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August 18, 2022

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State: Casinos owe tens of millions for comps

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Food fight!

The state says it has been stiffed tens of millions of dollars by casinos that give free meals to patrons and employees but don’t pay taxes on the value of the comps.

And casino companies are trying to reclaim $210 million that they think the state wrongfully collected because of shifting legal opinions.

Who says the capital is quiet when the Legislature has gone home?

At issue is whether casinos should be taxed for the food they give away — whether to employees in their lunchrooms or to gamblers as a way to entice them to linger and gamble.

“The stakes for both sides are very high,” said Carole Vilardo, president of the Nevada Taxpayers Association. If casino companies win, the state would have to pay refunds “which would be very difficult in this economy.” But if the state wins, casinos would to pay a much higher sales tax based on the retail value of the food versus the wholesale value.

A state Tax Department audit found Boyd Gaming Corp. owes the state $20 million in unpaid taxes and interest, according to a company filing with the Securities and Exchange Commission. Boyd is fighting that decision, and argues the state owes the company about the same amount in taxes it wrongfully paid on comped meals from 2000 to 2008.

The comped-food battle will also test the will of Gov. Brian Sandoval and lawmakers to tangle with the state’s most powerful industry. Once, in 2008, gaming lobbyists successfully killed legislation that would have settled the matter.

The issue is whether these comped meals, given to high rollers and slot jockeys earning points in reward programs, should be taxed.

In Nevada, food is exempt from the sales and use tax unless it is prepared for immediate consumption; you pay sales tax on a sandwich at a restaurant, but not if you buy bread at the store.

For decades, the casinos paid a “use tax” on the food; calculated on the cost to the company to prepare the meal. But the Sparks Nugget, also called John Ascuaga’s Nugget, said it shouldn’t pay the tax at all. In 2008, the Nevada Supreme Court handed a victory to the Nugget.

More than 100 casinos figured they were in line to get tax refunds totaling about $210 million. And many casinos, citing the court ruling, stopped paying taxes on comped meals.

But Gov. Jim Gibbons’ administration, pummeled by deep budget deficits, played hardball. Rather than refund the money to the casinos, the Taxation Department decided to collect sales tax on the meals, putting forward a new legal argument that the meals are provided to patrons and casino employees as “consideration” — either to encourage gambler loyalty or as part of an employee’s compensation package. That amount is calculated on the full retail price of the meals, a much higher number than the old way of calculating the tax.

It was an argument that the Supreme Court, in a footnote in its opinion, seemed to invite.

The court stated, “we do not foreclose the possibility that complimentary meals such as the ones at issue … may be subject to sales tax where consideration is properly demonstrated.”

Indeed, Administrative Law Judge Dena James Smith has ruled, in a case involving Boyd Gaming, that casinos should pay sales tax on the meals they comp gamblers.

“The complimentary meals were not simply given to any patron as a gesture of good will for which taxpayers (Boyd) expected nothing in return,” she wrote. “The complimentary meals were directly in exchange for information and a certain amount of gambling.”

But she ruled that employee meals were not subject to any tax.

The Taxation Department and Boyd and Caesars Entertainment are appealing the judge’s ruling to the Nevada Tax Commission — the tax man being upset by the ruling and the casinos wanting their refunds. The meeting was scheduled for this week, but was delayed so new evidence could be gathered by the casino companies.

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