Court Opinion

ID: 2757712
Source: CourtListenerOpinion
Date Created: 2014-12-04 19:15:42.311888+00
Date Added: 2024-06-11T12:17:40.594145
License: Public Domain

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.

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                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.

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                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.

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                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

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                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.

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                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.

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                             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

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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.

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                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).

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                              Accordingly, we affirm the district court's order.

                                                        Hardesty

                We concur:

                                               , C.J.
                Gibbons

                Pickering

                                               ,   J.
                Parraguirre

                Douglas

                                                   J.

                Saitta

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