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Sean Whaley

Attorney general wants tax status of free meals reviewed

9 April 2008

CARSON CITY, Nevada -- The attorney general's office announced Tuesday that it will ask the Nevada Supreme Court to reconsider a March 27 ruling that free meals provided by casinos to patrons are not subject to taxation.

The 6-1 ruling prompted concerns from Gov. Jim Gibbons and lawmakers that the state's ongoing budget shortfall could grow by tens of millions of dollars.

The decision to ask the court to rehear the case of the Sparks Nugget versus the state Department of Taxation came after a closed-door meeting between the Tax Commission and the attorney general's office on Monday.

Nicole Moon, a spokeswoman for Attorney General Catherine Cortez Masto, said a legal analysis of why the court should grant a request to reconsider its ruling will be filed Monday.

The state is finalizing more than $300 million in new spending cuts to the two-year budget. The total shortfall is projected at $900 million below original forecasts. The Supreme Court decision has not been factored into the shortfall because the financial effect remains unknown.

The Tax Department has been collecting taxes on the free meals provided by casinos to patrons and employees. The ruling said the tax should not be collected, opening up the state to the potential of tens of millions of dollars in refunds.

The ruling would result in about a $1.3 million refund to the Sparks Nugget. Other casinos have applied for refunds from the tax as well.

If the decision stands, future tax collections would be lower because the meals are exempted.

The attorney representing the Sparks Nugget could not be reached for comment on the request for a rehearing.

The attorney general's office has not yet disclosed the legal reasoning behind the request for a rehearing.

But state officials were looking at a footnote in the opinion that appears to offer a way to make the meals subject to taxation when there has been a transfer of personal property "for a consideration."

The court said in the footnote that this type of transfer was not demonstrated in the Sparks Nugget case.

"Still, we do not foreclose the possibility that complimentary meals such as the ones at issue in this case may be subject to sales tax where consideration is properly demonstrated," the court said.

Requests for reconsideration are occasionally sought by losing parties but infrequently granted by the court.

Rehearings can be granted if the court is found to have overlooked or misunderstood a relevant fact or if a question of law has been overlooked or misapplied.