Tax panel slammed for secrecy

Jeff German and Steve Kanigher

Sunday, Aug. 12, 2007 | 7:38 a.m.

Las Vegas Sun

If you want to see your tax dollars at work at the Nevada Tax Commission, it won't be easy or cheap.

The commission does not keep a public registry of its decisions. Anyone wanting to see a decision must ask to review the minutes of the commission's meetings, available only at the Department of Taxation's office in Carson City. The minutes are not available online or at the department's Las Vegas office.

And if you want a copy of the minutes, the panel's staff will provide one for you - for $2 a page.

Nevada Tax Commission



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When the Nevada Tax Commission awarded a $40 million tax refund to the Southern California Edison Co. in 2005, it did so behind closed doors - after not even bothering to inform interested parties that the case was pending.

When the Legislature in 2005 decided to reward those who constructed environmentally friendly buildings, the Tax Commission developed such generous guidelines that large casino companies and other mega-projects stood to receive hundreds of millions of dollars in tax breaks for investing in "green" facilities.

And when the Legislature the same year set caps on a property tax relief measure, the commission was accused of undercutting legislators' intent by adopting a regulation that allowed large landowners to divide their property into smaller parcels to qualify.

Although each of those decisions spawned controversies, public protests to Tax Commission rulings typically come after the fact, when it is too late to influence the outcome. That's because in contrast to most other states, Nevada's Tax Commission operates largely in secret, making it difficult for average taxpayers to participate.

"The Tax Commission ought to be there to protect the public's interest, not elite money's interest," said state Senate Minority Leader Dina Titus, D-Las Vegas, one of the panel's harshest critics.

If, as Titus and other critics charge , "elite money" is well represented before the Tax Commission, that has much to do with how the panel is set up.

Created in 1917 to manage the Nevada Department of Taxation, the commission consists of eight members, all with business experience, five of them from the defined areas of mining, ranching and farming, utilities, finance and real estate. One notable absence in the membership is a representative of the average taxpayer.

Throughout much of its 90-year history, the Tax Commission operated in relative obscurity. In the past two years, however, as tax revenue climbed to $4 billion annually, the panel has found itself in an unflattering spotlight amid criticism over huge tax breaks it granted to big business that could threaten the state's growing infrastructure needs.

The panel's pro-business mentality, critics charge, is what led the commission to reverse the Department of Taxation in May 2005 and secretly approve the $40 million refund to Southern California Edison for coal it imported from Arizona for its Mohave power plant near Laughlin.

The decision highlighted the commission's penchant for conducting business behind closed doors, a habit the attorney general's office and the Legislature have sought to break.

Shortly after the Southern California Edison appeal hearing, the attorney general filed a complaint against the commission seeking to nullify its authorization of the $40 million refund.

Although the commission contended it was obligated by law to close the hearing after Southern California Edison requested confidentiality, the attorney general argued the panel also was bound under the state's open meeting law to deliberate and vote in a public session.

A Carson City district judge, however, ruled in favor of the commission last October, pointing out that the attorney general, for eight years before that decision, had set a reasonable precedent by allowing the commission to vote behind closed doors in similar hearings.

The attorney general's office appealed that decision to the Nevada Supreme Court, which has scheduled oral arguments for Sept. 4.

"I think it's unfortunate that the commission chooses to act behind a cloak of secrecy instead of in the light of day," said former Senior Deputy Attorney General Neil Rombardo, who filed the appeal.

Rombardo, now Carson City's district attorney, is not alone in his criticism of the clandestine way in which the commission operates.

Greg Matson, deputy director of the Multistate Tax Commission, a Washington-based agency that helps states establish uniform ways of administering taxes, said it is very rare elsewhere to prohibit the public from attending tax assessment hearings.

"I'm aware of no other state that would deliberate in private when discussing a taxpayer's liability," Matson said.

Nevada Assembly Speaker Barbara Buckley - who led a move at the Legislature during this past session to pass a bill that forces the commission to vote in public like other state agencies - said she was aghast watching the panel lobby against efforts to open up its proceedings.

"I thought that was inappropriate," she said.

