The Nevada Supreme Court was told Tuesday Fernley's lawsuit demanding a bigger share of the tax pie should go away.
Kevin Powers, representing the Nevada Legislature, told the justices the lawsuit is "barred as a matter of law," by sovereign immunity of the Legislature's power to apportion tax revenue and blocked by the statute of limitations since it wasn't filed until more than a decade after Fernley's incorporation.
Fernley went to court after the 2011 Legislature refused to change the consolidated tax formula that funds much of local government to give the city a bigger share. The lawsuit charges that the formula "is not designed to allow for any meaningful adjustment to distributions."
The suit asks the Legislature to declare the formula unconstitutional arguing that it cheats small communities like Fernley out of their rightful share of tax revenues.
Under the formula, if a city doesn't seek an adjustment to its share of the money generated by six different revenue streams in its first year after incorporation, no adjustments can be made to that base amount.
The C-Tax was created in 1997 to split up money among local governments in Nevada. It consists of the tobacco and liquor taxes, governmental services tax, real property transfer tax, basic city-county relief and supplemental city-county relief portions of the sales tax.
As a of the restrictions, the $86,000 Fernley received when the C-Tax was created only grew to $143,143 in 2011 even though the city's population has increased from 8,000 to 19,000.
Fernley Mayor Leroy Goodman said that is less than a percent of the $14.8 million in C-Tax money Lyon County received in 2011 despite the fact the city has 30 percent of the county's population and 36 percent of its property value.
"We just want a fair and equitable distribution," he said.
Powers told the high court the tax distribution is based significantly on whether a local government provides police, fire and parks-recreation services. He said Fernley doesn't, instead relying on a fire district and the Lyon County sheriff's office for services.
"It's a legitimate state interest to provide more money to governments that provide more services," he argued.
The court case specifically challenges a district court ruling that ordered the state and legislature to go through discovery and provide information to Fernley about how the tax is calculated and its historical cash distributions. Powers said the state shouldn't have to do that because Fernley has no statutory right to challenge the distribution.
Fernley lawyer Josh Hicks said the high court should affirm the order to conduct discovery in the case to build a record that can answer whether the system is fair or not. He said there has never before been a challenge to the C-Tax.
"All Fernley is asking for is a chance to prove up their claims," he said.
The court took the case under submission.