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May 5, 2015

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Should state take $350 million gamble to settle casinos’ comped meals lawsuit?


Leila Navidi

Dealers train at the Margaritaville casino inside the Flamingo on Friday, Sept. 30, 2011.

For decades, Nevada casinos paid a tax on the meals they “comped” patrons and employees — the iconic Las Vegas tradition of pit bosses doling out steak dinners to blackjack players, or more recently, slot jockeys cashing in their reward points.

But gaming, Nevada’s largest and most influential industry, is pushing for an agreement with Gov. Brian Sandoval and lawmakers to exempt complimentary casino meals from taxes in future years, according to gaming lobbyists, state officials and lawmakers.

The stakes of the negotiations are big, representing a potential budget-busting hole of as much as $350 million in the state’s spending plan.

A lawsuit on the matter, Boyd Gaming Corp. v. the State of Nevada, is pending before the Nevada Supreme Court. If the court rules for casinos, the state could be forced to pay back to casinos an estimated $230 million to $350 million for taxes it collected on the meals in the 2000s.

To settle that lawsuit before the court issues an opinion, the industry is offering to forgive the potential $350 million rebate in back taxes in exchange for the state agreeing not to tax future meals. Not taxing future meals would mean forgoing millions of dollars that otherwise could go to education, public safety and social services.

Agreeing to the settlement is a huge gamble for the state. If the court decides against the state, Nevada would be out the $350 million as well as any future revenue. If the court decides against the casinos, Nevada would be off the hook for the rebate and could continue collecting tax revenue.

So far, though, Sandoval and his administration have remained firm that the meals are subject to taxes.

Sources said there was a tense meeting at the governor’s office last summer in an effort to settle the issue.

“Both sides think they have strong legal cases,” said one source with knowledge of the case, not authorized to speak on the record because it’s part of ongoing litigation. “It comes down to whether the state and industry want to do a $350 million coin flip.”

Currently, no casino is paying the tax on comped meals, a state tax official said this month in a legislative committee meeting. The casinos point to a 2008 Nevada Supreme Court ruling that the state owed a rebate to the Sparks Nugget, which spurred the rest of the state’s casinos, big and small, to seek tax rebates.

The gaming industry wants the situation to be resolved soon.

“We’re hopeful we can find a solution that is amenable to both the state and the industry,” said Pete Ernaut, president of R&R Partners, whose clients include the Nevada Resort Association.

One lobbyist for gaming, speaking on the condition of anonymity, said there is likely to be a bill before the 2013 Legislature.

Meanwhile, the Sandoval administration is pressing forward on rules that would allow the state to once again collect the tax.

Sandoval’s chief of staff, Gerald Gardner, declined to comment for this story, citing ongoing litigation. So did Christopher Nielsen, director of the state Department of Taxation.

Advocates for education and state services say Nevada can’t afford to exempt those meals from taxation.

“That would dig a deeper hole,” said Lynn Warne, president of the Nevada State Education Association. “It leaves Nevada that much further behind being able to support kids and schools.”

Court rules, rebate requests flow

The dispute and potential hole have been hanging over the state since 2008.

That’s when the Nevada Supreme Court first ruled in the industry’s favor, saying the “use tax” the state had been charging casinos since at least the 1960s for comped meals didn’t apply. Although the case dealt only with the relatively small Sparks Nugget, it set off a feeding frenzy of claims for tax rebates.

But the Supreme Court decision, in a footnote, said the state could argue that it could impose the alternative “sales tax” on comped meals when it could prove “consideration” was given for the meals. Consideration means the state could prove casinos received something of value in return for the meals.

The sales tax would be higher because it would be calculated on the retail price of the meal instead of on the cost of ingredients to prepare the food, as it had been calculated previously.

Clarifying what that footnote meant is at the heart of the pending Nevada Supreme Court case.

Representatives for the Nevada Resort Association first approached former Gov. Jim Gibbons, Sandoval’s predecessor, to reach a settlement, according to former administration officials and lawmakers. But his administration, which had an often frosty relationship with the political establishment, resisted overtures from the industry.

In a 2008 special session, soon after the Nevada Supreme Court decision in favor of the casinos, Gibbons tried to clarify the law in the state’s favor.

