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Sean Whaley

Costly court decision rehearing urged

15 April 2008

CARSON CITY, Nevada -- A recent Nevada Supreme Court ruling that said free meals provided to patrons by casinos are exempt from taxation has far-ranging and unintended results that could devastate the state's economy, the attorney general's office said Monday.

If the ruling is allowed to stand, it would cost the state and local governments an estimated $96 million from the refunds already being sought by more than 90 casinos, and much more if other casinos file for refunds. And it would come at a bad time for state government, which has been forced to trim budgets because of less-than-anticipated tax revenues.

The comment came in a petition for rehearing in the case involving the Sparks Nugget and the state Department of Taxation. The Department of Taxation has asked the Supreme Court to reconsider its March 27 decision.

The Tax Department has been collecting taxes on the free meals provided by casinos to patrons and employees for years. 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 but they have not been considered while the appeal in the Sparks case was under way.

Also Monday, the Department of Taxation released information on the comped meal issue, showing that 92 casinos have applied for refunds from the state sales and use tax based on the same legal theory as put forth by the Sparks Nugget. The requests total $96 million when interest is counted.

The state general fund share of this total is about $24 million. The public schools share is about $29 million and the local government share is about $43 million.

The state general fund could be on the hook for at least some of the school portion as well.

Further details were not released by the department, citing confidentiality requirements under Nevada law.

But the economic impact is growing.

"Please be aware that we are receiving additional requests on a daily basis since the Supreme Court decision that is not part of the above referenced numbers," said Taxation Executive Director Dino DiCianno. "At this point in time, it is difficult at best to estimate the additional amount of refunds as we go forward."

In the petition for rehearing, Gina Session, chief deputy attorney general, said the Supreme Court did not consider legislative intent when concluding the meals were not subject to taxation.

The court "should return to the canon of strict construction of tax exemptions, under which any reasonable doubt about the applicability of an exemption must be construed against the taxpayer," she wrote.

The petition also asks that if the court is not persuaded to reconsider its decision, that the case be remanded for further fact-finding regarding whether the casino receives "consideration" for the free meals.

The request is related to a footnote in the original decision that said the meals potentially could be 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 in its original decision.

Requests for reconsideration are not granted often by the court.

There is no word on when the court will act on the petition.