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David McGrath Schwartz

Nevada governor continues 'comped' meal tax fight

31 July 2008

LAS VEGAS, Nevada -- Gov. Jim Gibbons wants to continue the state's $142 million battle with casinos over "comped" meals. Gibbons administration officials said Wednesday they think new legal arguments could be used to hold on to taxes casino companies have paid on complimentary meals — money the companies say they want back.

Nevada lost the previous round in the fight to prevent the multimillion-dollar tax refund this month when the state Supreme Court upheld its earlier decision, saying at least one casino company was owed a rebate for taxes it paid on comped meals given to guests and employees.

The final decision on whether to challenge the ruling rests with Attorney General Catherine Cortez Masto's office.

But Gibbons supports pushing the legal fight with the gaming industry.

"The governor believes the Legislature intended to tax these transactions, and as they have always been taxed in the past," said Ben Kieckhefer, the governor's spokesman. "At a time when the state is struggling fiscally, it's important to maximize the revenues we have."

Nicole Moon, spokeswoman for the attorney general's office, said the state's legal options are still being reviewed and the office hopes to make a decision in August.

It would be a small defeat for the casino industry if the state chooses to continue the legal battle.

During last month's special session, Senate Republicans killed a bill that would have bolstered the state's legal case after casino lobbyists rose up against it. Earlier in the day, the bill had bipartisan legislative support, state staff backing and a robust endorsement from the governor.

Casino lobbyists suggested it would be akin to a tax increase — which is a red flag for Gibbons — and suggested the governor veto the bill.

Kieckhefer and others dismissed the tax increase argument.

"It's a tax that has been collected all along," Kieckhefer said. "To call it a tax increase is political positioning."

Carole Vilardo, president of Nevada Taxpayers Association, agreed and noted the tax has been collected since 1981.

"To say that it was a new tax, or a tax increase, I have a problem with," she said. "It's a game of semantics played too frequently."

Still, even if the state decides to continue its challenge, success is not a lock.

The state's new legal tack would be to argue that the meals are comped to patrons in exchange for something. For example, if people gamble enough, they get a certain amount of points that can be redeemed for a meal. This was apparently not argued by the state in the original Supreme Court case brought by Sparks Nugget.

Kieckhefer said the state would have to bring a legal challenge against one of the other refund claims.

Carson City attorney John Bartlett, who represented the Sparks Nugget, and now represents "40 to 50 casino companies" seeking refunds, said the state's tactics won't work.

Even if the argument that comped meals are "sales" withstands legal scrutiny, it would require a new regulation by the Tax Commission, he said, and that couldn't be applied retroactively.

Bartlett, who served as the deputy attorney general for the Taxation Department until 1999, said the state would eventually give up and accept that it has to refund the money to casinos. "I think they're getting to that point, finally."

Most casinos have stopped paying taxes on comped meals and asked for rebates, he said, but they are willing to work out a deal with the state so they are given tax credits. Otherwise the state would have to write large checks to each property and immediately make more cuts.

Of the $142 million in refunds and interest sought by casino companies, about $37 million would come from the state general fund, $41 million would come from K-12 schools, and the rest would come from local governments, Kieckhefer said.