Gaming officials, IRS reach deal on tip taxes

Benjamin Grove

Friday, April 11, 2003 | 11:12 a.m.

WASHINGTON -- After years of negotiating, gaming industry leaders and the Internal Revenue Service finally struck a deal on tip taxes paid by casino employees, thanks to a little pressure from Nevada senators.

Roughly 100,000 Nevada casino employees pay about $800 million in taxes on their gratuities each year. They pay a set rate based on their estimated income. The rate varies according to casino and work shift.

But the IRS since 1999 has sought to revamp the system. The new tax rates would have doubled or even tripled worker taxes, industry officials said.

The industry fought the sweeping changes but agreed to a new IRS system that raised tax rates only slightly, said Frank Fahrenkopf, president of the American Gaming Association. That system was implemented Dec. 31 for a 6-month period.

But the IRS has dragged its feet on a longer-term deal, Fahrenkopf said. An IRS spokesman was not available to comment.

During marathon negotiating sessions this week, the IRS and industry leaders led by American Gaming Association lawyers agreed to sustain the new system until 2006. As part of the agreement, the IRS will not audit worker tax returns.

Striking the deal took on a new urgency when Sens. Harry Reid, D-Nev., and John Ensign, R-Nev., this week put a hold on the nomination of Mark Everson, President Bush's nominee for IRS commissioner. Bush wanted the Senate to confirm Everson before Tax Day on April 15, sources said. Reid and Ensign removed their holds on Everson Thursday afternoon after the deal was made, and Everson could be approved as early as today.

"We're tremendously pleased," Fahrenkopf said. "It would not have happened without Sen. Reid and Sen. Ensign getting the attention of the IRS."

Service industry workers can breath a sigh of relief, Ensign said.

"This agreement means that workers no longer have to fear that the IRS will raid their wallets for an unknown amount at an unknown time," Ensign said.

Employees generally think the rates are fair and reasonable, Culinary Union political director Glen Arnodo said.

"By in large, the workers are happy with the resolution," Arnodo said.

The tip tax agreement used by the IRS in Nevada is unique to the state. A Las Vegas IRS manager today said the goal of developing a new tax system was to develop a formula that it could use nationally, and the new agreement meets that goal.

"I think we have been working diligently," IRS territory manager Dennis Ozment said. "These things take time."

Ozment said he could not comment on whether Reid and Ensign pressured the process with their hold on Bush's nominee.