COMMENTARY:

Weighing the pros and cons of Clark County suing Web sites for room tax revenue

Sunday, Aug. 2, 2009 | 2 a.m.

This could be the best time for a long-discussed idea to be put into practice by cash-strapped local governments, which could reap tens of millions — maybe hundreds of millions — of dollars. Or it could be the worst time.

The issue, which has been percolating for years, is starting to bubble up again on Grand Central Parkway as county commissioners may soon be asked to sue Internet travel sites to recoup room tax revenue lost because of a differential between what Expedia & Co. pay for blocks of rooms and what they sell them for to customers. That is, the companies buy blocks of rooms for $100 each, sell them for, say $150, and pay the room tax only on the $100. You can see it could add up. (Full disclosure: This could affect VEGAS.com, part of the Greenspun empire, which owns the Sun, too.)

It’s a fascinating proposition and not endemic to Las Vegas — in a Georgia Supreme Court ruling against the companies, some settled cases, and a $21.3 million judgment for Anaheim, Calif., against the online sites have emboldened folks pushing the issue.

That’s no Mickey Mouse judgment. Nor is a $35 million assessment in July against the Internet sites paid to San Francisco while lawsuits filed by that municipality continue to progress. But nowhere on the planet could such a maneuver have as great an effect as here because the amount of money local taxpayers could recoup is matched only by the amount of paranoia now rippling down the Strip.

This is a tug of war between what might be considered a legal and fiduciary obligation by the elected officials to try to recover the money so they don’t have to continue to slash essential services versus a productive working relationship between the hotels, as well as the convention authority, and travel sites that spend hundreds of millions promoting deals in one of the — if not the — most recognizable travel destinations in the country.

Six years ago Las Vegas Convention and Visitors Authority board member Bob Forbuss publicly compared travel site mogul Barry Diller to a robber baron. I wrote about the issue three years ago, when local law firms were enlisted and asserted in a letter to commissioners that from 2000 to 2005, “the lost tax revenue to Clark County could range between $677,353,486 and $722,892,275 ...”

With real concerns about whether the money actually was there to be recouped, the commissioners passed. But now that the economy is in the tank and local government meeting agendas are peppered with items about harsh service cuts, it has surfaced again.

Here’s what I understand is happening, according to knowledgeable sources: A law firm, McKool Smith of Dallas, which won the Anaheim case and is involved in others, has retained spinmeister Sig Rogich, who has made the pitch to Commissioner Steve Sisolak.

“These lawyers made a very compelling case and I think that we have a duty to at least explore whether this money is owed to Clark County and whether we want to proceed,” Sisolak said Friday.

I understand, though, that once Sisolak raised the issue with his colleagues, he was greeted as if he had asked them to consider consolidation with the city of Las Vegas. This one will be no fun for commissioners to take on.

As In Business Las Vegas reporter Richard N. Velotta pointed out a month ago, the issue was raised at a Nevada Tourism Commission meeting, where Commissioner Eric Bello declared, “There may be a source of revenue that is right under our noses.”

Bello was countered by another commissioner, Chuck Bowling, who told Velotta, “We have a deep and rich relationship with these online companies, and they’ve invested millions of dollars to develop their business model.”

It may be a coincidence that Bello works for the Venetian, which has been at war with the LVCVA since Gondolier Numero Uno Sheldon Adelson appeared from the womb. But sources tell me Bowling, an MGM Mirage executive, is far from alone in his concern. Many of the gaming companies don’t have much margin for error and they don’t want to jeopardize their preferred treatment with these sites. What hurts the casinos hurts workers and hurts government budgets, so the argument goes.

The question is how hard Rogich and the lawyers will push to get this into the public domain, creating a difficult political issue for commissioners lamenting a lack of money. You think the average citizen will feel sympathy for the casinos?

So it may well indeed be the best time for this idea to actually go somewhere after floating around for years. Or it may be the worst.

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By UNLVGrad

Aug. 2, 2009

3:20 p.m.

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This seems like a no brainer to me. If the county has tax revenue coming they need to collect it. It is my understanding that some of this money goes to our public schools and we know they could sure use the money. Problem is these county commissioners are in the pocket of the casinos and don;t do the right thing. I hope the Sun or Ralston follow up on this. Sounds like a lot of money
By vegasd8

Aug. 2, 2009

7:28 p.m.

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This problem has been going on for over 35 years in Las Vegas, and started way before the internet. Tour operators, airline packagers and tour & travel wholesalsers have been keeping this tax gap as a profit margin while the county, hotels and LVCVA looked the other way. If there is going to be a change made, it needs to be made going forward and not try to reconstruct a formula that did not exist and was not enforced. Otherwise you are going to have to collect money from many companies that no longer exist...good luck...
By Elect_Lon_West_Assembly_18

Aug. 3, 2009

5:13 a.m.

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A marriage of convenience is one that sometimes hurts more than it does help the family. This is what Nevada's Casinos need to think about regarding finding this new tax revenue for the state and counties. Yes the casinos don't want to hinder their relationship with these internet companies but we are in troubling times. I imagine that raising the gaming tax would look far less attractive than cheating on their partners a little. Rocking the boat is in their best interest. vegasd8 is correct this new source of revenue must be progressive not retroactive. It is up to the legislature to mold this new tax source. I'm confident that they can make a compromise with both the internet companies and the casinos in order to make everyone somewhat happy. The legislature must not forget about the counties because they are hurting too.

"Nothing is worth doing unless the consequences may be serious."(George Bernard Shaw)

The casinos and legislature know this all too well lets hope they make the right decisions.
By enteaser

Aug. 4, 2009

9:22 a.m.

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"The issue, which has been percolating for years, is starting to bubble up again on Grand Central Parkway as county commissioners may soon be asked to sue Internet travel sites to recoup room tax revenue lost because of a differential between what Expedia & Co. pay for blocks of rooms and what they sell them for to customers. That is, the companies buy blocks of rooms for $100 each, sell them for, say $150, and pay the room tax only on the $100. You can see it could add up."

...this seems simple to solve, don't charge Expedia any tax and make the customer pay the tax on the room when he stays there. Or alternatively, if the city/county/state want tax to be paid on a $150 room, then charge Expedia et al $150.

But the govt(city/county/state) wants it's cake and wants to eat it too. They are not as efficient as Expedia and the other travel sites are at selling rooms so they enlist the help of these sites. But then they want to both tax the companies on their profits, which is OK, but then tax the customer again on the room tax. First of all, the room tax is obscenely high and it is a disgrace that the state of NV is extracting such a high percentage of its tax revenue from the tourists who are the lifeblood of the state's #1 industry.

But be careful what you ask for as there is no doubt but that higher room rates and higher room taxes dissuade tourists from coming to NV.
By JLOKC (Jeff Leatherock)

Aug. 5, 2009

8:05 p.m.

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I have been on the other side of this type of issue, in another business and another state. I think Expedia et al are collecting the tax on $150 per night and keeping the difference between the tax on the $100 they paid and the $150 they collect. The hotel guest is still paying tax on $150 per night, and the travel sites are pocketing the tax differential as net profit.
More importantly, Clark County has a legal obligation to collect all tax owed it. That's why people get arrested for back parking tickets. It doesn't matter if it may offend the travel sites, the Commisioners could be held personally liable for failing to act on tax debt collection that they become aware of.
By MysterMr

Aug. 6, 2009

6:50 p.m.

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Simple solution... these sites should simply not book any hotel rooms or flights into Vegas until Clark County STFU and stops whining.

Let's be sure and price ourselves out of the market for the few visitors we have left until Horsford and Buckley's damage takes effect and wipes out the remaining tourists.