Nevada Exemption Violates Commerce Clause but Tax Still Constitutional

A Nevada company that generates electricity was denied a use tax refund for coal that was purchased in another state for use in the company’s Nevada plants. The company purchased all of its coal from coal mines outside Nevada. Nevada tax law provides an exemption for coal produced in Nevada, but not for coal purchased outside of the state.Both the company and the court agreed that the use tax exemption violated the Commerce Clause, and the company requested a refund of use tax paid. Therefore the court limited its review to two primary issues – whether the offending language is severable and whether the taxpayer is entitled to a remedy in the form of a refund. The court held that thestatute is not severable because it was clear that the legislative intent was to protect local mines. When there is a violation of the dormant Commerce Clause, remedies for the negative impact are measured by the unfair advantage provided to the taxpayer’s competitors. The company did not pay any higher tax than its competitors, and no competitor gained a competitive advantage. While the use tax exemption violated the Commerce Clause, the use tax itself was not unconstitutional. As a result, the company’s request for a refund of use tax paid was denied. (Sierra Pacific Power Company and Nevada Power Company v. The State of Nevada Department of Taxation, Supreme Court of Nevada, No. 61193, December 4, 2014)

Posted on May 13, 2015