The Assembly passed the bill unanimously, but lobbyists with the Nevada Resort Association helped to quietly kill it in the Senate, where it never received a vote.

Since Sandoval came into office in 2011, industry lobbyists, some with longtime relationships with the former federal judge, have tried again to reach a settlement.

And that’s where the tax debate gets political.

Gaming's influence

Gaming companies are the most influential industry in Nevada.

Gambling and casinos in 2012 gave twice as much in political contributions to Nevada state candidates as the next highest group, lawyers and lobbyists, according to the National Institute on Money in State Politics, a nonpartisan, nonprofit organization that tracks state spending.

Gaming companies and executives donated $410,000 to Sandoval’s political action committee last year, about half of the total he raised, largely to help Senate Republican candidates last year.

But gaming companies also gave prodigiously to Democratic candidates and organizations. MGM Resorts International, Boyd, Station Casinos and Caesars Entertainment all gave tens of thousands of dollars to the Nevada Democratic Party in 2012, according to campaign finance records.

On top of that, gaming companies have their left flank covered by the Culinary Union, a key constituency for Democratic lawmakers.

In the case pending before the Nevada Supreme Court, in which Boyd is suing the state for its rebate, the Culinary Union filed an amicus brief in support of Boyd. When gaming companies and the Culinary Union are together, they present a mighty political front.

Any settlement on comped meals with the governor would also require legislation, gaming lobbyists said.

Sen. Tick Segerblom, D-Las Vegas and chairman of the Senate Judiciary Committee, said the Legislature should have a say before any agreement is reached.

The gaming industry “is very powerful — and rightly so,” he said, pointing to its tax contributions to the state and the fact that it’s the state’s biggest employer. “We should look upon them favorably. But we can’t give them a free ride.”

Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, said that typically, the state has declined to weigh in on matters pending before the courts. But she added that lawmakers are aware it is a potential liability for the state’s budget.

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  1. Comped meals should be exempt,they are a gift.
    I feel the same about tokes also !

  2. "Comps" are a business expense and, as such, should not be taxed. As for "tokes," they are not taxed, FernleyDem. NV has no state income tax. Now, the feds, that's a different matter but you are mixing apples with oranges here. I worked 9 years at a job whereby "tips" were more important than hourly income and I had a "sweet" deal with the IRS, as does anyone here, in which I was taxed on a flat rate and guaranteed no audits. I always made far more in "tokes" than I was taxed on. Once again, a "sweet" deal. I was paying my "fair share." That should please you, FernelyDem.

  3. "Not taxing future meals would mean forgoing millions of dollars that otherwise could go to education, public safety and social services."

    And we know that's an outright lie. Not in the sense that this is indeed lost revenue to the state, but that a single cent would actually go towards any of these services. We all know that anytime the state gets extra cash they never use it to pay off obligations, they just spend it on new debts.

    If we're going to list the things that the state spends money on that this cash could potentially be spent on, let's list the other things like BS luncheons & prayer breakfasts, lobbyists for the Boulder City Toll road, comped vehicle reimbursements for staff, other time and money wasters incurred by the state. Losing perks like that is what frightens politicians. They could care less if every school closed up, all the cops left, and people starved to death so long as they continue to get voted back into office to get all their free stuff.

    Enough with the taxes already. Especially on meals. "Consideration means the state could prove casinos received something of value in return for the meals." Casinos absolutely recieve things of value from comped meals. Be it from a player or an employee, it keeps both onsite. Workers who don't have to leave the property are virtually guaranteed to return to work on time and thus keep operations running and help encourage players. Likewise when players don't leave, they have more focus time on games and services and spend more cash thus again contributing to the company's revenue stream. What's not difficult to understand about all of this? Do we not have any leadership that has actually ever worked a real job before to understand all of this?

    And I love this quote:
    "We should look upon them favorably. But we can't give them a free ride."

    Just as Sen. Tick Segerblom applies this to the gaming industry, so do the people themselves apply this to you and everyone else in Carson City, Segerblom. Get it together man.

  4. No casino is paying the tax now or has for years which means the state is not loosing any revenue because it has not had it. The budgets is already balanced without the tax so the education and state services advocates are just lying because they want money to blow on their pet projects.

