Wynn is in line for more art tax exemptions

David Strow

Monday, May 22, 2000 | noon

When first enacted three years ago, Nevada's law on tax breaks for art collections was designed to help bring works of fine art to the state.

But when MGM Grand Inc. sells off its $200 million portion of the prized $400 million art collection at the Bellagio, its new buyer may get a multimillion-dollar tax break from that law, even though the art is already in Nevada and may be transferred to a new owner in Nevada.

MGM Grand intends to sell most of the $200 million in art owned by Mirage Resorts Inc. after closing its $6.4 billion acquisition of Mirage. Steve Wynn, the outgoing chairman of Mirage, holds the right of first refusal to buy this art. He's widely expected to be the ultimate buyer. He personally owns the other $200 million in art and leases it to the gallery.

Under a state law passed in 1997 and revised last year, Wynn -- or any other Nevada-based buyer of the art -- will be entitled to a partial exemption from the state's 7.25 percent sales tax once that sale occurs, said Harvey Whittemore, attorney for Mirage, MGM Grand and Wynn.

"We have not been asked to determine whether or not the new entity (the merged MGM Grand-Mirage) will be required to comply with the requirements of the state law," Whittemore said. "If they sell it, they are entitled to the exemption."

It's an issue that frustrates state Sen. Joe Neal, D-North Las Vegas, the most strident opponent of the art tax legislation. But he agrees with Whittemore on one issue -- the ultimate buyer is entitled to an exemption under the law.

"This is the same thing that I argued against, that the public would not benefit by (the art sales) being granted those exemptions," Neal said. "You expect some kind of benefit from granting an exemption. There's no benefit by granting this."

If Wynn does buy the art and receive the exemption, "you can't get angry with Steve Wynn, because hell, he wasn't voting (on the bill)," Neal said. "It was the legislators voting. It's up to the public to address this issue if they want to address it."

Under state law, qualifying art sales are entitled to a 5.25 percentage-point reduction in the 7.25 percent state sales tax, making the effective sales tax rate 2 percent.

The 2 percent is the state's portion of the sales tax, and cannot be waived without voter approval. The waived portion of the tax would have gone to city and county governments, as well as the Clark County School District.

"Whatever taxes need to be paid or should be paid in accordance with the law will be paid," said Alan Feldman, spokesman for Mirage.

It isn't known what the amount of that exemption will ultimately be, since a sales price has not been determined. If all the art were sold at its estimated value of $200 million, the sales tax exemption -- usually paid by the purchasing party -- would total $10 million.

The state isn't saying how much in sales taxes have already been waived for art purchases made previously by Wynn and Mirage, saying that information is confidential.

"We can't reveal specifics on individual taxpayers," said David Pursell, executive director of the Nevada Department of Taxation.

Assuming a hypothetical $200 million purchase price, the buyer of the Bellagio art would still be on the hook for $4 million in nonexempt sales tax.

The art tax break law is intended to encourage works of fine art to be brought and displayed in Nevada. Under certain conditions, art pieces valued at more than $25,000 are eligible for the sales tax exemption. Further, the art is exempted from a 1 percent annual personal property tax.

But there's a catch. In order to qualify for these exemptions, the art must be publicly displayed for at least 20 hours a week, 35 weeks a year. Admission can be charged, but Nevadans must receive a 50 percent discount, and the collection must be available for five hours of free tours by schoolchildren for 60 days each year.

Wynn hasn't said what he plans to do with the $200 million in art he owns and is removing from the Bellagio. Nor is it known if Wynn would buy the MGM Grand portion of the art and put it on display at the Desert Inn, which he is acquiring for $270 million in cash.

But Whittemore insists Wynn or any other buyer is eligible for a sales tax break -- even if the art goes into a collection that's unavailable to the public.

"The exemption for the sales tax has already taken place," Whittemore said. "They've met the requirements, so I don't think there will be a sales tax obligation that's due and owing for the sale of the art to Steve."

"He may be right," said Mark Schofield, Clark County assessor. "There's been such divergent opinions on this. Harvey wrote it (the law), and the guys that wrote the laws know what they're doing."

Pursell said the case would have to be reviewed before he could take a position on whether MGM Grand's planned sale would qualify for a sales tax exemption.

Far more clear is the question of whether the art qualifies for the 1 percent personal property tax exemption, split between local and state government entities. If Wynn accumulated the entire art collection now at the Bellagio, this tax break would come to about $4 million per year.

"If you want to continue to get the exemption, you have to continue to display it," Whittemore said. "Steve is very well aware of what he's required to do to get an exemption."

But Wynn still wouldn't have to pay the tax even if he kept it at home, Schofield said.

"If Steve Wynn owns it as personal property, then it's exempt anyway, because it's considered a household good," Schofield said. "We have a district attorney's opinion that says that."

But Whittemore said it shouldn't be assumed Wynn won't display the art if he purchases it.

"I wouldn't suggest that at all," Whittemore said. "That's a conclusion that might not be accurate."

Wynn and Mirage have already received property tax exemptions for the fiscal years ending June 30, 1998, 1999 and 2000 -- exemptions valued at more than $9 million in the aggregate.

Schofield had asked for clarification of the 1998 and 1999 exemptions, questioning whether the exemption could be provided before the law was passed.

Last September, the county conceded these exemptions to Wynn and Mirage. In fiscal 1998, this exemption totaled $3 million, or 1 percent of $300 million, the value then provided by the company and Wynn.

Since Wynn and Mirage only had to prove that the art fell under the exemption requirements in following years, specific exemption values were not provided for fiscal 1999 and 2000.

Still yet to be determined are whether the Bellagio qualifies for deductions based on payments it made to rent Wynn-owned art in the Bellagio gallery.

Bellagio attorneys say the hotel-casino qualifies for $5.5 million in tax deductions, the amount paid in rental expenses to Wynn each year. The state tax commission is currently conducting an audit of art purchases made by the Bellagio and display costs associated with the collection.

Pursell said this audit is in its final stages, and the tax commission will soon issue an opinion on the Bellagio's tax deduction request.