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Sean Whaley

Court ruling: Tax chief sees blow to budget

2 April 2008

CARSON CITY, Nevada -- A recent Supreme Court ruling that meals comped to casino patrons are not subject to taxation could have a major impact on the already strapped state budget, the head of the state Department of Taxation acknowledged Tuesday.

"I don't discount the possibility it could be substantial," said Dino DiCianno, the department's executive director. "Until I can get the numbers from my staff, though, I cannot say what the impact will be."

The news that refunds totaling in the tens of millions of dollars might soon be issued to casinos that have been paying taxes on free meals provided to patrons and employees comes as the state faces a $900 million revenue shortfall.

Gov. Jim Gibbons discussed the state's ever-worsening fiscal troubles on Monday. Lower than expected sales tax revenue is a major cause of the state's budget woes.

DiCianno said it is possible the 6-1 Nevada Supreme Court decision issued Thursday could push that shortfall closer to $1 billion, but added that information is still being gathered to make a definite determination.

"I don't even want to venture a guess," DiCianno said. "The issue is too serious. We need to get our facts straight first."

DiCianno said he may know this week how many hotel-casinos have already applied for refunds of tax previously paid on the comped meals. A refund request can go back three years and one month.

A number of casinos have already applied for refunds, but those requests were put on hold while the Supreme Court considered just one of the requests, filed by the Sparks Nugget.

DiCianno said the number of refund requests already on file is part of the research under way by his staff.

The Sparks Nugget contended that the complimentary meals it provides to its patrons and employees are exempted under the sales and use tax in the state constitution, which provides the exemption for most "food for human consumption."

The casino argued the tax didn't apply because the uncooked food used to prepare the free meals qualified as food for human consumption at the time of its initial purchase, and no taxable event occurred thereafter.

The court majority agreed, saying no taxable event occurred between the tax-free purchase of the food and when it gave the meals away.

John Bartlett, the Carson City attorney who represented the Sparks Nugget in the case, said Thursday the refund request for just the Nugget for the period from April 1999 to February 2002 identified in the opinion totals about $1.3 million.

He said the financial impact of the ruling is "going to be pretty big, I think."

The Sparks casino, and dozens of others that have paid the tax, are also now eligible to recover additional payments made over the past several years as a result of the decision.

DiCianno said there is also the issue of losing future revenue from no longer being able to tax comped meals.

"I don't know how much it's all going to be," he said. "Staff is doing that work now."

Fiscal analysts for the Legislature have also asked for the information from the Tax Department because of the financial concerns, both for the current budget and for future revenue forecasts.