Las Vegas Sun

March 4, 2024

IRS keeps writing casino meal-tax rules

On Capitol Hill, the meal-tax lies close to death.

But that isn't stopping the Internal Revenue Service.

Despite Friday's decision by top congressional leaders to kill an IRS plan to tax the free meals casinos provide their employees, the tax collection agency is proceeding full steam ahead.

"We will come out with guidelines shortly," said Jodi Patterson, an IRS spokeswoman.

As far as the revenue service is concerned, Friday's decision to add an amendment repealing the meal-tax to an IRS reform bill -- hailed as a victory by Nevada's legislators -- is only proposed legislation. Until the bill is passed into law, the agency will act under existing law, Patterson said.

Which means, simply, that the employee meals will be taxed.

Patterson declined to say when the tax plan will go into effect.

The IRS won the right to tax free employee meals in a U.S. Tax Court case last fall involving Boyd Gaming Corp. The court agreed with the IRS' contention that free meals were a form of compensation, and should be taxed as income. Certain employees who need to remain near their stations at all times, such as food servers and casino floor workers, were exempted from the tax.

The court also ruled that gaming companies could not deduct the cost of the meals from their taxes.

The ruling opened the possibility that low-paid maids, bellhops and pantry workers would suddenly have to pay an additional $300 per year in witholding taxes. And more frightening to casinos, the ruling raised the specter of gaming companies being audited for millions in back taxes.

Gaming companies have long argued that it is simply impractical to expect their hourly employees to leave the casinos during lunch. And the employees and Culinary Workers Union argued that taxing low paid hourly employees for a free meal was simply unfair.

"It's a business necessity that people get these meals," said Glen Arnodo, political action coordinator of the Culinary Workers Union, at an April rally opposing the meal-tax. "It's the IRS going after people who are the most vulnerable."

Earlier this year, Reps. John Ensign and Jim Gibbons (both R-Nev.) and Sens. Harry Reid and Richard Bryan (both D-Nev.) introduced legislation in both houses of Congress to overturn the Tax Court decision. Friday, leaders of both bodies agreed to attach the language of the House bill to an IRS reform act working its way through a House-Senate conference committee.

Most involved with the bill are confident it will pass both houses this week and be signed into law by President Clinton.

"It's a done deal," said Jack Finn, Ensign's press secretary.

Spokesmen for Sens. Dan Coats (R-Indiana) and John Ashcroft (R-Missouri), both outspoken critics of legalized gambling, said they were unaware of the amendment and did not plan to oppose it.

The exact language of the amendment is still being drafted, but is expected to amend the tax code to allow all employees at a "business premises" to receive meals tax-free as long as more than half of the employees at that location are allowed to receive tax-free meals under current law.

In other words, as long as more than half the employees at a casino are food and drink servers or dealers -- job classifications the IRS already recognizes as exempt from the meal-tax -- then everyone else at that location is entitled to a tax-free lunch.

That language was drafted after casino operators throughout Nevada said it would solve the problem, Ensign said. But Bryan noted there's a possibility the bill will not exempt everyone from the meal-tax. Any property with more maids and bellhops than servers and dealers will have to collect witholding taxes from those maids and bellhops, Bryan said.

"There could be some properties that would not receive the benefit of this language," Bryan said.

The Senate bill proposed by Bryan and Reid would have simply exempted all meals provided to hotel and restaurant employees from taxation. Ensign said that language could violate collective bargaining agreements.

In the end, Ensign claims his personal lobbying carried the day.

"I went to the Speaker (of the House, Newt Gingrich), and to Trent (Lott, Senate Majority Leader) and said, 'We have to have this,"' Ensign said in an interview.

But Ensign also credited Bryan's work. He said nothing of Reid's involvement. Ensign is trying to usurp Reid from his Senate seat.

For his part, Reid was congratulatory all around.

"As a result of the work of the House delegation and the Senate delegation, we got it done," said Reid.

And the workers who would be most affected by the IRS plan were ecstatic. Upon hearing of the congressional agreement, members of the Culinary Workers Union erupted into applause Monday morning at a news conference held just before a union delegation departed for Washington to lobby against the tax.

Union members were elated, but didn't change their plans to take their anti-meals tax message to Capitol Hill.

"One thing we learned a long time ago about Washington, D.C., is that it ain't over 'til the fat lady sings," said Culinary Union staff director D. Taylor.

He said the Union would follow through with its trip to lobby members of congress to ensure the meals tax provision of the IRS bill passed. "So once and for all we can get the IRS meals tax killed, dead and buried," Taylor said.

In May, the union, in concert with Las Vegas hotel-casinos, launched a postcard drive that generated 30,000 cards aimed at letting Congress know about the union's opposition to the tax. Culinary Secretary-Treasurer Jim Arnold credited that drive with getting Congress' attention.

"I think that made the difference," he said. "We've just got to continue this fight."