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Gaming Guru

Matthew Crowley

New Tax Structure: Casino Operators Claim They Carry Disproportionate Burden

23 July 2003


NEVADA -- Banks found it favorable. The Chamber of Commerce found it acceptable. But casino operators found it regrettable.

Many business leaders expressed relief that the gross receipts tax wasn't part of the Legislature's new $836 million tax plan signed into law Tuesday by Gov. Kenny Guinn.

Nevertheless, gaming industry officials said the new structure still asks their industry to carry a disproportionate burden. The plan calls for a 0.5 percentage point increase in the gaming tax rate and a 33 percent tax increase in slot license fees.

"(When) you look at the litany of taxes on gaming, the industry still pays the lion's share of nongaming taxes," said Bill Bible, president of the Nevada Resort Association. "Add to that the industry specific taxes, and we'll pay the clear lion's share of the new tax package."

MGM Mirage Chairman Terry Lanni called the structure a positive step, by increasing other industries' participation in the tax-burden sharing. Nevertheless, he said he thought the structure should have been more balanced. He was particularly critical of the live entertainment tax, which he said was ill-conceived and ill-executed.

"They thought it could be passed on, but we're dealing with venues that have to compete in other arenas (such as) Los Angeles, Orange County (Calif.) and Phoenix where taxes are considerably less. The business brings in great amounts of business and the tax is very short-sighted," Lanni said.

During a conference call with analysts last week, Lanni said the entire state Legislature should be recalled because of its handling of the tax issue.

"I said that in frustration that no decisions were being made," Lanni said. "At least they've made a decision instead of suing each other, which was disappointing."

Like Lanni, Mike Sloan, senior vice president of Mandalay Resort Group and a member of the governor's tax task force, said the casino industry is disappointed the tax burden wasn't spread more fairly among Silver State businesses.

"There's no question the mechanisms selected by the Legislature do not fairly spread the burden among businesses," Sloan said. "They've substituted one employee-based tax for another. We're the only state in the Union with taxes based on employment."

Station Casinos spokeswoman Lesley Pittman said although her company is pleased the Legislature has resolved education funding, it is disappointed that a broad-based business tax wasn't adopted.

"We're disappointed there were some members of the Legislature who had no interest in fulfilling the commitment they made in the 2001 session to pass a broad-based business tax, and I guess they were lobbied hard by big business and banks," Pittman said.

For banks, the new tax structure creates a bigger tax burden on commercial banks than on business generally. But the banking industry agreed to bear the burden, said Ted Wehking, executive vice president of the Nevada Bankers Association.

"We've known for the past two years that the state was headed toward a situation where they would need more taxes to pay their bills," Wehking said. "We agreed that we would be willing to pay more taxes."

Large regional banks have been net importers of capital used for growth in Nevada, but banks also have profited from the growth, he said.

The tax package requires banks to pay a 2 percent payroll tax, compared with 0.7 percent for other businesses. Also, banks pay an excise tax of $7,000 a year for all but one of their branches, Wehking said.

"It was our suggestion, because it was a better way to raises taxes from a banking standpoint than a gross receipts or franchise tax," Wehking said. "Nobody (in business) including the banking industry cares for a gross receipts tax."

Utilities seemed to be sorting out the new tax structure.

Roger Buehrer, a spokesman for Southwest Gas Corp., said the company is analyzing the legislation to determine how much the company may incur in additional taxes. Taxes are considered operating expenses and are included in calculating rate changes, he said.

Officials from Sprint Corp., the dominant local telephone service operation in Las Vegas, and Nevada Power Co., the dominant local electricity provider, said they were studying the legislation.

Kara Kelley, president of the Las Vegas Chamber of Commerce, cheered the elimination of the gross receipts tax, which chamber members had roundly opposed, and the resolution of the legislative impasse.

"Obviously we're pleased that the gross receipts tax died under what we believe was its own weight, and we feel the Legislature put together a responsible tax package to meet the state's needs," Kelley said. "It's not perfect, but it's fairly equitable."

Kelley said she was also happy with how the payroll tax was crafted, with a 0.7 percent tax in the first year and a decrease to 0.65 percent in the second year, with exemptions for such things as health care costs.

Jeremy Aguero, principal of Applied Analysis and a member of the governor's task force, said small businesses will actually pay more now than with the tax package the task force had proposed.

"It's an $80 million loss (in gross receipts), but the modified tax generates more, so it's a net gain," he said. "Does it have what the governor's task force had? No, absolutely not."

Kevin Higgins, president of the Southern Nevada chapter of National Association of Industrial and Office Properties, said he was glad that the governor listened to his group's presentation of alternative tax proposals.

"The increases across the board are going to affect everyone," Higgins said, "but there won't be a heavy burden on any one industry. By and large, I think we and other groups were pretty successful in defeating that (gross receipts)."

The plan also increases taxes for cigarettes (45 cents per pack) and liquor (75 percent). Sajan Abraham, who recently bought the Town Pump Liquor store at 953 E. Sahara Ave., said his customers are upset that elected officials increased taxes on cigarettes and liquor but eliminated a $100 per employee business license tax.

"Why give $100 a head back to casinos that employ 7,000 or 8,000 people? It doesn't make sense," Abraham said. "The guy who buys a bottle of beer with some spare change is hit, while the big companies get away."

Abraham added it's still too soon to speculate how the new tax would affect sales, but he expects most consumers will simply decide to pay the additional charges.

"I guess I'll find out more on Aug. 1," Abraham said, in reference to when the new tax takes effect.

Review Journal writers John G. Edwards and Hubble Smith and Gaming Wire writers Chris Jones and Rod Smith contributed to this report.