Carson City lawyer John Bartlett, who provided legal advice to the commission as a deputy attorney general from 1987 to 1999, said he has noticed an overall "lack of transparency" at the commission.

"It's very difficult, if not impossible, for the taxpayers to get any guidance on tax issues because none of their decisions are ever published," said Bartlett, who regularly practices before the commission.

Average taxpayers are not the only ones not in the Tax Commission's loop.

Bartlett said the commission has yet to develop procedures mandated by the 1997 Legislature to notify local governments of cases before the panel that might affect them.

That argument was raised by the Clark County District Attorney's office late last year in a District Court suit challenging the legality of the Southern California Edison refund. The county, which stands to lose a sizable amount of tax revenue if the refund holds up in court, contends the commission never informed it about the Southern California Edison case. (The county learned of the hearing from a deputy attorney general representing the Tax Department, which opposed the refund.)

"Since these proceedings have been cloaked in secrecy at the insistence of (Southern California Edison) and the (Tax Commission), it is unlikely that all of the affected local governments are aware even now of what has unlawfully transpired," Deputy District Attorney Paul Johnson wrote in a brief in April.

Commission Chairman Thomas Sheets, a senior vice president and general counsel at Southwest Gas Corp., disputes the contention that the commission prefers secrecy.

"I think the vast majority of what we do is done out in the open," Sheets said. "With the change in the law and the way we will interpret the law, there will be greater openness and, at the end of the day, there will be little that will be done behind closed doors."

In an effort to improve the panel's dealings with the public, Sheets said he has ordered a review of the commission's regulations and procedures.

There also have been growing questions about the commission's willingness to shower big business with potentially huge tax breaks at the expense of the state's effort to keep up with growth.

"They make decisions for political reasons, not policy reasons," Titus said. "They are lobbied and they have a lot of political connections."

The commission's liberal interpretation of 2005 legislation giving so-called "green" tax breaks to construction projects that conserve energy and water allowed some of the valley's largest planned casino developments to qualify retroactively for the breaks.

That created hysteria this past legislative session among lawmakers, who feared the shortfall in state and local government revenue - estimated at close to $1 billion over 10 years - would create massive gaps in funding for public education and other vital programs.

After intense debate and Gov. Jim Gibbons' veto of a bill that would have rolled back the tax breaks, the Legislature ultimately passed a measure that tightened the qualifications for going green and that reduced the maximum property tax break from 50 percent to 35 percent. With those changes, it will cost the state about $300 million over the next decade, almost all of that from projects being built in Clark County.

Even as the Legislature looked to clean up the green mess, the Tax Commission found another way to give developers and casino companies large tax benefits, again on the backs of state and local governments.

Over the objections of county assessors across the state, the commission last spring adopted a regulation that allowed landowners to divide large areas of land intended for development into smaller parcels to qualify for property tax relief under the caps passed by the Legislature in 2005.

The parcels can be taxed at a much lower rate until they are ready to be developed, which according to Clark County Assessor Mark Schofield could mean millions of dollars in lost revenue for Southern Nevada cities and counties.

"We tried to persuade the commissioners to take time to glean more facts about this issue because we felt they didn't fully appreciate its impact," Schofield said.

But the panel ended up siding with the high-powered developers and casino companies who, armed with lobbyists, consultants and lawyers, made their presence known at the spring meeting.

Sheets insists the commissioners look out for everyone's interests.

"I don't think any of us believe that we're there as advocates for a particular industry," Sheets said. "We've been placed there because we have a particular expertise."

State Sen. Randolph Townsend, R-Reno, one of the commission's biggest supporters, said the panel members go out of their way to be sensitive to average taxpayers' interests.

"They know that whatever ruling they make, they're going to have to live under it when they go back to their own private business," Townsend said.

Commissioner George Kelesis, a lawyer and businessman, said the perception that the panel favors big business can be attributed to the fact that the wealthier taxpayers have the resources to spend time working with the commission.

"Those individuals who participate in the process will obviously have influence on the end result," he said. "Right now, there's no one representing the interests of the little guy through the process."

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