Casino exec: Nevada taxation unfair

Wednesday, Jan. 29, 2003 | 11:06 a.m.

Harrah's Entertainment Inc.'s new chief executive expressed amazement Tuesday at Nevada's tax system that remains so heavily dependent upon a single industry to fund basic services while allowing other big businesses to escape taxes.

In a television interview on the program "Face to Face With Jon Ralston" on Las Vegas ONE, a joint partnership of the Las Vegas Sun, KLAS-TV and Cox Communications, Gary Loveman said Harrah's will join other major Las Vegas gaming interests in lobbying state legislators to adopt a gross receipts tax that is paid by all big businesses.

"Businesses ought to be taxed in a broad way," said Loveman, who was promoted to CEO Jan. 1 following the retirement of Harrah's chief Phil Satre.

"A gross receipts tax, which exists almost everywhere else in the country, makes sense," he said.

The quintessential casino outsider, Loveman joined Harrah's in 1998 fresh from teaching management strategies to MBA students at Harvard University's business school. He became chief operating officer in 1998 and company president in 2001.

Prior to becoming a casino executive, Loveman said he had never encountered a tax system that was so lopsided.

Business interests -- most notably, the Las Vegas Chamber of Commerce -- have argued against a gross receipts tax, noting that such taxes will disproportionately hurt their members and can't fairly be applied to different businesses. The proposal also runs counter to Nevada's image as a business-friendly state, they say.

Others have also argued that casinos, which employ thousands of people at a single location, have created the biggest burden on state services such as schools and transportation and should therefore be required to pay more for that privilege.

Loveman disputed that logic Tuesday.

"We already bear a disproportionate burden" in taxes, he said. "It blocks out the sun."

Big businesses such as banks and telecommunications companies also are part of the growth catalyst that creates the need for more taxes, he added.

"A business like a big bank ... should not be able to operate tax-free while very labor-dependent businesses like ours are being taxed at an ever-increasing rate."

Executives from Harrah's as well as MGM MIRAGE, Aztar Corp. and International Game Technology have recently expressed their support for a gross receipts tax that cuts across all businesses -- setting up a potential fight with powerful non-gaming interests at the state Legislature.

In his State of the State address to the Legislature last week, Gov. Kenny Guinn introduced a $1 billion tax increase proposal by calling for a .25 percent increase in the gross receipts tax on some business income and by raising a 6.25 percent tax on gambling revenue to 6.5 percent.

Guinn also called for an increase in the per-employee business license tax from $100 to $300 and an increase in cigarette, alcohol and property taxes.

In the interview, Loveman also explained that Harrah's is different from other major Strip operators that announced significant earnings declines in the last three months of 2002.

Unlike companies like MGM MIRAGE, which operate a large number of high-end "destination resorts," Harrah's primarily runs casinos patronized by customers who live within 50 miles and make frequent visits every year, Loveman said.

Customers tend to spend about as much per trip as they would going to the movies or dining out, so their budgets aren't squeezed as much.

They also tend to be somewhat older and probably aren't spending money on raising children or building homes -- activities that cut into discretionary spending, he added.

MGM MIRAGE Chief Financial Officer Jim Murren presented a different view of the American consumer in a prior television interview on "Face to Face."

"The consumer is just played out nationwide," Murren said.

"The consumer that has driven the economy for the past decade is just stretched completely and there's little we can do outside from getting as many people to come to Las Vegas as possible."

In an earnings announcement Tuesday, MGM MIRAGE presented a view of a sputtering economy that is forcing tourists -- and particularly high-rollers within the United States -- to cut back on their vacation budgets.

The company still reported a 65 percent increase in earnings during the fourth quarter to $39.1 million. It earned 25 cents per share compared to 15 cents a year ago -- though analysts had initially expected the company to earn 43 cents.

Harrah's expects to report its fourth-quarter earnings on Feb. 5.