
use tax pursuant to NRS 372.185.
SUPREME COURT
OF
NEVADA
10
(0) 1947A
discriminatory tax scheme, nor did NV Energy suffer any actual
disadvantage. And, although the exemption to the use tax violates the
dormant Commerce Clause, the use tax itself is not unconstitutional. See
Great Am. Airways v. Nev. State Tax Comm'n, 101 Nev. 422, 428, 705 P.2d
654, 658 (1985). Thus, the tax of which NV Energy complains was
lawfully assessed. In essence, NV Energy would have this court grant it a
refund of tax dollars it rightfully paid pursuant to NRS Chapter 372
because NRS 372.270 would have unconstitutionally exempted a
hypothetical competitor from paying this same tax. We decline to do so.
Because NV Energy did not have any competitors who received the tax
benefit7 and, as a result, the tax scheme did not actually discriminate
against interstate commerce, a refund—or any other remedy—is not
necessary to satisfy due process. Thus, the district court did not err if
refusing to award a refund to NV Energy.
7 Even if NV Energy had alleged the presence of a competitor, we
would have to answer the threshold question of whether the competitor is
a "substantially similar entit[yr before determining whether NV Energy
was entitled to a monetary remedy as a result of a dormant Commerce
Clause violation. See Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298-99
(1997). For a dormant Commerce Clause violation to exist, the claimed
discrimination must create a competitive advantage between the
"substantially similar entities." Id. However, competitive markets are
generally narrowly drawn. See Gen. Motors, 519 U.S. at 301-03(concluding that natural gas marketers did not serve the same market as
local distribution companies, even though similarly situated
geographically); Alaska v. Arctic Maid, 366 U.S. 199, 204 (1961) (drawing
a distinction between salmon caught and frozen in Alaska but canned
somewhere else, and salmon freshly canned in Alaska).
SUPREME COURT
OF
NEVADA
11
(0) 1947A
Accordingly, we affirm the district court's order.
Hardesty
We concur:
, C.J.
Gibbons
Pickering
, J.
Parraguirre
Douglas
J.
Saitta
SUPREME COURT
OF
NEVADA
12
(0) 1947A