State Supreme Court hears argument on tax disputes

Wednesday, June 29, 2005 | 9:45 a.m.

CARSON CITY -- A senior deputy attorney general told the Nevada Supreme Court Tuesday that the state Tax Commission, and not the courts, should decide whether big companies are evading millions of dollars in the sales and use taxes.

Deputy Greg Zunino argued that the district courts in Las Vegas and Reno "went astray" in permitting "whistleblower" suits to go forward against major national companies and against giant slot machine maker International Game Technology.

Private parties have sued saying the companies have not paid their taxes and are looking for a reward -- a portion of the taxes owed.

There are two cases at issue:

William Urga, attorney for the Beeler firm, said whistleblowers suits are a deterrent to stop companies from escaping taxation that the state Department of Taxation missed.

Urga of Las Vegas said the state Attorney General's Office has failed to show why these cases should not go forward in district court.

The Supreme Court took the cases under advisement but justices had numerous questions and comments.

Justice Bob Rose said a ruling in favor of the court could eliminate whistleblowers from bringing suit. "They would not be compensated and they would be out in the cold," he said.

Justice Jim Hardesty said any suit claiming somebody is evading taxes could be dismissed under the theory of the state.

Chief Justice Nancy Becker questioned allegations that a company was "skimming" and kept two sets of books. She wondered why a taxpayer should not be encouraged to file suit.

Zunino said the disputes are issues of policy, whether these taxes are owed. He said in the IGT case, it is over whether "intellectual properties" should be taxed as tangible personal property. In the Beeler case, it's a question of interstate taxation. And these matters are should be decided as a matter of policy by the state Tax Commission.

John Desmond, attorney for IGT, said these disputes are best left to the Tax Commission. He said McAndrews has filed the suit for "financial advantage." McAndrews has been on the payroll since he filed his suit two and one-half years ago but he is permitted in the office only to pick up his paycheck.

The state Tax Department has been conducting an audit for more than 20 months on IGT but has not completed it.

Urga said there is no estimate how big a tax liability the major companies owe Nevada. For instance, he said a customer can go into Wal-Mart and pay the sales tax on what he or she buys. But if the individual orders over the Internet, the tax is not imposed.

John Bartlett, attorney for McAndrews, said there is evidence of "substantial tax fraud" on the part of IGT. This is the about sale of software and it is "quite clear taxes are owed in this case," he argued.

Bartlett said there is no limit in Nevada law on what types of suit can be filed under the false claims law of the state. Bartlett argued that under the theory of the state, a tax cheater could get away unless the state Taxation Department learned of the deficiency.

He said the Legislature determined what claims could be brought and a whistleblower is not precluded from filing suit and collecting a percentage of what is paid the state.

Mark Mausert, a Reno lawyer also presenting McAndrews, said it was up to the courts to decide the law on this case and not the attorney general to rule what cases can go forward.

The case against IGT involves $100 million, Mausert said. He added whistleblowers "get in nooks and crannies that the Taxation Department does not get into."

Mausert said IGT has retaliated against McAndrews by cutting off his flow of information and has not allowed him to continue work. He said a claim for retaliation will be filed in the suit. And if the tax suit is dismissed, there will be a suit for retaliation against McAndrews.

Urga said Attorney General Brian Sandoval was notified in January 2003 that taxes on the Internet sales were not being collected. He said he received a reply from Sandoval that his clients could go after these major companies for Internet sales. And Sandoval wished Urga "good luck," Urga said.

It wasn't until four to five months after the suits were filed that the attorney general's office sought to intervene and argue that the district court did not have jurisdiction.

But Zunino said the state's reply to Urga was "non-committal," and it was not "an endorsement" for the suits to be filed against the major national companies that had businesses in Nevada.

The companies involved may or may not owe taxes but it's up to the tax commission and not the courts to decide, Zunino said.

After the hearing McAndrews, a tax analyst for IGT, told reporters that he had to file suit "to protect myself." He said the abuses by IGT were "blatant and obvious." He said he could have been held criminally liable if he did not take any action.