Control Board loses dispute over markers

Friday, Oct. 27, 2000 | 11:02 a.m.

CARSON CITY -- In a split vote, the Nevada Gaming Commission agreed Thursday to give a $1 million refund to the MGM Grand resort in Las Vegas for overpaying its taxes during a two-year period.

The vote came after a warning from a deputy attorney general for the state Gaming Control Board that this would "open the floodgates" to requests from other casinos for similar refunds in a dispute over the handling of gamblers' markers or IOUs.

But Gaming Commission Chairman Brian Sandoval said this was an issue of fairness. The MGM paid taxes on discounted markers on revenue never collected. "In my house, I don't want to pay tax on money not received," he said.

The issue, during a three-hour hearing, pitted the gaming control board against the MGM.

The hotel-casino on the Las Vegas Strip contended it paid $1,032,260 in taxes on $16.5 million in revenue that was never collected on markers.

Attorney Ellen Whittemore, representing MGM, said it overpaid the taxes through an error. "We not asking for a loophole. We don't have to pay taxes on uncollectable revenue."

Deputy Attorney General A. G. Burnett argued the casino failed to follow the procedures in the law in discounting its markers. He urged the commission to adopt a strict interpretation of the law. There was not sufficient documentation, he said to verify that these were legitimate discounts.

High-end players get credit from casinos and sign markers. But most clubs, in order to keep the customer returning, discount the debt. For instance, a player may sign a $100,000 marker. But the casino and the patron may negotiate a settlement where only $85,000 or $90,000 is paid.

And included in this discount may be an amount that covers air fare for the player. Air fares, if they are for promotional purposes, are not deductible from taxes. But they are allowed if they are used to reduce the markers.

Whittemore conceded the MGM used the wrong forms in deducting air fares from the markers that were owed.

"Air fares are part of a valid discount," she said. Players, she said, like to brag to their friends that the casino picked up the cost of their travel. So that expense was figured in on the discounts given on the marker.

Over the two-year period, the MGM Grand paid taxes on $16 million, which it didn't deduct from its gross revenue. The regulation, Whittemore said, requires the casino show only that the customer was credit-worthy and that efforts were made to collect the marker. If those two conditions are met, than the casino can avoid taxes on the uncollected part of the IOUs, even if there is an error on using the wrong form.

But Burnett argued the casino did not comply with the regulations in settling these debts by the players. He said the MGM Grand was required to provide basic information that the deduction was legitimate. And the business did not.

The records the casino kept were seriously deficient, Burnett said. Auditors from the gaming board told the MGM Grand it was not providing proper documentation to deduct the air fares. But MGM Grand continued its practice.

Burnett said the commission should require a strict construction of the law that all the conditions must be met to qualify for the deduction. He said "substantial" compliance with the law and regulation is not enough.

If the state auditors can't verify the settlement of these debts, "It opens the door to fraud." Burnett added that other gaming casinos are watching this ruling. A decision in favor of the MGM Grand will result in a "floodgate of claims," he said.

But Whittemore said a decision in favor of MGM Grand "would not open Pandora's Box."

Voting for the refund was Sandoval of Reno and Radha Chanderraj and Arthur Marshall, both of Las Vegas.

Marshall said, "I do not believe in collecting taxes on revenues not received."

Commissioner Sue Wagner of Reno, who dissented, said she believed there should be a strict construction of the law. Also voting against the refund was Augie Gurrola of Las Vegas.