Questions prevail at workshop on sales tax on comped meals

CARSON CITY - There were more questions than answers Monday during a Department of Taxation workshop on taxing complimentary meals given to casino patrons and employees.

The department said earlier this year it would begin imposing sales tax on comped meals as of Feb. 15 and assess a 25 percent penalty and 9 percent annual interest on all taxes not paid by July 31.

The agency is still trying to adopt regulations on how to collect the sales tax.

The issue has dragged on for years and has huge consequences for state coffers, casinos and businesses such as restaurants and taverns that provide employee meals.

In 2008, the Nevada Supreme Court, in a ruling favoring John Ascuaga's Nugget in Sparks, struck down a use tax on free meals but left unresolved whether such meals are subject to sales tax. Since then, casinos have petitioned for refunds of those use taxes totaling hundreds of millions of dollars.

In January, the Nevada Tax Commission rejected an appeal by Boyd Gaming Corp. and said sales tax could be levied. That ruling upheld the findings of an administrative law judge who said employee and complimentary meals were retail sales subject to tax.

Court challenges are pending.

John Bartlett, a Nevada Resort Association attorney who represented the Nugget in the 2008 case, said the agency's move to adopt new regulations was premature, and urged that the process be delayed until legal challenges over the sales tax assessment is resolved.

Others said language in the draft proposal would have broader consequences beyond casinos and restaurants.

Chris Nielsen, deputy taxation director, said meals provided as comps to gamblers belonging to casino club card programs - where the player must give personal information to join - would be subject to sales tax at the retail rate. If a meal is listed for $15 on the menu, casinos would pay tax on that amount.

For employee meals, the sales tax would be based on the cost of the specific food to the employer.

Opponents said the draft language was vague. Would sales tax also apply to coupon freebies where no such loyalty club affiliation exists? What about partial comps, where a patron pays cash for part of the meal, and deducts the rest from reward points?

Tax agency officials were unable to answer many of the questions. Deputy Attorney General Gina Session said some questions were beyond the scope of Monday's workshop.