The intensity of the tax battle between Boyd Gaming and the Nevada Department of Taxation appears to have reached an all time high. And other Nevada casinos are closely paying attention. Both parties are appealing an April decision (linked below), which held that the casino is required to collect and remit sales tax on the value of complementary meals provided to its gamblers.
That’s right. The decision requires casinos to pay to the state of Nevada sales tax on transactions that don’t generate gross receipts. Well, it’s not that simple, according to Administrative Law Judge Dena James Smith.
Reported in a story by the Las Vegas Sun, the judge analyzed Boyd’s “reward points” structure, and reasoned that the meals were anything but complimentary. Instead, she wrote they were provided “directly in exchange for…a certain amount of gambling…. [Boyd] simply did not award complimentary meals when they had not received something of value or expected to receive something of value in return.”
Ultimately, she held that the value of the complementary meals provided to gamblers, but not to employees, are subject to sales tax.
The decision is significant. The casino claims it’s owed $210 million that the state previously collected under erroneous legal interpretations. The Department of Taxation, meanwhile, believes tens of millions more is owed. Many millions more may be on the line, since many other casinos provide similar food comps.
The issue is not really one of first impression. Back in 2008, the Nevada Supreme Court held that the casino Sparks Nugget did not have to pay use tax on the cost of food used to prepare comped meals. This ruling triggered the Tax Department’s receipt of refund requests from nearly one hundred other Nevada casinos.
Wait, so what makes Boyd Gaming different from Sparks Nugget? Isn’t the Nevada Supreme Court decision binding? Good question. First, some background.
In Nevada, sales tax is imposed on the retail sale of tangible personal property. Nevada also imposes a use tax on consumers for the storage, use or other consumption of tangible personal property. The use tax is complementary to the sales tax, and only one type of tax can be assessed on a single transaction.
There are also exemptions to sales and use taxes. In Nevada, there is an exemption for food for human consumption. There is an exclusion from the exemption, however, for prepared food intended for immediate consumption. Got it?
In Sparks Nugget, the Department’s position was that the casinos owed use tax on the cost of food used to prepare the comped meals. The Department lost. The Department didn’t alternatively assert in Sparks Nugget that the casino owed sales tax on the value of the comped meals. That’s Boyd.
Casinos have the Sparks Nugget majority to blame. That court suggested if consideration was provided in exchange for the comped meal, then there may be a retail sale subject to sales tax. With the Boyd decision in favor of the Department now on appeal, the state’s highest court may have to rule on the very argument it previously invited.