Nightclub tax plan to cost state $4 mil.

Thursday, Nov. 20, 2003 | 10:58 a.m.

CARSON CITY -- Nevada gambling casinos that feature trendy nightclubs may be in for a tax windfall of up to $4 million under the new live entertainment tax.

The state Tax Commission is set to act Tuesday on the latest draft of a regulation defining where the 10 percent entertainment tax will apply beginning in January. Prior to Tuesday's vote, a final public hearing is planned for Friday.

The tentative regulation proposes that the tax will not be imposed in a nightclub where the disc jockey merely spins a record for dancing and he does not engage in any performance.

At present all casinos with nightclubs pay the existing 10 percent entertainment tax that will be repealed in January and be replaced by the live entertainment tax.

Lynda Hartzell, chief deputy auditor for the Nevada Gaming Control Board, said in a memo to all gaming businesses that the board was concerned that the regulations would exclude people dancing in nightclubs or participating in Karaoke.

She estimated that as much as $4 million a year could be lost in revenue to the state.

Dennis Neilander, chairman of the control board, said Wednesday that some nightclubs feature acts or DJs that perform and they will continue to pay the tax.

The imposition of the tax hinges around the definition in the new law. It says "Live entertainment means any activity provided for pleasure, enjoyment, recreation, relaxation, diversion or other similar purpose by a person or persons who are physically present when providing that activity to a patron or group of patrons who are physically present."

The previous entertainment tax was charged only in casinos but now it extends to other events outside the gambling clubs.

The 10 percent is imposed if the club charges admission and also on the food and drinks during the entertainment. It is usually passed on to the customer.

Hartzell, in her memo, referred to a statement made at the close of the special session of the Legislature by Sen. Randolph Townsend, R-Reno, who was one of the drafters of the tax plan. He said "Those events currently defined by the (Gaming Control) Board and the (Nevada Tax) department as taxable events under this will continue to do so."

But the proposed regulation by the Taxation Department would exclude some nightclubs now paying the tax. The tax would not apply to a nightclub in a casino where the DJ generally plays the recorded music and limits his actions to introducing the recorded music, periodically engaging in banter with the customers or "directing or explaining participatory activities between patrons."

The issue of the live entertainment tax was discussed Wednesday at the first meeting of the legislative Committee on Taxation, which was created to look at the impacts of the $836 million tax package adopted by the Legislature this year.

Senate Majority Leader Bill Raggio, R-Reno, said he has heard "some real concerns" about the imposition of the live entertainment tax. "This is the issue we are receiving the most inquiry (about)," he said.

Neilander said the language in the law is "very broad" and the duty of the Tax Commission is to define when, where and how it will be imposed.

Ted Zuend, an economist with the fiscal staff of the Legislature, said the taxation committee must look at how the imposition of the entertainment tax might affect special events that come to Nevada such as the National Finals Rodeo in Las Vegas.

The committee must see if these events decide to move the location to other states that don't charge the 10 percent. Zuend said tourism officials would be invited to later meetings of the tax committee to testify about the impact and give examples of lost business if there are any.

Summer and Taylor Dew, who bill themselves as the Magic Hula Girls, said the tax is already hurting business. The two sisters from Las Vegas told the tax committee that some Polynesian entertainers have already lost their jobs.

The tax could mean the elimination of Hula dancers at such events as a Polynesian buffet, they said.

The committee will meet in January. And it will prepare a report on its findings to the 2005 Legislature.