Lawmakers ignore comped-meals tax issue, its $210M implication

By David McGrath Schwartz

Sunday, May 1, 2011 | 2 a.m.

Nevada is in a big financial fix. You’d think lawmakers would be doing all they could to avoid adding another $200 million-plus to the state’s multibillion-dollar deficit.

Instead, legislators are content to let lawyers fight over those funds and avoid taking on the state’s powerful gaming industry.

At issue are complimentary meals — “comped meals,” in the Vegas vernacular — that resorts and casinos provide to patrons and employees.

For about 20 years, casinos and restaurants paid taxes on these meals. The reasoning: State law requires a tax on “prepared food intended for immediate consumption” at the time it is sold.

Then, in 2008, the Nevada Supreme Court ruled 8-1 that the state should not have collected that tax. Giving away the meals was not a “taxable event,” the court ruled.

The Sparks Nugget, the small casino that had brought the case, won $1.3 million in back taxes.

Assemblyman Tick Segerblom, D-Las Vegas, in 2010, called the Supreme Court ruling “one of the worst decisions in the history of Nevada.”

But big gaming companies took notice. They stopped paying taxes on comped meals and filed appeals of their own seeking refunds that would dwarf the Sparks Nugget’s. In 2010, casino companies requested $210 million in tax refunds related to comped meals, according to the Nevada Taxation Department.

To be sure, the state might be able to resume collecting sales tax on such meals and avoid issuing massive refunds. The Tax Department is using a new argument: that comped meals are provided in exchange for something — time spent at the slots if you’re a gambler, or as part of an employee’s compensation.

Caesars Entertainment, formerly Harrah’s, has a case pending with the Tax Department. An administrative hearing officer has issued a ruling, which is not public record, according to the department and the attorney general’s office. Although the outcome of the case is unknown, Caesars is expected to appeal the ruling to the Tax Commission, according to sources.

A Caesars representative did not return a call for comment.

Lawmakers don’t typically get involved in legal disputes. But lobbyists, including those for gaming, have routinely tried to use the legislative process to “clarify” laws.

The Legislature tried to do that during the June 2008 special session, to clarify the law and make comped meals taxable. The bill flew out of the Assembly, but was voted down by Republicans in the state Senate.

“That measure was a surprise,” said Billy Vassiliadis, a lobbyist for the Nevada Resort Association. “No one knew it was coming.”

The bill’s failure was cited by the Nevada Supreme Court as it rejected an appeal from the state to reconsider its decision.

The 2009 Legislature never raised the issue. And so far this session no lawmaker has brought it up. Democratic leadership say they don’t want to interfere in a case pending before the Tax Commission.

“This is an executive branch issue right now,” Senate Majority Leader Steven Horsford, D-Las Vegas, said. Democrats in the Assembly echoed Horsford.

“We don’t kill sacred cows around here,” one longtime legislative observer said.

Gaming, the state’s largest private employer, is still one of the most influential groups in the state. And casino companies argue clarifying the law would amount to a tax increase.

The state lost, Vassiliadis said. To change the law now and resume collecting the tax would amount to “a new tax.”

The resort industry tried to negotiate a settlement with Gov. Jim Gibbons before he left office on the $210 million it says it’s owed, Vassiliadis said.

He said the industry is willing to negotiate with Gov. Brian Sandoval’s administration.