Gaming tax: Onerous or overdue?

Sunday, Jan. 9, 2000 | 8:56 a.m.

Tax rates for some casinos around the country

The tax ranges from 2 percent to 20 percent depending on the annual adjusted gross revenue a casino reports. Those casinos with $10 million or more pay a 20 percent rate.

25 percent of gross revenue of slot machines or $160 million ($80 million per casino), whichever is greater, as long as the tribal casinos have a monopoly on slot machines.

Tax on annual adjusted gross revenue ranges from 15 to 35 percent, depending on the size of the club.

20 percent of daily adjusted gross revenue.

$100 million or 18 percent of adjusted gross revenue up to $600 million, whichever is greater; 20 percent on adjusted gross revenue from $600 million to $700 million and it ranges up to 25 percent of adjusted gross revenue for casinos with more than $900 million.

18 percent of daily gross revenue.

State gross revenue fee ranges from 4 percent of monthly gross revenue up to $50,000 to 8 percent of monthly gross revenue exceeding $134,000.

20 percent of daily adjusted gross revenue.

8.25 percent gross monthly taxable revenue plus an additional 1.25 percent local reinvestment tax on monthly gross gaming revenue.

3 percent on all gross revenue of casinos whose take is up to $50,000 a month; 4 percent on casinos which take in $50,000 to $134,000 and 6.25 percent for casinos that exceed $134,000 per month.

CARSON CITY -- To some, state Sen. Joe Neal has embarked on a noble cause to raise taxes on major casinos in Nevada by 80 percent with the money being funneled into education, tax breaks and pay raises for some state workers.

But casinos see Neal's proposal as a dangerous threat to the gaming industry.

Public opinion polls by the University of Nevada, Reno in 1994, 1996 and 1998 show that more than 66 percent of those questioned favored raising the tax on casinos if state government needs more revenue.

It's a popular idea -- tax the other guy, not me.

And Neal feels he won't have much trouble getting 44,009 signatures on his initiative petition by November to be presented to the 2001 Legislature.

Casinos, however, are not going to roll over, and they have some strong arguments on their side.

Economics Professor William Eadington, director of the institute for the study of gambling at UNR, says the Neal tax plan is "not very smart," especially now when the industry faces increased competition both from other states such as California and internationally.

"It's like shooting yourself in the foot to win the race," says Eadington, who has published about a dozen books on gambling and conducted international conferences on the casino industry.

Harvey Whittemore, a Reno attorney and lobbyist for the Nevada Resort Association, says the industry intends to mobilize other businesses and labor unions to battle the petition.

The casino industry will "get the message out" on the damaging impact it would have on suppliers of casinos and on gaming workers who might be laid off or go without pay raises.

No one who understands gambling can suggest that this isn't an onerous tax, Whittemore said.

Neal, in his unsuccessful campaign for the Democratic nomination for governor last year, suggested casinos should pay more taxes. And he asked the Legislature to boost the present tax of 6.25 percent of gross win to 8.25 percent. His bill never got out of the Senate Taxation Committee. His new plan calls for the tax to go to 11.25 percent.

"He (Neal) fights for the people," says Pat Fladager, former president of Common Cause of Nevada. "He has never wavered and that takes a lot of courage," referring to the Las Vegas Democrat.

Some of his colleagues, Neal says, whisper in his ear that he's doing the right thing. But they're afraid to publicly support him because that would dry up casino political campaign contributions.

He shrugs off arguments that the 80 percent increase would devastate the industry. Nevada has the lowest tax rate of any state with gambling, he says. The casinos took in $8 billion in gross revenue last year plus $7 billion from hotel rooms, food and beverage.

His tax would hit only 107 casinos statewide and would raise $388 million a year more for the state. And the casinos would be able to write off the added state tax from their federal income tax.

"If we pass the 11.25 percent, we will still be among the lowest in the United States," Neal said.

The percentage increase would go against those casinos collecting more than $1 million a month in gross revenue, computed before business expenses and taxes.

The claims of the gaming industry that it could put some casinos out of business carry some weight. According to the state Gaming Control Board, the 36 casinos reporting gross revenue of $12 million to $36 million in 1998 posted a total loss of $34.8 million. That was a 2.3 percent loss before federal income taxes and extraordinary expenses were figured.

On the other hand, the 28 casinos who collected $36 million to $72 million in 1998 in gaming revenues posted a profit of $122.9 million or 4.7 percent before federal taxes and extraordinary expenses. A return of 4.7 percent is not considered exorbitant.

