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Gaming Guru

Jennifer Robison
 

Broader tax advised to fill Nevada coffers

7 December 2007

NEVADA -- Nevada's tax revenue came in $46 million below projections between July and September, and special-interest groups are preparing state ballot questions to boost the gaming tax.

For members of the hospitality industry, there's one solution to both quandaries: a "broad-based" business levy that would include a corporate income tax or gross-receipts assessment.

Two high-profile gaming executives have called in the past three weeks for such a broader tax on all businesses.

Terry Lanni, chairman and chief executive officer of MGM Mirage, told attendees at a Nevada Development Authority luncheon on Nov. 16 that Nevada's gaming-centric tax base is causing "chaos" with the state's finances. And Keith Smith, president of Boyd Gaming Corp., said in a Nov. 13 presentation at the Global Gaming Expo that a "broad-based tax proposal is the best solution" for long-term fiscal stability.

Trade groups that represent largely nongaming businesses aren't yet mounting a unified answer to the gamers' call for a more-widespread tax on all corporations in the state. Representatives of the Las Vegas, Henderson and North Las Vegas chambers of commerce and the Nevada chapter of the National Federation of Independent Business all say they won't speak out against a broad-based corporate tax until they see a concrete proposal.

But past revenue tussles portend a big battle brewing.

After gaming advocates promoted a 0.25 percent tax on gross receipts in 2003, industry members and nongaming business groups sparred publicly over the idea. Chambers of commerce peppered members with blast e-mails opposing the plan, and their political-action committees doled out endorsements of candidates based partly on whether they disavowed the tax. Gaming giant MGM Mirage dropped out of the chamber in the midst of the fight, and major hospitality companies including Southern Nevada Wine & Spirits and Station Casinos launched the Nevada Tourism Alliance to promote their specific interests.

Carole Vilardo, president of the Nevada Taxpayers Association, said any fresh attempt to raise taxes on business will likely come via ballot initiative because Gov. Jim Gibbons has said he won't support new taxes coming from the Legislature.

"Relative to gaming going after the rest of business, I think you'd definitely see a divide very similar to what you saw in 2003," Vilardo said. She envisions a tug-of-war played out in the local media as each side scrambles to win over the voting public.

Nongaming companies and their allies in the Legislature managed to quash 2003's gross-receipts proposal, and instead saw the addition of a payroll tax that's now set at 0.63 percent, or 2 percent for financial institutions. The Legislature slapped an excise tax on banks as well, charging them $1,750 a quarter for each branch in the state beyond the first one.

Those taxes, plus other existing levies, will probably anchor any publicity campaign the trade groups wage against new assessments.

Business leaders outside the gaming industry bristled at gaming executives' contention that they don't pay taxes in the state, and they shot back at Lanni's recent comment that "the no-tax environment is a relic of a bygone era."

"We don't live in a no-tax state," said Cheryl Blomstrom, director of the Nevada chapter of the National Federation of Independent Business. "Mr. Lanni is a brilliant man, but his comment is just a sound bite, and an unfortunate one."

Blomstrom pointed to the payroll tax, the sales tax, property taxes and levies on companies' personal property, such as office equipment, as some of the duties Nevada's businesses pay.

Though an October report from the Tax Foundation ranked Nevada No. 3 in the nation for its overall business-tax climate, the nonprofit gave low marks to the Silver State's sales tax. The tax, which ranges from 6.5 percent to 7.75 percent depending on the county, is the country's seventh-highest, the foundation said. And businesses shell out that fee on virtually every transaction with a vendor, supplier or consultant, Blomstrom noted.

The Tax Foundation also rated Nevada's unemployment insurance tax the ninth-highest in the nation. For property tax on businesses, Nevada fails to break into the top 10, landing at No. 13.

What's more, Las Vegas lags behind several of its big-city peers in its taxes on businesses, the foundation noted in a 2005 study that analyzed corporate tax loads by metropolitan statistical area. The city's corporate-tax burden came in at No. 44 in the nation, ranking higher than Los Angeles; Miami; Houston; Detroit; Portland, Ore.; Salt Lake City; Sacramento, Calif.; Jersey City, N.J.; and Riverside-Bernardino, Calif.

"Obviously, businesses here don't pay nothing," said Steve Hill, chairman of the Las Vegas Chamber of Commerce's government affairs committee. "We get taxed almost every other way, other than on gross revenue and income."

Piling on new charges would hurt smaller businesses, many of whom already exist at the edge of profitability, Blomstrom said. Small franchise operations, independent gasoline stations, mom-and-pop retailers and restaurants in particular might earn profits of just 1 percent to 2 percent, she said, and tight competition means business owners can't always pass on new levies to consumers.

Nor would a corporate income tax provide any more stability than the existing revenue base, Hill said.

The sales tax is essentially a levy on business activity, he said. It's paid whenever a company buys goods and services, and because businesses are always purchasing goods and services no matter how poorly the economy fares, it's a more stable tax than an income tax, which can wane with broader revenue drops. For example, business activity at Silver State Materials Corp., the concrete supplier that Hill heads locally, is off 30 percent when compared with activity during the booming market of 2005, but the company's profit has dropped an even starker 90 percent since then, Hill said.

Nongaming business groups also plan to exhort their compatriots in the resort sector to reconsider accepting any new taxes. The revenue shortfall is temporary, generated mostly by a stumbling housing market and a relative lack of new megaresort openings in recent years, they say, and perhaps the more practical solution is for all corporate groups in Nevada to band together and examine state spending.

Most locally generated taxes go toward benefits and salaries for public workers, Hill said, and he'd "welcome gaming's strong influence" on looking to reduce public-sector expenditures.

"The benefits we're paying for government employees are substantially more expensive and substantially better than we can find in the private sector, and we don't think that's right," he said. "We think there are quite a few different ways that system can be reformed before we just add money to it."

That stand means, ironically, that the gaming industry has steadfast allies among nongaming groups in its fight against two proposed initiatives that would raise the 6.75 percent gaming tax to anywhere from 9.75 percent to 20 percent. The representatives queried for this article adamantly protested both ideas. Sharon Powers, president and chief executive officer of the North Las Vegas Chamber of Commerce, said it's "not good tax policy" to target a specific industry to fund shortfalls in the state budget, and Blomstrom blasted the initiative process that's gaining favor among policy advocates.

"As a matter of routine and principle, taxation by petition is a terrible idea," she said. "I categorically believe gaming companies should not be targeted by initiatives. It's a terrible way to make tax policy."