Attorney general throws out 1996 Mineral County ruling

Wednesday, Sept. 29, 1999 | 11:43 a.m.

A 1996 settlement Mineral County officials used to avoid duking it out with the U.S. Justice Department over taxes collected from for-profit businesses that use federal land has been declared illegal by the Nevada attorney general's office.

And a related ruling by the U.S. 9th Circuit Court of Appeals earlier this summer awarded Nye County nearly $7.5 million in back taxes and could have a bearing on whether Clark County recovers about $4 million in taxes it should have been paid.

In its Sept. 13 opinion, the attorney general's office declared the settlement "illegal and void" because it limited the value of property and waived Mineral County's constitutional right to collect taxes. The ruling was part of an overall opinion about whether the State Board of Equalization has jurisdiction over a tax issue involving a private business' use of property and housing on the Hawthorne Army Ammunition Depot.

The agreement ruled illegal in that opinion was made in 1996 between Mineral County and the private contractor that leases space at the federally owned 147,000-acre depot that surrounds the town of Hawthorne, the Mineral County seat.

It was written after Justice Department officials said Clark, Nye and Mineral counties had illegally collected property taxes from contractors on military and Nevada Test Site property.

Justice Department officials claimed taxing businesses that use federal property was the same as taxing federal property, which is supposed to be exempt. They sued the counties for taxes paid from the 1988 through 1992, calling them unconstitutional.

Federal officials said the state could fix the situation by changing state law to allow collection of what are called possessory use taxes. The Nevada Legislature did that in 1993.

But private contractors still refused to pay further property taxes.

Nye and Clark officials filed separate lawsuits. But Mineral County officials entered into the settlement agreement hoping to avoid a legal battle with the county's largest employer, Day & Zimmerman Hawthorne Corp.

The settlement wiped out two years of tax payments from 1994 through 1996 and called for $400,000 in taxes from the contractor from 1996 through 1998, Hughes said.

If the taxes had been paid according to the regular assessments, the amount would have been almost $750,000, she said. However, no one was paying anything, so the agreement looked good at the time.

"They felt they were getting something instead of nothing. But it's been a big, big loss," Hughes said.

Residents' property taxes were raised to the maximum allowed under state law to make up for the deficit, but it wasn't enough.

"We've had some small businesses that have had to shut down because our tax base continues to shrink," Hughes said. "It shifted the whole burden to the taxpayers."

Now it turns out the agreement was illegal all along. So Mineral County also has lost the opportunity to collect back-taxes like those awarded to Nye County in a June appeals court decision on that case, Hughes said.

The Justice Department originally sued in 1994 demanding Clark repay $1.5 million and that Nye repay $4.5 million in taxes assessed to private contractors working on military property and the Nevada Test Site. Mineral County's share was $800,000.

In June the 9th U.S. Circuit Court of Appeals in San Francisco ruled Nye officials could recover about $7.5 million in taxes that should have been paid from 1993 forward, but also said they would have to repay about $4 million in taxes collected during the four years the Justice Department deemed the tax unconstitutional.

Clark County's attorneys are now trying to hammer out a settlement with contractors based on that decision, said Todd Matheson, county manager of property appraisal.

About $3.5 million to $4 million could be up for grabs.

"Some of the issues that pertained to Nye County also pertain to us," Matheson said. "They're in the final stages of discussion. They'd like to come to some sort of agreement."

Mineral County is trying to figure out how to pick up and move forward. On Thursday the State Board of Equalization in Reno is expected to decide how much tax Hughes should assess on railroad property and housing units that Day & Zimmerman Hawthorne use on the depot property.

Hughes said she is hoping the decision will work in the county's favor. Mineral's mining- and military-based economy has been dwindling like that of other rural counties. And it has been even harder to keep afloat in the wake of the settlement that Hughes has always called short-sighted.

"In our case, it could have been different," she said. "It's the taxpayers who are paying this tab, and it's not fair."