Private monorail avoids paying state taxes

Stephen Curran

Monday, July 19, 2004 | 10:57 a.m.

The much-anticipated Las Vegas Monorail, which opened last week after more than six months of delays, quietly accepted a state tax exemption for charities more than a year before the first trains ran.

Company officials convinced the state Taxation Department in March 2003 that the Las Vegas Monorail fit a vague set of criteria in Nevada tax law that would allow it to avoid state taxes.

Charles Chinnock, executive director of the Nevada Department of Taxation, said the Las Vegas Monorail company qualified in a category that allowed the company to be termed a nonprofit organization. Under the 1995 law, nonprofit groups can seek tax-exempt status if they "provide services that are otherwise required to be provided by a local government, the state or the federal government."

While the law does not specifically regulate large-scale transportation projects, a state agency believed the $650 million project performed a necessary function for the congested tourist corridor and awarded the exemption, Chinnock said.

"It was deemed to be charitable under the circumstances that they were providing a service that government normally would," he said.

Chinnock estimated that about 5,000 organizations apply for tax exemptions each year, roughly 65 percent of which are approved. The law also dictates that entities must reapply after five years.

Normally, they consist of animal shelters and similar services where governmental assistance is not available. The monorail's tax break is not the only one of its type in the state. The state has also awarded tax-exempt status to the Northern Nevada Transit Coalition and Amtrak.

According to a report that first aired last week on KLAS-TV Channel 8, the monorail could also be exempt from county property taxes of about $3 million a year.

Todd Walker, a spokesman for the monorail, underscored the project's public service angle, saying the trains will lessen traffic in the heavily traveled Strip area.

"We do fully fulfill a public purpose for the people of Las Vegas," he said.

There are few, if any, similar privately funded projects to point to as a benchmark, said Edward Neumann, a civil engineering professor at the University of Nevada, Las Vegas who specializes in public transportation projects. However, as with many large-scale public-private partnerships, government entities often provide "sweeteners" to companies footing the bill for risky projects.

"It's hard to get the government to completely underwrite bold new ventures, and sometimes there need to be sweeteners," Neumann said. "Anything that can make the economics work might require some kind of public favor or some kind of safety net under it."

The monorail was fully funded through a $650 million tax-free bond issue. The company also took out a $23 million insurance policy to offset potential losses. Monorail officials say they will know if the project will recoup its costs in 90 days.

The project took in more than $98,000 on its first day of public service, according to a statement from the company. An estimated 30,000 riders boarded the trains.

Ruth Jones, a tax examiner for the Department of Taxation, said the agency looks at whether an applicant qualifies for federal nonprofit status but that it does not automatically mean it will not have to pay state taxes.

"It's a consideration but it's not a determining factor," Jones said, noting that not all state-exempt entities are federally exempt.

The monorail received federal tax-exempt status under IRS code 501c4, which the agency defines as an organization devoted exclusively to "promote social welfare," before it applied with the state, Walker said. Such companies are not allowed to solicit tax-deductible contributions.

The system, named for late former County Commissioner Bob Broadbent, shuttles passengers along a roughly 4-mile route from the MGM Grand to the Sahara with five stops in between. Plans are currently in the works to connect the route to downtown Las Vegas and, eventually, to McCarran International Airport. The Strip-to-downtown leg will be financed by $450 million in federal money, low-interest loans and bonds.

The project opened for public service Thursday after a succession of computer and mechanical glitches pushed the opening date back more than six months.