Friday, March 12, 2010 | 2:01 a.m.
Harrah’s has sued Nevada, seeking the refund of $10 million in taxes the gaming giant paid on four corporate jets.
The legal action is the latest in a series of attempts by large Nevada corporations to take back hundreds of millions of dollars in taxes paid to the state. Lawmakers fear that if Harrah’s succeeds, it would prompt others to pursue similar tax refunds, adding to a state budget shortfall already expected to top $3 billion by the time the 2011 Legislature convenes.
Harrah’s argues it should not have paid tax on the aircraft it purchased in 2006 because the planes’ first flights were to locations outside Nevada and during the first 12 months of operation, they were used for interstate commerce — ferrying corporate executives and casino patrons around the country and globe.
If the company prevails, it would get back the $8.5 million it paid in taxes, plus interest.
An administrative hearing officer and the Nevada Tax Commission rejected the company’s argument late last year. Harrah’s appealed, filing a complaint in District Court in Clark County. A hearing in the case is scheduled for this month.
The tax-related legal actions by corporations — arguing for tax exemptions on everything from imported coal to comped meals at casinos — come as the state has struggled to balance its spending and revenue through four rounds of budget cuts, beginning in January 2008.
The case also comes at an awkward time for the gaming industry.
Nevada’s largest industry fought legislators’ request last month to pay $32.5 million in additional fees to cover the cost of regulating gaming. The industry successfully argued that the fees would hurt a struggling business that pays almost half of state government’s costs.
Marybel Batjer, a vice president of public policy for Harrah’s, said the tax appeal is strictly a legal matter and not a reflection of the company’s or industry’s attitude toward Nevada.
“I think we are very good citizens for Nevada. We have our international headquarters here. We work hard for the state of Nevada,” she said. The industry is “the major tax provider in the state — Harrah’s is a huge portion of that. This is a legal issue, not an issue of fairness. This is not whether we participate well in the revenue of Nevada.”
Harrah’s is the latest in a series of cases that lawmakers are watching to see how they affect the state’s budget.
• In a case pending before the Nevada Supreme Court, Southern California Edison has argued that coal purchased out of state should not have been taxed. NV Energy has requested a rebate. The companies have asked that tens of millions of dollars in taxes be returned.
• Casino companies have sought hundreds of millions of dollars in refunds on taxes paid on meals comped to guests and employees. The Nevada Supreme Court ruled in favor of a Northern Nevada casino in 2008. Other casino companies followed suit, and the state is challenging the copycat cases.
• The state is still calculating the price tag that casinos and other developers received for building certified “green buildings” under legislation passed in 2005 and 2007.
Sen. Randolph Townsend, R-Reno, said these actions, combined with pension liabilities, create an additional budget shortfall as large as $500 million. He predicted that if the state has to refund the taxes on Harrah’s corporate planes, other companies will pursue similar refunds.
“If this is $10 million for Harrah’s, this will be a significant number for other companies” with planes, Townsend said.
Assemblyman Tick Segerblom, D-Las Vegas, compared the case to an individual who bought a car in Oregon and brought it to Nevada.
“The state would be all over you to pay taxes,” he said. In purchasing the plane, “it seems the intent was to bring guests to casinos in Las Vegas. It seems disingenuous to argue the plane was intended for anything else.”
Segerblom called the Supreme Court decision on comped meals “frankly, one of the worst decisions in the history of Nevada.” That ruling “seems to have opened the floodgates” for corporations to seek to recoup millions in taxes from the state.
In the Harrah’s case, an attorney for the company argued that a 1999 law provides an exemption for planes, buses and other property not intended for “storage, use or other consumption in this state,” according to a transcript of a July Tax Commission hearing. The law says property is exempt if:
• it was first used in interstate or foreign commerce outside Nevada;
• it is used continuously for interstate or foreign commerce, but not exclusively in the state for the first 12 months of its use.
The first plane Harrah’s bought, for $35 million, flew from Oregon to Arkansas, before heading to Long Beach, Calif., to be refurbished. After that it flew to Las Vegas. The three other planes were delivered to Harrah’s in Arkansas, and some made stops in California before heading to Las Vegas, Harrah’s attorney John Bartlett said.
Bartlett also noted that Harrah’s Operating Company, a subsidiary of the parent corporation, is a Delaware-based corporation.
The Tax Commission unanimously ruled against Harrah’s.
“When you purchase a $35 million aircraft and all you have to do, rather than fly it to Nevada ... you fly to Billings, Mont., or anywhere but Nevada — shazam — you don’t have to pay the use-tax,” said Tax Commissioner Hank Vogler, according to the transcript. “I can hardly believe that the Legislature had that intention.”
Deputy Attorney General David Pope told the commission that the 1999 law was intended to clarify what property is subject to sales or use tax, so there would be no confusion over whether commercial passenger planes that land in Nevada or tour buses that stop here should be taxed. He also argued there is substantial connection between Harrah’s planes and Nevada.
“Harrah’s is registered to do business in Nevada, it’s believed its headquarters are in Nevada and if not, at least they have a very nice building and substantial business operations in Nevada,” Pope said. “The planes were purchased for use in Nevada ... The planes fly in and out of Nevada as evidenced by the flight logs.”
No other state has collected a tax on the plane, and no other state is trying to, he said.