Monday, January 13, 2003
Copyright © Las Vegas Review-Journal

Business group challenges casino industry

Competing tax packages to test each side's influence in Legislature

GUY HOBBS, chairman • Appointed by: Gov. Kenny Guinn, a Republican • Occupation: Financial consultant whose clients include Clark County, former Clark County finance director EVA GARCIA-MENDOZA • Appointed by: Gov. Kenny Guinn • Occupation: Las Vegas lawyer MIKE SLOAN • Appointed by: Gov. Kenny Guinn • Occupation: Mandalay Resort Group senior vice president and general counsel NANCY WONG • Appointed by: Gov. Kenny Guinn • Occupation: Vice president of Arcata Associates, an engineering information technology company whose clients include NASA and the U.S. Air Force BRIAN GREENSPUN • Appointed by: Assembly Speaker Richard Perkins, D-Henderson • Occupation: Family owns Las Vegas Sun and has interests in real estate development, gaming and cable television KEN LANGE • Appointed by: Assembly Speaker Richard Perkins • Occupation: Nevada State Education Association executive director RUSS FIELDS • Appointed by: Senate Majority Leader Bill Raggio, R-Reno • Occupation: Nevada Mining Association president LUTHER MACK • Appointed by: Senate Majority Leader Bill Raggio • Occupation: Owns Reno-area McDonald's franchises Click image for an enlargement Click image for an enlargement

Nevada's casino industry enjoys unparalleled power in the Silver State, but that strength soon will be tested.

Legislators are about to consider whether to enact a massive tax increase that supporters argue is necessary to maintain government services.

The casino industry supports passage of the gross receipts tax that is the centerpiece of the tax package endorsed by the Governor's Task Force on Tax Policy. Industry members contend passage would broaden a tax base that is heavily reliant on gaming.

The gaming industry pays more than $600 million in gaming taxes and $20.5 million in business license taxes each year.

The industry argues the tax package it supports would increase gaming's tax bite by $39.5 million per year.

"We will continue to be the dominant payer to the state general fund," said the casino industry's top Carson City lobbyist, Nevada Resort Association President Bill Bible.

But a group of Nevada businesses has rallied against the proposed gross receipts tax. The businesses argue it is unfair and has proved to be a failure in Washington state.

The coalition, known as the Business Representatives Group, includes members from retail, banking, manufacturing and auto dealerships.

The group has advanced a plan that would plug the budget gap by expanding the sales tax to cover many untaxed services. The group has not specified which services would be taxed.

Also, the group's plan would double the state's business license tax, an increase that would raise about $212 million over two years.

"This is a short- and long-term solution to the fiscal shortfall," Nevada Manufacturers Association Director Ray Bacon said. "We've worked diligently to formulate a solution that wouldn't target specific industries and that would be fair and equitable."

Critics argue that increasing the state's reliance on the sales tax and the business license tax would slam consumers and gaming.

The business license tax, known as the head tax, requires that companies annually pay $100 per full-time worker. Doubling that amount would be a body blow to the labor-intensive hotel-casino industry.

Mandalay Resort Group Senior Vice President Mike Sloan, a member of the tax panel and a proponent of the gross receipts tax, termed the Business Representatives Group's plan a "clear example of corporate selfishness, not corporate responsibility."

"The stupidity and unfairness of their plan is clear," he said. "This is an example of a portion of the business community saying, 'We want to shift the tax burden to the individual homeowner or resident.' But they don't have the guts to identify which services would be taxed."

Gov. Kenny Guinn is expected to lay out his tax plan during his State of the State address Jan. 20.

He estimates the state needs $704.6 million in new revenue over the next two years just to keep up with growth in existing state programs.

Guinn has not divulged the contents of his tax plan, but he has rejected the idea of a services tax. He criticized its relative instability and said it would not broaden the tax base.

In the resolution creating the tax panel, legislators ordered members to find ways to tax some industries more.

"Any recommended legislation must include a plan to broaden the tax base so that it is reflective of the diversity of the state's economy," the resolution said.

Nevada is one of five states without a business income tax, and the gaming industry has said other sectors do not pay their fair share of state taxes.

Banking and retail are among the industries most frequently cited as getting a near-free ride. Proponents of the gross receipts tax have said one of its chief benefits is that it taxes banking and retail revenues.

"Gaming wants other businesses to share their burden, and other businesses should," UNLV public administration professor Bill Thompson said. "It's a fair argument and a good argument."

Nevada Bankers Association Executive Vice President Ted Wehking acknowledged that the prospect of a gross receipts tax led to the creation of the Business Representatives Group.

Businesses understand the state needs money, he said. Nevada banks' opposition to a gross receipts tax is based on the experiences of their counterparts in Washington.

"Nobody's saying, 'Hell no, we won't pay!' We are willing to pay our fair share," Wehking said. "Nobody likes this tax."

The two sides will make their respective cases when the Legislature convenes Feb. 3.

Hal Rothman, chairman of the history department at UNLV, said he doubted the tax fight would excite average Nevadans, leaving the debate to the competing business interests, lobbyists and lawmakers.

Rothman said no one should be surprised at the full-contact nature of the impending debate.

"That's what businesses do," he said. "They don't stand up and say 'Tax me more.' "

Gaming officials contend the time has come for the state to tax other sectors more. They argue the gross receipts tax, applied to almost all business sectors, is the best deal for ordinary Nevadans.

"That's where the large dollars are," Sloan said. "It is time to look at the business community instead of the consumer."

The proposed gross receipts tax would place a 0.25 percent levy on business revenue. Supporters have said it would raise about $221.7 million each year.

The panel would exempt the first $350,000 of a company's revenue. The panel estimated 60 percent of Nevada businesses would pay no gross receipts tax because they do not make more than that amount.

The panel would allow businesses to deduct their business license tax payments from their gross receipts tax payments. The deductions would benefit the state's largest employer, the gaming industry.

Casinos would not pay the gross receipts tax on gaming revenue. They would pay it on nongaming revenue, including money received for food, shows and rooms.

The tax panel would increase the rate of the maximum gaming tax by 0.25 percent. That would bring the levy, which affects net revenue, to 6.5 percent.

All other casino states have higher rates.

The top rate in Illinois, for instance, was raised recently to 50 percent. Mississippi's top rate is 8 percent, with an additional 3.2 percent levied by most cities and counties. The maximum rate in Atlantic City is 9.25 percent, including a 1.25 percent development tax.

"There's no doubt that Nevada has the lowest gaming tax in the nation," Rothman said. "We're a grown-up state with an infantile tax system. We've always laid off the costs of government on the federal government or on visitors. But gaming pays the lion's share of nonsales taxes in Nevada, and the big issue is that many other companies don't pay much at all."

The task force said the benefits of a gross receipts tax include its relative stability, its uncomplicated nature and its capacity to raise large sums.

The panel said the downside of a gross receipts tax is its relatively inequitable application; businesses with equal revenues would pay the same amount, even if they had great differences in their profit margins.

Guy Hobbs, chairman of the tax panel, said one attraction of the gross receipts tax is that it is relatively easy to collect, particularly when compared with a net profits tax.

"It is unrealistic to believe we can let every business pick their favorite taxes," Hobbs said. "You have to settle in on one that satisfies most of the objectives we have."

Thompson, the public administration professor, predicted that entrenched legislative positions against both plans will lead to a crazy-quilt solution.

"It's gutless, but we're likely to see a patchwork hodgepodge of fee and property tax increases, a big increase in sin taxes, and an increase in the head tax," Thompson said.