IRS may soon feast on casino workers’ lunches

John Wilen

Tuesday, April 14, 1998 | 10:01 a.m.

It's been said many times that there's no such thing as a free lunch.

For service industry employees nationwide, that appears to be truer than ever.

On Sept. 30, U.S. Tax Court upheld the Internal Revenue Service's contention that the free lunches Boyd Gaming Corp. gives its employees should be taxable as income.

Boyd, which operates the Stardust hotel-casino and other properties, is appealing the ruling, but will likely have to wait until early 2000 for a final decision. In the meantime the IRS is expected to begin requiring companies to withhold taxes on free meals sometime this year.

"Generally they've talked about a July 1 implementation date," said Glen Arnado, political action director of the Culinary Workers Union in Las Vegas.

A spokesman for the IRS said nothing has been decided yet.

"Right now I can't give you an exact time frame," said Bob Norris, an IRS spokesman. "We are in the process of holding meetings internally to look at the whole issue."

Also undecided is an issue that could hit service industry employers hard: whether the IRS will go after back-taxes on deductions companies take to cover the costs of the free lunches.

"There have not been any firm decisions made at this time," Norris said. Any decisions will take into account the effect on service industry employers nationwide, he added. "This is a much larger issue than just Las Vegas."

In an attempt to affect the IRS's decision-making process, the Culinary Union and several gaming companies are sponsoring a lunch-time rally today in front of the MGM Grand hotel-casino. The rally's basic point, organizers say, is that any decision to tax low-paid service workers for their free lunches is inherently unfair.

"It's basically a pay-cut for workers with very modest incomes," Arnado said.

A full-time employee who works 250 days per year would be taxed an additional $300, Arnado said.

The Tax Court's ruling exempted employees who have to remain on the job during their meals, such as dealers and food and beverage servers. But Arnado said taxing maids and administrative employees for their free meals is just step one on a slippery slope toward taxing every service employee.

"None of us believe that the IRS would stop once they start this thing," Arnado said. "Who knows where it would end."

Less clear is the ruling's impact on tax write-offs service industry employers take for offering free meals. Rick Darnold, vice president of tax and financial administration for Boyd, said the deductions may or may not be affected, depending on a company's circumstances.

However, he said, there is the possibility some companies will decide that, sans deduction, they can no longer afford to provide free lunches.

"Most casinos are looking at how this decision affects each individual operation," Darnold said.

Boyd will continue its "long practice" of providing free lunches, he said.

"Our intention is to continue to provide the meal at no charge," Darnold said.

Whatever way the IRS ultimately decides to implement the ruling, all sides expect Congress to try to protect the tax-free free lunch.

"I think most people feel that this is going to be changed with legislation in Congress," Arnado said.

A spokeswoman for Sen. Harry Reid, D-Nev., who will appear at today's rally, said no legislation has been introduced. The spokeswoman said Reid's staff has held several meetings with the IRS to ensure its ultimate implementation of the Tax Court ruling is fair, the spokeswoman said.