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September 2, 2014

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Tax Commission reconfirms that comps aren’t free for restaurants, hotels

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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.

The state’s casinos and restaurants must restart paying taxes on complimentary meals given to employees and patrons under regulations passed Monday by the Nevada Tax Commission.

Restaurant owners and employees opposed the regulation, saying it would be another burden in a down economy. They also complained they have not been given adequate notice about the regulation or time to prepare.

The state in February issued a preliminary finding and told restaurants to start tracking the taxes they would owe. Those taxes will be due starting July 31.

The commission is still facing a slew of court challenges from casinos seeking to get back $210 million from the state. Those companies saw an opening in a 2008 Nevada Supreme Court decision that reversed decades of precedent on the state’s collection of taxes on meals comped to employees and patrons.

Tax Department Director Chris Nielsen noted that restaurants were supposed to be collecting taxes on comped meals for employees for years before the 2008 decision.

“This is not a new tax,” he said.

The regulations approved Monday by the Tax Commission could still be reviewed by the Legislative Commission.

The taxes on food comped to employees by restaurants and resorts will be based on the value of the food used to prepare the meal. The food comped to patrons will be taxed based on the retail value, a higher amount.

The state’s Tax Department has been wrestling with this issue since 2008, when the Sparks Nugget sought and won $1.3 million in back taxes from the state. The Nevada Supreme Court, in a 6-to-1 decision, sided with the casino, but provided a roadmap for a different way for the state to try to collect the tax.

Since the Sparks Nugget decision, other casino companies have followed suit, including Boyd, Wynn and Harrah’s. The Legislature, lobbied by gaming, has declined to clarify the state’s law.

But while the biggest dollar question for the state revolves around the large casino operations and the freebies they provide to gamblers, the testimony on Monday focused on employee meals provided by casinos, restaurants and taverns.

“This will be extremely burdensome on small operators,” said Ed Lepere, a vice chairman of the Nevada Restaurant Association and general manager of Lawry's The Prime Rib. Comped meals, he said, are often a key benefit for employees. “Don’t make it even more burdensome for operators.”

Attorneys for the Nevada Resort Association and employees of casinos urged the Tax Commission to hold off until a final Nevada Supreme Court decision is made on the case brought by Boyd Gaming.

The Tax Commission dealt with more cases of casinos seeking tax refunds. Downtown Las Vegas’ El Cortez asked for a rebate on taxes it had paid, arguing that its free meals were not based on consideration for gambling.

Around 2005, longtime employees would comp regulars just for walking in the door, said John Bartlett, attorney for the casino. “It was not based on ‘play,’ or gaming. It was because (customers) were broke, down on their luck. Casino personnel wanted to give them a meal because they looked hungry.”

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  1. This is going to hurt employee morale and customer service. What a horrible idea.

  2. This seems like an odd precedent to set.

    Utilizing the logic set forth by the Tax Commission, business that do a buy one get one free offer must pay sales tax on the full retail price of both items. If a bar does a happy hour special, they must still remit the sales tax on the full price, not the reduced price. The same would apply to any coupon discount, the sales tax would have to be based on the full retail price.

    Because if other businesses are only expected to collect and remit sales tax based on the actual purchase price, then the solution for the casinos would seem to be to replace "comps" with a coupon special for a one cent price.....then remit the sales tax based on the one cent retail price.