Las Vegas NowI-Team: Tax Commission Rules in Massive Power Rebate

I-Team: Tax Commission Rules in Massive Power Rebate

The State of Nevada and local governments dodged a fiscal bullet when the Nevada Tax Commission voted to overrule itself and deny a refund to an electric utility.

The refund could have totaled around $70 million, an amount the state would be hard pressed to afford right now. The potential effect on the state budget and local budgets was the 800 pound gorilla in the room. No one mentioned it, but everyone knew it was there.

A refund of $70 million would have been bad enough, but if the refund for Southern California Edison had been upheld, other power companies would be lining up to ask for their own rebates totaling perhaps hundreds of millions of dollars.

The Mojave Generating Station on the outskirts of Laughlin was mothballed years ago, but during its peak operating years, it burned millions of tons of coal each year to generate electricity.

But when is coal not coal? When the state budget needs it to be something else.

In 2004, Southern California Edison asked the Nevada Tax Commission for a tax refund on the huge amount of coal it imported every year from Arizona to run the Mojave plant. The company argued that it already paid taxes on the coal in Arizona so it was unfair to tax it again in Nevada.

The tax commission agreed and in 2005, voted four to two to pay a rebate to the company to the tune of around $40 million.

This sent a shiver down the spine of state officials already grappling with budget constraints, so the Attorney General's Office sued the commission, which it also represents, alleging the decision on the rebate had been made behind closed doors, thus violating the open meeting law.

Even some tax commissioners recognized the challenge probably had more to do with the $40 million than it did with concerns about open government. The Nevada Supreme Court agreed with the AG and the decision was overturned.

On Monday afternoon, the power company was back before the commission, arguing that the original decision to grant the rebate was the right one.

Norman Azevedo, who previously worked for the state taxation department, says Nevada law exempts minerals like coal from the sales and use taxes so it would be unfair to apply those taxes to coal brought in from Arizona.

"The language is very clear. It is exempt," he said.

Lawyers for the state and Clark County disagreed, for the simple reason that coal is not always coal. They contended that Nevada was correct to tax the coal imported from Arizona to Laughlin because that coal had been pulverized into powder and then mixed with 50-percent water so it could be transported through a pipeline.

"We are not talking about raw coal here, we are talking about a 50/50 blend of coal and water," said attorney Paul Johnson.

Even though it was never mentioned during the debate, commission members were well aware of the consequences of their decision. A vote to uphold the refund would mean Nevada's troubled budget might be on the line for hundreds of millions of dollars to other larger coal consumers, most notably the company formerly known as Nevada Power, which used many times the amount of coal that the Laughlin plant used.

Commissioner and tax lawyer George Kelesis moved to overrule the refund, noting that he thought it was proper for Nevada to tax a coal byproduct, "I would deny on the following basis, it wasn't coal. It was a coal byproduct."

This is not the same commission that voted in favor of the rebate four to two in 2005. It has three new members and they were not bound by the pervious decision. The vote Monday was six to two against a refund, but no one in that room thinks this will be the end of it.

A consultant to the power company said he will recommend his client take this to court to sue for the $70 million, which is the amount of the original refund plus interest. If Nevada dodged a bullet, it's probably only temporary.