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October 25, 2014

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TAXES:

State: Casinos owe tens of millions for comps

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Food fight!

The state says it has been stiffed tens of millions of dollars by casinos that give free meals to patrons and employees but don’t pay taxes on the value of the comps.

And casino companies are trying to reclaim $210 million that they think the state wrongfully collected because of shifting legal opinions.

Who says the capital is quiet when the Legislature has gone home?

At issue is whether casinos should be taxed for the food they give away — whether to employees in their lunchrooms or to gamblers as a way to entice them to linger and gamble.

“The stakes for both sides are very high,” said Carole Vilardo, president of the Nevada Taxpayers Association. If casino companies win, the state would have to pay refunds “which would be very difficult in this economy.” But if the state wins, casinos would to pay a much higher sales tax based on the retail value of the food versus the wholesale value.

A state Tax Department audit found Boyd Gaming Corp. owes the state $20 million in unpaid taxes and interest, according to a company filing with the Securities and Exchange Commission. Boyd is fighting that decision, and argues the state owes the company about the same amount in taxes it wrongfully paid on comped meals from 2000 to 2008.

The comped-food battle will also test the will of Gov. Brian Sandoval and lawmakers to tangle with the state’s most powerful industry. Once, in 2008, gaming lobbyists successfully killed legislation that would have settled the matter.

The issue is whether these comped meals, given to high rollers and slot jockeys earning points in reward programs, should be taxed.

In Nevada, food is exempt from the sales and use tax unless it is prepared for immediate consumption; you pay sales tax on a sandwich at a restaurant, but not if you buy bread at the store.

For decades, the casinos paid a “use tax” on the food; calculated on the cost to the company to prepare the meal. But the Sparks Nugget, also called John Ascuaga’s Nugget, said it shouldn’t pay the tax at all. In 2008, the Nevada Supreme Court handed a victory to the Nugget.

More than 100 casinos figured they were in line to get tax refunds totaling about $210 million. And many casinos, citing the court ruling, stopped paying taxes on comped meals.

But Gov. Jim Gibbons’ administration, pummeled by deep budget deficits, played hardball. Rather than refund the money to the casinos, the Taxation Department decided to collect sales tax on the meals, putting forward a new legal argument that the meals are provided to patrons and casino employees as “consideration” — either to encourage gambler loyalty or as part of an employee’s compensation package. That amount is calculated on the full retail price of the meals, a much higher number than the old way of calculating the tax.

It was an argument that the Supreme Court, in a footnote in its opinion, seemed to invite.

The court stated, “we do not foreclose the possibility that complimentary meals such as the ones at issue … may be subject to sales tax where consideration is properly demonstrated.”

Indeed, Administrative Law Judge Dena James Smith has ruled, in a case involving Boyd Gaming, that casinos should pay sales tax on the meals they comp gamblers.

“The complimentary meals were not simply given to any patron as a gesture of good will for which taxpayers (Boyd) expected nothing in return,” she wrote. “The complimentary meals were directly in exchange for information and a certain amount of gambling.”

But she ruled that employee meals were not subject to any tax.

The Taxation Department and Boyd and Caesars Entertainment are appealing the judge’s ruling to the Nevada Tax Commission — the tax man being upset by the ruling and the casinos wanting their refunds. The meeting was scheduled for this week, but was delayed so new evidence could be gathered by the casino companies.

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  1. This is EXACTLY the reason Nevada is in the trouble we are in. Casinos raping the system, the system raping the locals, the locals leaving and being kicked out of their homes. People are being screwed consistently and no one responsible will admit blame. Casinos and the Nevada governing body are the ones completely and solely to blame. Pointing fingers at each other like a bunch of idiot schoolchildren only makes us look even less appealing. How will Vegas ever survive?

  2. Not a good idea to go after this...you tax the casinos on this, they give less comps, less comps leads to fewer happy players thinking they get value for their gambling time while they lose, less customers spend time gambling...which equals...more casino shutdowns and higher unemployment.

  3. I think the casino should be able to give away comps tax free, or at best wholesale cost taxable. The bigger picture for the state is income on gambling revenues, just like the casino and to get them you have marketing costs. Both are wanting the same outcome. The state and casino would be best to leave what has been collected done, and go with the no tax on future comps, after all, the state is the casino's partner in income.

  4. Old Jim just keeps coming back to haunt us...

  5. petef has suggested a logical solution - what chance would that have of coming to pass?
    My brother works in a casino; the food he gets for lunch is leftover from the buffet. Yet he is taxed for that which is completely ridiculous. Sales tax is for things that are sold, which employee lunches and comps are not.
    I feel that the casinos are taxed too lightly, that they are not paying their fair share. But this is not the way to increase their taxes, particularly at the expense of employees and good customers.

  6. Is there a Tax on Free Rooms, Limo's, Slot Play, Cigarettes, Booze, Parking, Player Club Amenities, Pool Passes, Spas, Golf, Concierge Services, Gift Baskets, Concerts, there must be hundreds more.
    In most of these cases there would be No Gambler without enticements.
    They either give them to you in Nevada, or you will get them in California, Florida, Mississippi, the Bahamas, New Jersey, North Carolina, Pennsylvania, Louisiana, West Virginia, and the list goes on and on.
    And I've found that Nevada Casinos are the worst with giving the average bettor a comp. After spending one thousand at a Blackjack Table and asking for a Buffet for Two at The Feast ($ 25), I thought I was asking the Pitboss for her firstborn.
    She gave it and made a big deal about it, and I will not put her through that agony again by playing with them.

  7. Even with a part time legislature, they still can't get anyone with business experience to run this state.

    Don't raise the tax on casino earnings. A cost impact that is non biased and is across the board. (they pay 6% here and 20% elsewhere)... but tax them on what helps bring in business??

    That's makes no sense... But when you have a state that reelects people like Harry Reid, what can you say??

  8. And it would be a lot worse with that worthless Sharon Mangle in the senate.