The report showed the 32 megacasinos enjoyed $997.7 million in net earnings or an 11.6 percent return, a healthy profit.

The 1998 earnings showed a total profit of $1.085 billion among these clubs which would be reduced by $388 million if Neal's tax had been in effect.

Bill Bible, newly appointed head of the Nevada Resort Association in Las Vegas, said state government examined a possible 4 percent excise tax on gambling in the mid 1990s. At that time he was chairman of the Gaming Control Board. That study, he said, found that it "would drive the marginal operations out of business."

Other properties, he said, would have to compensate for the lost revenue by cutting costs which means laying off workers. "It's not good government to do taxation by petition. You don't arbitrarily snatch a number out of the air. You look at the entire revenue base," Bible, a former state budget director, said.

Gov. Kenny Guinn is doing just that. He's examining state government to determine where savings can be realized. And he's projecting what the state will need in the future to maintain its level of services.

The governor, who also opposes the Neal petition, has said there will be a shortfall in the future but he doesn't know yet how much will be needed to close that gap. And that's the point Bible makes. The revenue need should be determined before any tax is increased, Guinn says.

There have been some suggestions a compromise may be reached for a smaller tax increase, hitting only the megaresorts. Neal says no one from the casino industry has approached him, and he scoffs at claims that his petition will devastate the industry.

Eadington says from an economic standpoint, Nevada's tax base is too narrow. And the state can't just keep hitting one industry. The Neal petition avoids the major issue, the professor says. That's widening the tax base. If more money is needed, the state should look at an income tax or corporate tax which are imposed "in more normal jurisdiction rather than assuming we can continue to draw from a single wealth."

Because of the low tax rate, Nevada casinos have been able to invest in new resorts and attractions to keep the tourists coming.

"One advantage Nevada has had is its low tax base which has attracted significant capital and creativity," Eadington said.

But Fladager, who retired from UNR, expresses the feeling of many residents. "The casinos are making so much money. The people have been getting ripped off for a long time."

She points out that the tax on casinos hasn't been raised since the early 1980s. And the industry is using its Nevada winnings to start gambling ventures in other states, she complains.

Since the Legislature has failed to act, Neal had no alternative "but to go to the people," she says.

After Neal files his initiative petition with the secretary of state's office, he will have until Nov. 14 to gather the 44,009 signatures of registered voters. There must be 10 percent of the voters signing in 13 of the 17 counties. If successful, the petition will be presented to the 2001 Legislature, which must consider the issue within 40 days.

If the Legislature does not approve the Neal petition, it will go on the ballot in 2002 for the voters to decide. The Legislature can approve an alternate plan and that could also be placed before the voters. But so far, no one has come up with any options.

If the Neal plan is approved, 45 percent of the estimated $388 million would go to the public and charter schools in Nevada based on their enrollments. In his initial petition, Neal said that money could not be used to increase the salary of teachers. He has deleted that prohibition "because it would cause too much of a problem."

The Nevada State Education Association, the union of school teachers, is promoting its own petition for a business tax in Nevada that would not be imposed on gaming revenues. And Neal says teachers are opposing his petition.

Thirty-eight percent of the money raised from the Neal plan would go to reducing the motor vehicle privilege tax. Eight percent of the money would go for pay raises for the Nevada Highway Patrol and for the auditors in the state Gaming Control Board. Neal said that many of the auditors are leaving because of low pay and that they are needed to make sure the casinos are paying their taxes.

Seven percent of the money would be used to promote economic development in bringing new business to Nevada or encouraging those who are here to expand. And 2 percent would be used to combat gambling addiction.

As Neal begins to circulate his petition, voters in California in March will decide on Indian gambling. And the public opinion polls show it will pass.

Eadington calls the threat of tribal casinos in California a "gorilla."

"Even with the more conservative estimates, the size of Indian gambling will get up to 70-80 percent of the size of Nevada in a short time," he said.

The tribes, says Eadington, will be able to have at least 46,000 slot machines and some foresee 120,000, compared to the 200,000 now in Nevada. Nevada casinos have an average win of $100 per slot per day. But in other states, the average is $250 to $500 a day.

"Assuming it is $300, that will get very big, very quickly," he said of the slot revenues that could be captured by tribes in California. And he said the Indians will be getting higher quality slot machines, which they didn't have access to before.

California, which is Nevada's biggest market, would soon be keeping its players at home.

Eadington has little doubt Neal will get the 44,000 signatures.

"It's a popular position for the wrong reasons. The establishment of the state is shaking its head and hopes it goes away. But Joe Neal is a pretty feisty guy."

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