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

By Jon Ralston

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.