Study: Gaming can’t carry tax burden

Cy Ryan and Erin Neff

Tuesday, March 11, 2003 | 9:26 a.m.

CARSON CITY -- Nevada's gaming industry can't continue to carry the state's economy and tax system, a new study says.

The report, by the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, said that such businesses as construction and retail trade have been more profitable than the gaming industry in recent years.

The $22,000 study was prepared for the Nevada Resort Association, which is trying to push through the Legislature a broad-based tax to spread more of the tax burden to businesses other than casinos.

The gaming industry historically has been more profitable than other businesses, but that has changed since 1999, the report noted. Since 1999 construction and wholesale and retail trade experienced rising profits.

The report said the ratio of net income to total assets for gaming dropped from above 6 percent in 1998 to 4 percent in 1999. Profits in construction rose to 7 percent in 1999, and wholesale and retail trade was slightly above 4 percent. Manufacturing was slightly below 4 percent.

Because Nevada's two main sources of revenue are its tax on casinos and the sales tax that is in part generated by gaming activity, Nevada "has one of the narrowest and most precarious tax bases in the country" compared with other states, the institute's William Eadington and Mark Nichols said.

The state's population growth "is becoming increasingly 'unlinked' to the gaming industry's performance," according to the study.

Nevada has grown as a retirement state, and efforts to attract new industry have been successful, the study said.

As nongaming activities continue to take on an increasing importance, it will be increasingly difficult for the present tax structure to meet demands for public service, the report noted.

In taxes compared to total revenues, the study said the gaming tax burden is more than four times higher than the average sector. It said taxes for gaming average over 8 percent while taxes for all industries average slightly more than 2 percent.

"This is not surprising in light of the fact that the major state tax on gaming in Nevada is the 6.25 percent tax on gross gaming revenues and the fact that the gaming industry also pays all other regular taxes that apply to business in Nevada in general," the report said.

In the summary, the report said: "The gaming industry has been declining in profitability since the mid-1990s, and this trend has been reinforced by the slowdown of the national economy since 2000 and by the changes that have followed the events of Sept. 11, 2001."

Eadington and Nichols also noted the increasing competition from tribal casinos outside of Nevada.

"In general, it is wiser for a state to have a tax structure that is broad-based rather than one that is industry specific, because of the vulnerability of a state to adverse shifts in that particular industry," the study said.