By David McGrath Schwartz

Tue, Jul 1, 2008 (2 a.m.)

CARSON CITY — A couple of gaming industry lobbyists were milling about the legislative building during the early hours of Friday’s special session when news filtered out that a particular bill had passed the lower house.

“The Assembly passed it unanimously?” one asked the other in an offhand way.

The bill was intended to prevent the casino industry from getting $150 million in taxes back from state and local governments and school districts.

A few hours later, the bill, which began the day with bipartisan support, backing from legislative staff and a robust endorsement from the governor, was dead. And legislators and the governor were blaming everyone else for why a bill that could have saved the state much-needed money did not become law.

What came to pass, in the eyes many observers, was the gaming industry’s flexing its muscle. It did it in short order, and quite effectively, reminding everyone just how much strength it has in Nevada.

The purpose of Assembly Bill 2 was to fortify the state’s case that casinos and restaurants do indeed have to pay taxes on meals they comp for customers and employees.

For decades, casinos had been paying taxes on those meals.

But the Supreme Court decided this year that a Sparks casino did not have to pay tax on meals it had comped. The casino, John Ascuaga’s Nugget, was due a reimbursement of $1.2 million that it had paid. Scores of other casinos followed suit, arguing they also were entitled to reimbursements of the taxes they had paid on comped meals.

The state has asked the state Supreme Court to reconsider its opinion.

But if the decision holds up, the state is looking at returning another $60 million; the rest would have to be refunded by local governments and school districts.

The bill introduced on Friday would have helped strengthen an alternative argument if the state Supreme Court doesn’t reverse its position. The legislation, said Kevin Powers, a senior counsel with the Legislative Counsel Bureau, was an effort to clarify the Legislature’s position that comped meals are subject to sales tax.

Early in the day, Gov. Jim Gibbons said he supported the bill, saying that allowing casinos to get the tax rebate could result in “an enormous problem for the state of Nevada.”

On Friday morning, Billy Vassiliadis, Greg Ferraro, Bill Bible and other gaming lobbyists were flipping through the day’s bills to see what was in store, and came across AB 2.

They didn’t like what they saw, but it’s not clear what they did about it behind the scenes.

What is clear is that at some point, Gibbons changed his position and said he would veto the bill if it passed.

The bill had become too convoluted and a distraction to the central purpose of the special session, which was to cut an additional $275 million from the current year’s budget, Gibbons spokesman Ben Kieckhefer said.

“We thought it was something real simple,” Kieckhefer said. “It got complicated.”

During the afternoon, gaming lobbyists made their way in and out of the Senate leadership office — presumably doing what lobbyists do. Meanwhile, word spread that the governor would veto the bill.

As the bill came up for discussion in a Senate committee, Randolph Townsend, R-Reno, said the legal process should work itself out and if it didn’t, the Legislature could address it in the 2009 session.

But it wasn’t Townsend’s motion to not take up the bill that officially killed it. Instead, it was a procedural vote supported by the narrow Republican majority in the Senate.

After Townsend expressed his opposition to the bill, Sen. Terry Care, D-Las Vegas, jumped in with a suggestion that the state look at repealing green building tax breaks.

Then Sen. Dina Titus, D-Las Vegas — and a candidate for Congress — proposed an amendment that would allow Nevadans to benefit from a federal gas tax holiday, should Congress approve one.

Senate Majority Leader Bill Raggio, R-Reno, became riled. “Are there any other campaign speeches?”

He asked who wanted to proceed with the bill. The 10 Senate Democrats raised their hands. The 11 Senate Republicans did not. The bill died.

“It became apparent that this bill, if it stayed in committee, was being used for partisan campaign fodder,” Raggio said.

He said there was no pressure from the gaming industry to kill the bill.

Bible, head of the Nevada Resort Association, said he hadn’t done any lobbying, nor did he have time to poll all his members on whether they supported the bill.

He dismissed the notion that this was an example of gaming’s influence.

“Quite frankly, I thought the bill would be approved and passed out,” he said. “It appears to me it was bogged down in partisan wrangling at the tail end of the day.”

(Assemblywoman Sheila Leslie, D-Reno, said “of course” the bill’s death was an example of gaming’s influence.)

But even if the Supreme Court holds to its position, Bible said, the industry is unlikely to demand a one-time payment.

Casino companies are aware of the state’s financial difficulties, he said.

“If the Supreme Court decision becomes final, we’ll work with state and local governments on some sort of payment schedule,” he said.

Sun reporter Cy Ryan contributed to this story.