Tax panel OKs live entertainment regulation

By Liz Benston (contact)

Wednesday, Nov. 26, 2003 | 10:50 a.m.

After months of testimony involving regulators, lawyers and taxpayers, it took less than 30 minutes Friday for the Nevada Tax Commission to approve a regulation governing live entertainment taxes in casinos as well as non-gaming venues new to the tax.

Starting January, consumers can expect to pay more for admission to entertainment venues as well as more for drinks, food and merchandise as the tax is passed on to customers.

The most significant exception to that will be some casino nightclubs, lounges and karaoke bars that will no longer pay entertainment taxes when the live entertainment tax takes effect next year.

The state Department of Taxation, which advises the Tax Commission, had wrangled with the Gaming Control Board over whether such venues, which now pay casino entertainment taxes, would be taxed under the new system.

The Gaming Control Board argued that the law authorizing the tax was intended to capture existing taxpayers as well as new revenue. The state stood to lose up to $4 million that would have otherwise been collected from casino nightclubs, the board said.

But the Tax Commission, which had the final authority on interpreting the tax, determined that dancing by customers and listening to recorded music by disc jockeys -- both activities offered in casino nightclubs -- didn't qualify as live entertainment.

About half of the state's casino nightclubs will still end up paying a tax on live entertainment because they involve some sort of formal performance by a disc jockey, dancers or other entertainers, Gaming Control Board Chairman Dennis Neilander said Tuesday. That means a windfall of roughly $2 million for casinos that would no longer pay taxes on their nightclubs, he said.

Specifically, the regulation states that disc jockeys who limit their interaction with customers to "introducing recorded music, making announcements of general interest to patrons and explaining, encouraging or directing participatory activities between patrons" are excluded from the tax.

It's still difficult to determine how existing casino nightclubs would be taxed under the new plan, especially because the Gaming Control Board's recent survey of nightclub offerings can't predict whether casinos will tweak their entertainment under the new tax, Neilander said.

The potential loss of nightclub taxes is more than offset by additional venues captured by the new tax, state officials say.

During the Legislative session, state budget analysts predicted the live entertainment tax would reap an estimated $117.5 million in revenue in 2004. Casinos will pay about 77 percent -- or about $90 million -- of the total, either by casino entertainment taxpayers that will continue to pay taxes or gaming venues that will be taxed for the first time. A few larger casino showrooms, including the Colosseum theater at Caesars Palace and the performing arts theater at the Aladdin, will begin paying taxes under the new plan.

Non-gaming venues such as adult clubs, arenas, bars and restaurants that didn't pay taxes under the previous plan will make up the remaining 23 percent of tax revenue paid to the state. Non-gaming taxpayers account for about 66 percent of new entertainment taxes coming to the state, according to previous Economic Forum estimates.

The regulation voted on Tuesday was virtually identical to the final draft hashed out on Friday at a public workshop involving the Tax Commission and the Gaming Control Board. The regulation contains several exemptions to the tax such as strolling musicians, background music and casino floor entertainment at themed casinos.

Another exemption was added at the final hour for animal performances intended primarily for the purpose of education and research. That was pushed by MGM MIRAGE, which runs the Secret Garden dolphin habitat at its Mirage resort.

The Shark Reef exhibit at Mandalay Bay, which didn't lobby for an exemption, consists of sea life in tanks and also includes educational programs for students and a conservation program.

The live entertainment regulation was intended to tax shows with animals that are somehow induced by humans to perform, said Greg Zunino, a deputy attorney general charged with advising the Tax Commission. SeaWorld, for example, would be taxable, said Zunino, who declined to comment specifically on the Shark Reef exhibit. Mandalay representatives could not be reached by press time.

The law authorizing the live entertainment tax was signed into law in July as part of a larger tax package aimed at shoring up the state's budget deficit.

Over the course of several months and many public workshops, casinos of all sizes and some non-gaming businesses approached regulators with concerns about whether they would be taxed under the new regulations.

In general, large non-gaming entertainment venues will be taxed if an admission is charged, while gaming venues in larger casinos will be taxed regardless if an admission is charged. For venues with a capacity of less than 7,500, the state will levy a 10 percent tax on admission and another 10 percent on amounts paid for food, refreshments and merchandise. The tax would be 5 percent on admission to venues with more than 7,500 seats.

"I think it's about as clear as it can possibly be," said Zunino.

The tax may be easier for the Department of Taxation to implement because all large non-gaming entertainment venues will be taxed if an admission is charged, Zunino said. By contrast, the Gaming Control Board may wrestle with more qualifiers as to whether venues meet the definition of live entertainment, he said.

Casinos are constantly changing their entertainment to meet demand, he added.

"We're dealing with a pretty subjective concept," he said. "So naturally there are going to be situations that people never envisioned and imagined."

Nevada Resort Association President Bill Bible, the state's chief casino lobbyist, said he was satisfied with the regulations but expects a significant amount of litigation to result from tax disputes.

Bible, a former Gaming Control Board Chairman, said he expects many taxpayers will seek advisory opinion letters from both the Control Board and the Tax Commission to determine whether their venues are subject to the tax.

The Gaming Control Board doesn't expect any more litigation than was usual under the casino entertainment tax, Neilander said.

The board is expected to adopt its own version of the regulations, incorporating the Tax Commission's definition of live entertainment, Dec. 4.