Lawmakers must settle chip dispute

Tuesday, June 17, 1997 | 11:59 a.m.

CARSON CITY -- Las Vegas casino executives told an Assembly committee that giving away promotional gaming chips generates millions of dollars in tax revenue for the state.

David Sisk, vice president of finance for Caesars Palace, said his resort gave $50,000 in free chips to one player who eventually lost $20 million.

This promotional practice, Sisk said, is comparable to "chumming" in fishing. "You throw blood into the water to attract other fish," he said.

Robert Faiss, counsel for the Nevada Resort Association, said by using promotional chips, one casino increased its baccarat winnings from $32 million to $90 million.

Mark Lerner, assistant counsel for Alliance Gaming, said to discourage chip promotions would cost the state "millions and millions in tax revenue." Lerner said a player who wins with a free chip doesn't leave the table or slot machine but plays the winnings back.

"Promotions increase revenue," Lerner said.

At issue before the Assembly Ways and Means Committee is Assembly Bill 419, aimed at clearing up a dispute between the casinos and the State Gaming Control Board over the taxing of non-negotiable chips.

Dennis Neilander, chief of corporate securities for the board, told the committee there is an "honest disagreement" between the state and the casinos whether winnings by a player who bets non-negotiable chips should be deductible from gross revenue by the casinos.

Neilander and Greg Gale, chief of audit for the board, said such chips cannot be redeemed for cash, therefore the casinos should not be permitted to deduct any losses. They said nothing of value is wagered by the player.

They compared the transaction to a customer who goes to a casino and cashes his paycheck. He gets a free spin on a wheel and may win $50 or $100. That is not deductible by the casino from its gross revenue for tax purposes.

In 1995, the Legislature passed a law on promotional expenses. Since then the board has said casinos can't deduct losses from non-negotiable chips, while the casinos claim they can.

Neilander and Gale estimate the state will lose anywhere from $1.25 million to $2.5 million in tax revenue a year if the losses can be deductible.

Assemblywoman Kathy Von Tobel, R-Las Vegas, who said she worked in casino accounting for 10 years, said to accept the interpretation of the Control Board would "create an accounting nightmare."

She said she can't see how a casino would keep track of how much was lost on a free chip. "You're getting into an area that is impossible for accounting," she told the board officials.

But they said that casinos now estimate their losses from the free gaming tokens.

Whatever way the committee votes, Neilander said, "We need to get it clarified. It's a complicated area."

Faiss argued that in the past the Control Board tried to tax such things as counterfeit coins, foreign coins, entry fees for tournaments and baccarat commissions. But the Legislature, he said, in each case put a stop to those taxes.

The committee will vote later on the bill.