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April 18, 2014

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Memo From Carson City:

Lawmakers ignore comped-meals tax issue, its $210M implication

Image

People line up to eat at the MGM Grand Buffet in this file photo. State lawmakers have steered clear of going after taxes on comped meals after a 2008 court ruling favoring casinos on the issue.

Billy Vassiliadis

Billy Vassiliadis

Steven Horsford

Steven Horsford

Nevada is in a big financial fix. You’d think lawmakers would be doing all they could to avoid adding another $200 million-plus to the state’s multibillion-dollar deficit.

Instead, legislators are content to let lawyers fight over those funds and avoid taking on the state’s powerful gaming industry.

At issue are complimentary meals — “comped meals,” in the Vegas vernacular — that resorts and casinos provide to patrons and employees.

For about 20 years, casinos and restaurants paid taxes on these meals. The reasoning: State law requires a tax on “prepared food intended for immediate consumption” at the time it is sold.

Then, in 2008, the Nevada Supreme Court ruled 8-1 that the state should not have collected that tax. Giving away the meals was not a “taxable event,” the court ruled.

The Sparks Nugget, the small casino that had brought the case, won $1.3 million in back taxes.

Assemblyman Tick Segerblom, D-Las Vegas, in 2010, called the Supreme Court ruling “one of the worst decisions in the history of Nevada.”

But big gaming companies took notice. They stopped paying taxes on comped meals and filed appeals of their own seeking refunds that would dwarf the Sparks Nugget’s. In 2010, casino companies requested $210 million in tax refunds related to comped meals, according to the Nevada Taxation Department.

To be sure, the state might be able to resume collecting sales tax on such meals and avoid issuing massive refunds. The Tax Department is using a new argument: that comped meals are provided in exchange for something — time spent at the slots if you’re a gambler, or as part of an employee’s compensation.

Caesars Entertainment, formerly Harrah’s, has a case pending with the Tax Department. An administrative hearing officer has issued a ruling, which is not public record, according to the department and the attorney general’s office. Although the outcome of the case is unknown, Caesars is expected to appeal the ruling to the Tax Commission, according to sources.

A Caesars representative did not return a call for comment.

Lawmakers don’t typically get involved in legal disputes. But lobbyists, including those for gaming, have routinely tried to use the legislative process to “clarify” laws.

The Legislature tried to do that during the June 2008 special session, to clarify the law and make comped meals taxable. The bill flew out of the Assembly, but was voted down by Republicans in the state Senate.

“That measure was a surprise,” said Billy Vassiliadis, a lobbyist for the Nevada Resort Association. “No one knew it was coming.”

The bill’s failure was cited by the Nevada Supreme Court as it rejected an appeal from the state to reconsider its decision.

The 2009 Legislature never raised the issue. And so far this session no lawmaker has brought it up. Democratic leadership say they don’t want to interfere in a case pending before the Tax Commission.

“This is an executive branch issue right now,” Senate Majority Leader Steven Horsford, D-Las Vegas, said. Democrats in the Assembly echoed Horsford.

“We don’t kill sacred cows around here,” one longtime legislative observer said.

Gaming, the state’s largest private employer, is still one of the most influential groups in the state. And casino companies argue clarifying the law would amount to a tax increase.

The state lost, Vassiliadis said. To change the law now and resume collecting the tax would amount to “a new tax.”

The resort industry tried to negotiate a settlement with Gov. Jim Gibbons before he left office on the $210 million it says it’s owed, Vassiliadis said.

He said the industry is willing to negotiate with Gov. Brian Sandoval’s administration.

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  1. The Casinos will soon be negotiating with students and the disabled.

    Another solution is to shut down a portion of Nevada's prison system to pay for the comped meals tax deficit because raising the property or sales taxes to pay for comped Casino meals is out of the question.

    Where do these Alice in Wonderland Judges come up with their concepts of Law? Raise the tax on me to compensate Casinos and the Bank is going get my house.

  2. Sandoval gets a comped mansion and free medical insurance, let's take that away from him and his family. Also, when will we see his birth certificate? If he is going to run for VP with segregationist Haley Barbour, he will have to show it eventually.

