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September 17, 2014

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If Boyd Gaming owes $20 million for comped meals, imagine industry total

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The French Market Buffet inside Boyd Gaming’s Orleans resort. The Nevada Tax Commission ruled Monday that casinos must pay sales tax on comped meals given to gamblers.

Last week, the state saw the tip of the proverbial iceberg.

With Nevada government scraping to stay in the black, a recent Tax Department audit concluded Boyd Gaming Corp. owes $20 million in unpaid taxes and interest, according to a company filing with the Securities and Exchange Commission.

The company disagrees. Boyd argues that, in fact, it is the state that owes the company about that amount in taxes it wrongfully paid on comped meals from 2000 to 2008.

At issue is whether casinos should be taxed on the food they give away — whether to employees in their lunchrooms or to gamblers to entice them to linger at the slots and tables.

Because this affects any Nevada casino that offers such comps, Boyd’s situation offers just an inkling of what the industry could owe the state. A similar audit of Caesars Entertainment is confidential, according to the state Tax Department, but the amount large casino companies would owe if the state wins this dispute is much higher than the $20 million the state claims Boyd owes.

Meanwhile, casino companies are trying to reclaim $210 million they say the state wrongfully collected because of shifting legal opinions.

“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 have to pay a much higher sales tax based on the retail value of the food versus the wholesale value.

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

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 on bread you buy at the store.

For decades, casinos paid a “use tax” on the food, calculated on the company’s cost of preparing 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 should get tax refunds totaling about $210 million. And many casinos, citing the ruling, stopped paying taxes on comped meals.

Gov. Jim Gibbons’ administration, pummeled by deep budget deficits, played hardball. Rather than refund the money, 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 seemed to invite. The court stated in a footnote to its ruling, “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 directly in exchange for information and a certain amount of gambling,” she wrote. But she ruled that employee meals were not subject to any tax.

The Taxation Department, Boyd and Caesars 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.

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  1. In Nevada, the pledge of "No new taxes" to "starve the Beast" appears to really mean "kill the geese that lay the golden eggs."

  2. This is stupid on the part of the state. Despite the fact that this tax has been collected in the past and since ruled against, leaving it owing those monies back to those same businesses, they are risking the killing of their chief source of income.

    We have all witnessed most of the houses going through bankruptcy, reorganization and some just closing altogether. Many are still going through this and most are still in recovery. No one is healthy yet. Investors are still behind and wary of staying.

    So, what does the state do? The state says hey, these folks are in difficult financial peril and close to the edge. Lets see what we can do to push them over.

    On top of everything that has happened, on top of a home mortgage crises that is the worst in the nation, on top of still having the highest unemployment in the nation, on top of everything that is bad in Nevada and despite the fact that the gambling houses are the main source of income and employment in the valley and the state; the state would risk causing some to default on their obligations, push them deeper into debt and risk it all.

    Yep, that sounds like solid prudent thinking, much like those that want to punish the employers, tax payers and earners. Where will the state get it's revenues if these houses lay off workers agains, some close down and others default on tax payments? This is what you call very narrow thinking with a lack of the complete landscape. And just when the sun is beginning to rise.

    One doesn't blow up the whole damn just because of a leak. Especially when the existence of that leak is uncertain based upon it's own experts.

  3. I would really like to see the math on this... public officials in this state have a really solid history of being very good at doing the odds but terrible at doing the math.

  4. At some point you keep taxing the casinos to the point where they can't be generous to anybody and they die. I play less than I used to mainly because the comps no longer came close to compensating for any of my losses. But the offer of a free meal and a bed can still cost me a small fortune. The money I then lose provides jobs and pays taxes. Make it to where it costs the casino a bunch of extra tax money to give ten dollars worth or food away that might retail for forty five dollars and they quit giving the food away. And then you have less gamblers, less revenue, less jobs and the belt-tightening continues and the downward spiral won't stop. Some state like Texas will then come along and make it to where the casinos aren't taxed to death so they can use profit to comp customers and treat employees better. It'll start out small and then blossom. Then Nevada politicians will blame everybody but themselves. I give it about twenty years.

  5. Problem is, two very different issues (food comps for gaming guests versus employees' shift meals) are being lumped into the same taxation category. I don't claim to know the answer to the conundrum of the former, but I DO believe that assigning full retail value to casino workers' meals for taxation purposes will create disaster on every level, for all involved.
    Do our desperate, short-sighted law-makers REALLY want to tax our plates of food that badly? Full Retail Value (lol!) for what some would call... well, let's just say it's convenient nutrition that keeps workers ON PROPERTY during our shifts.

  6. The 6 casinos in Pa. pay more in taxes to the state than the 260 casinos in Nevada. There is something vastly wrong with this picture. The casinos have far too much power in this state.
    We need to have a state lottery to pay for education like other states, yet it will never pass here because of the casino's and their lobbying efforts.

  7. tbvegas makes an excellent point. Is Three Square and Catholic Charities next on the list to be taxed?

    Every Christmas day I take my family and drive around Las Vegas giving coffee and donuts to the homeless, is the IRS coming after me next?

    My friends bought me dinner last weekend in San Francisco, do they owe taxes on that now?

    Where does it end?

  8. When I use a 2 for one coupon, or a 20% off coupon, they tax the ampunt I actually pay. So is tax "owed" by someone (the house or the customer) for the difference between full retail and the discounted value?
    Here in California, they do calculate rebates on new cars after tax, so the tax is collected on the rebate amount.

  9. "At issue is whether casinos should be taxed on the food they give away -- whether to employees in their lunchrooms or to gamblers to entice them to linger at the slots and tables"

    I wouldn't consider employees meals as a comp meal, but instead, look at it as part of the benefits offered by the hotel to their employees. Most of the food offered to employees anyway, are usually the over made extra's coming off of the hotels buffets and from elsewhere within the hotel. Why throw it away as most food establishments would have required, just give it to the employees.

    I feel the state is looking at all options to scrape up a few bucks, but this I must say is beyond ridiculous and only shows how this state will do anything in its power to help balance the budget by going way overboard in their assessment of this matter.
    The Boyd establishment has always taken care of their "Hawaii" clientele base and local visitors alike. Now, the state's out to get them for all that they've done right to maintain loyalty from their customers.

    Being from Hawaii, we already have to pay a hefty round trip airfare over to Las Vegas, and Boyd has made it much easier for Hawaii's citizens to travel there by offering us these comp meals and rooms as an incentive. Does the state of Nevada wish to diminish its ties with our local residents who frequently travel to Vegas? Your Hawaii visitors bring in much income to Las Vegas due to the fact that Hawaii does not offer gambling. It would be a huge mistake on their part, should the state of Nevada decide to start taxing comp meals.