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Chris Sieroty

Comp meals must be taxed, state Tax Commission finds

26 June 2012

The Nevada Tax Commission voted 5-2 on Monday to require payment of sales taxes on comped and employee meals - a move resort operators, restaurant owners and employees alike say will cut into profits as the tourist industry recovers from recession.

The state Department of Taxation on Feb. 15 said free meals to resort guests and workers should be taxable. Monday's vote puts in place specific regulations for collecting the tax.

Businesses have until July 31 to remit taxes on meals given since Feb. 15. Those failing to comply by the end of next month face a 25 percent penalty and a 9 percent annual interest rate on unpaid balances.

No estimates of potential revenue were discussed at the commission hearing. Regulations adopted by the taxation department and tax commission must also be approved by the Legislative Commission.

The tax is expected to yield millions of dollars for the state if it withstands legal challenge, and crimp the gaming industry's long-standing tradition of rewarding gamblers with free food and drinks.

The commission's decision comes over the objection of virtually all hospitality industry groups. Representatives argued during a public hearing that the regulation should be delayed until the Nevada Supreme Court can rule on a lawsuit yet to be heard in District Court.

Ed Lepere, vice chairman of the Nevada Restaurant Association, urged commissioners to delay acting to allow the court to rule because few of his members received written notice of the change.

"Most businesses will be challenged to set aside enough to pay the taxes," said Lepere, general manager of Lawry's The Prime Rib in Las Vegas.

Andre Rochat, owner of Andre's restaurant in Las Vegas, warned commissioners that many restaurants would end the practice of allowing employees to eat leftover food if they have to pay a tax on the meals.

"You are adding to my operating expenses and putting a large burden on the restaurant owner," Rochat said. "Why are you always picking on us? You've created an anti-business climate."

Rochat was one of a about a dozen industry lobbyists, attorneys, casino employees and restaurateurs who spoke against the regulations.

Chris Nielsen, deputy director of the taxation department, said there is really no simple way to track employee meals, so the regulations leave it up to the casinos and restaurants on how to collect the tax.

The Nevada Supreme Court in 2008 ruled in favor of John Ascuaga's Nugget in Sparks, striking down a use tax on free meals but leaving unresolved whether comped meals are subject to sales tax. Since then, several resort-gaming companies have petitioned for refund of use taxes paid.

A lawsuit filed by Boyd Gaming Corp. over the use tax collection is pending in Clark County District Court.

In January, the commission rejected Boyd Gaming's request for a $21 million refund, and said the sales taxes could be levied. The commission also rejected Caesars Entertainment Corp.'s appeal for a $31 million refund.

Caesars spokesman Gary Thompson declined to comment. Boyd Gaming officials also declined to comment.

The new regulation prescribes that the tax on free meals for workers should be based on the cost of the food when purchased by the employer, while meals comped for patrons should be based on the menu price.

Sales tax rates vary. In Clark County the rate is 8.1 percent. In Washoe County it's 7.725 percent.