In Garey v. Department of Natural Resources, Knudsen Law Firm represented Plaintiffs in the District Court of Lancaster County in challenging the property tax in LB 701. On May 19, 2008, District Judge Merritt entered judgment for Plaintiffs in that suit, finding the property tax unconstitutional as special legislation. The Defendants have appealed that decision to the Nebraska Supreme Court.
Beginning with the initial discussions of challenging LB 701’s property tax provisions, Knudsen Law Firm has also considered the advisability of challenging LB 701’s occupation tax. Based on our legal advice our clients in Garey v. Department of Natural Resources chose not to challenge the occupation tax because at the outset of the litigation we regarded the case for unconstitutionality of the property tax as stronger.
At the same time, however, we recognized that if we succeeded on certain arguments we were raising in Garey v. Department of Natural Resources it could greatly improve the chances of a later attack on the occupation tax. Fortunately, that is exactly what has occurred with Judge Merritt’s decision overturning the property tax provisions of LB 701.
Because Garey v. Department of Natural Resources holds that LB 701’s property tax is unconstitutional special legislation as a taxing power given to a closed class of the three Republican Basin NRDs, it follows that the occupation tax, which also may only be imposed by the three NRDs is unconstitutional for the same reason—it is special legislation giving the authority to impose the occupation tax only to the three NRDs.
On the strength of Judge Merritt’s opinion in Garey v. Department of Natural Resources Knudsen Law Firm is now recommending that irrigators who pay LB 701’s occupation tax bring a lawsuit challenging the bill’s occupation tax.
Grounds and Procedure for Challenging the Occupation Tax
Knudsen Law Firm recommends raising the same three grounds we relied on to attack the property tax in Garey v. Department of Natural Resources as arguments for declaring the occupation tax unconstitutional. These grounds are based on three separate provisions of the Nebraska Constitution:
- The occupation tax is a tax on irrigated property to pay for compliance with the Republican River Compact and is therefore a property tax for state purposes
- The occupation tax results in commutation of taxes, meaning it taxes Republican basin irrigated property to benefit the rest of the State
- The occupation tax is special legislation that gives the privilege of taxation to a closed class consisting only of the Upper, Middle and Lower Republican NRD’s.
We would also contend that the finding in Garey v. Department of Natural Resources that LB 701 creates a closed class is entitled to binding effect, known as “collateral estoppel.” This would require a holding in the second lawsuit that the occupation tax is also unconstitutional special legislation.
It is our recommendation that the occupation tax challenge be filed in the Nebraska Supreme Court as an original action. Consideration of the case as an original action is discretionary with the high court, but our hope is that when the Supreme Court realizes that the issues in the occupation tax suit are substantially the same as in Garey v. Department of Natural Resources, which they will be reviewing on appeal, they may take jurisdiction of the occupation tax lawsuit, considering it at the same time as their review of the property tax suit.
Knudsen Law Firm’s preference is to mount a challenge to the occupation tax sooner rather than later. One reason is because if we delay another law firm may decide to bring a suit challenging LB 701’s occupation tax to piggy-back on Garey v. Department of Natural Resources, which has been successfully handled by Knudsen Law Firm. That could result in a “stay” preventing subsequently-brought challenges to the occupation tax—including any suit that we would bring on behalf of our clients.
Besides our desire to follow through on the considerable time and effort we have put into this matter so far, this concerns us because there is no assurance that another law firm would have the expertise and knowledge required to capitalize on the work Knudsen Law Firm has done and mount an effective challenge that would have the best chance of knocking out the occupation tax. We would hate to see the effort fail if it were taken over by ineffective counsel.
Our success in Garey v. Department of Natural Resources is the best indication of Knudsen Law Firm’s ability and proficiency to carry out a challenge to LB 701’s occupation tax. done and mount an effective challenge that would have the best chance of knocking out the occupation tax. We would hate to see the effort fail if it were taken over by ineffective counsel. Our success in Garey v. Department of Natural Resources is the best indication of Knudsen Law Firm’s ability and proficiency to carry out a challenge to LB 701’s occupation tax.
Another reason to bring a lawsuit now is to capitalize on favorable press coverage that has already resulted from our success in Garey v. Department of Natural Resources. We believe there is significant benefit in continuing to focus statewide attention on the issue of how Nebraska is going to face the problem of complying with the Republican River Compact. The lawsuit should provide an additional forum for sending out the message that the whole State should be responsible for sharing this burden—not just the Republican River Basin.
Our success to date in Garey v. Department of Natural Resources does not guarantee that an occupation tax lawsuit—or the property tax lawsuit—will ultimately be successful. Judge Merritt’s decision overturning the property tax has been appealed to the Nebraska Supreme Court. If Garey v. Department of Natural Resources is reversed and the property tax is held to be constitutional on appeal, that will probably result in finding the occupation tax is also constitutional. We are optimistic about the chances of the lower court’s decision on the property tax being affirmed but we cannot discount the possibility that Garey v. Department of Natural Resources may be reversed, or promise that we will be successful in challenging the occupation tax. Please go to our website www.knudsenlaw.com and click the link to send a request for more information if you are interested in challenging the LB-701 occupation tax.
Rodney M. Confer, LeRoy Sievers and Jeanelle Lust