  5. COMPS are a Casino Expense, even paying for Lunch for an Employee is an expense no different than buying Pizza for a Lunchtime Meeting (If it's during work hours).
    Casinos Should just be Taxes Higher and if we loose a Bunch of "Slot Parlours" who cares?
    Nevada Casinos Pay the Lowest Rate anywhere and it should be adjusted.

    Another revenue source should be Outdoor Events. NASCAR - No Ticket Taxes, Burning Man - No Ticket Taxes, EDC - No Ticket Taxes. Over One Billion Dollars in tickets Sold and None Pay Event Taxes like ANY event that sells Indoor Tickets on the Strip would.

  6. "Over One Billion Dollars in tickets Sold "

    How do you figure that number? You counting lifetime or yearly?

  7. I don't see why comped meals should be tax-exempt. Since there is no sale, there clearly should be no sales tax collected.

    However, where there is a "use" of the meal (by the patron eating it, for example) casinos seem to be required to charge the patron a "use" tax at a rate equal to the sales tax (per the NRS, Chapter 32 - Sales and Use Taxes) and subject to pretty much the same conditions and to forward the tax collected to the state. How does the fact that a casino fails to collect the use tax from a patron exempt it from its responsibility to forward to the state the funds due for the tax?

    Note - it is illegal for the casino to assume responsibility for the original payment of the tax. It MUST be collected from the patron by the casino, which must forward the proceeds to the state. Granted, I'm no lawyer, but that chapter seems fairly clear to this layman.

  8. It has NEVER BEEN ILLEGAL for the merchant to include taxes in a sale. Administratively, it is wise to post a sign or include a notation on the receipt that tax is included. The Nevada laws and Taxation administration has long held retailers, merchants, everybody responsible for sales AND USE taxes. All around it sounds like a BAD DECISION by the courts perhaps because the State didn't present the arguments or facts. Further, gifts are not tax free--ask an Enrolled Agent or tax professional. Sure, many would prefer to not pay or collect taxes but you don't get that option.

  9. Finkster: Sales and use taxes are attached to purchases and sales of assets frequently things needed TO DO BUSINESS--only the mining industry is exempt from PAYING sales tax--not sure Taxation has gotten around to dinging them for any failure to collect when they sell assets. Various deductions are allowed in calculating income (net profit) subject to income taxes. I recall that noise from the non-profits--for years the nonprofits MISINTERPRETED our tax laws which say the nonprofits don't have to PAY sales and use tax but they must COLLECT IT when they sell things--their customers are NOT TAX EXEMPT unless they have documentation from the Nevada Department of Taxation saying they are exempt.

    RENORobert: The casino CAN AND MUST pay the tax when they fail to collect it--their negligence does not exempt them from their responsibilities to collect, report and pay over the taxes. If they fail to collect from the patron, they are out the money. LONG ESTABLISHED in contract law and tax administration.

  10. Roslenda. Check your facts. Once again you are posting misleading information.

    Non-Profits in Nevada do not have to pay or collect sales tax. When was the last time a Girl Scout added sales tax to your cookies? They don't.

    Nevada Revised Statute (NRS) 372.326 provides for an exemption from Sales/Use Tax for non-profit organizations created for religious, charitable, or educational purposes.

  11. vegaslee: YOU are wrong. Non-profits, as voted twice by the citizens of Nevada, are required to COLLECT and pay over sales tax. They themselves don't have to PAY sales tax IF they have an exemptions letter issued by the Nevada Department of Taxation as an eleemosynary entity. Read the Sales and Use Tax Audit Appeals decisions, dude.

  12. vegaslee: Apparently you are unaware that many non-profits are NOT "religious, charitable or educational" and even those that are, many don't bother to make the REQUIRED application for exemption.

  13. No "use" tax on materials used in the manufacture of a product. For instance, the steel, plastic, glass and rubber that go into the manufacture of an automobile are not taxed individually. That would be a "value added" tax; not a sales tax. Thank heaven, we haven't gone down that road yet. Give the Dumbocrats enough time & power and we will, though.

  14. @lvfacts101..

    I was referring to the Federal tax.Having lived in Nevada for almost 40 years,I am well aware of the fact that we have no personal income tax.