  3. Does the State of Nevada have a budget deficit or not? If we do not, then we can afford to pay the casinos for the great honor they do us by locating here, providing jobs and some tax revenues or we could use the money for other things. If, however, the budget deficit is real, then we need to close it by increasing revenues and stopping all but the most important expenditures -- and if we cannot cover those important expenditures with revenues, we need to cut those, too until the budget is actually in balance.

  4. No sale takes place when they "GIVE" you that meal so no sales tax should have to be paid.

    At conventions when we give away things the state was making us pay sales tax on the things we gave away also. Pen's, lighters etc. Why? We did not sell them to anyone, we gave them to people at the conventions. Other states do not require us to pay a sales tax when we GIVE things away.

    The judges used common sense on this one and it needs to be upheld. No sale, no sales tax.

  5. The judges got it right. There should be no tax on food given away. What next? Tax food lines and homeless shelters? And think about this: Resort fees, 6:5 blackjack, stingier comps across the board and then when casinos have to pay tax on the food they give away they just give away that much less of it. It all leads to less gambling and less revenue. We are eating the elephant one bite at a time and we won't notice that until the elephant is gone.

  6. Of course a "sale" has taken place. The casino has received money and, in exchange for that money, has given the comp. The judges only looked at the form of the transaction, not its' substance. They are at liberty to use this, and other legal fictions, but they should not be surprised if the judicial branch suffers budget cuts as a consequence of using fictions to help undermine the financial solvency of the State.

  7. One should base it on how things are handled in other areas of the economy. When you buy three tires and the get the fourth one free, is someone paying sales tax on the fourth tire? If you buy two suits and are given the third one, is there tax paid on that? If my favorite fast food restaurant has a buy one get one free special, is there tax on the second meal? In those cases I would say that my experience is that there is not tax on those items, so there should not be on the comped buffet. There was tax collected on the other part of the transaction, just as in the examples above, and that was considered sufficient. If we want to change the rules, make them apply evenly and not just on the casinos.

  8. Mr. Goodman.

    Say you receive a two for one coupon to a new buffet that you have never been to before.

    You pay for the one, you get one free. Why should anyone be paying sales tax on the one you did not pay for?

    How about all the pens I pass out at trade shows that people do not pay to attend. Why do I have to pay sales tax to the state of Nevada for those pens even though I did not buy them in this state or charge for them?

  9. Here in California when you buy a 12 pack of soda pop (or beer), you pay sales tax + 60c CRV (can deposit) + sales tax on the CRV. Yes, they charge tax on the tax they charge. When you take the cans in for cash, they weigh them, you might get half of your "deposit" back. A real scam. Bottled water is worse because the bottles are so light. When I bought a car battery, they charged for the battery plus the core charge, then charged sales tax on the total and then took off the core charge for the battery I had brought in to exchange. That way they got sales tax on the core charge, even though I had the exchange battery right there. Again, a scam.
    I believe they also charged tax on the "4th tire free" I got when I bought tires.
    When you buy a car in California that has a rebate, the sales tax is figured in before the rebate is deducted so they get the sales tax on your rebate. Last car I bought had $5,000 in rebates, therefore, they charged me an extra $412.50 in sales tax than if the car had just been priced $5,000 less.
    Nevada seems to have learned a lot of California's bad habits.

  10. No sale takes place when bribes are paid to the Regulators either, so why should they report the bribes in the first place? Bribes aren't taxable, so why should they be reportable?

    Supreme Court Logic. Law on the books today is at least 98% politics. There exist little ethical or moral foundations on which judgments are developed. Laws and judgments today serve a very small number of people and serve to re-distribute the wealth upwards. They result from continuous lobbying by those with money and time on their hands.

    Why do we need these Alice in Wonderland Judges anyway?

  11. Willaim Flusek writes: "If my favorite fast food restaurant has a buy one get one free special, is there tax on the second meal?" On any "Buy one get one free" coupon (such as those in the Entertain Book), it says on the coupon that taxes will be paid on the free meal (and that you should include the cost of the free meal on the tip as well).