Legislators add to arguments opposing free meals ruling

CARSON CITY -- The Nevada Legislature has joined the state Tax Department in asking the Supreme Court to reconsider a March ruling that free meals provided to patrons by casinos are exempt from taxation.

In an amicus, or friend of the court, brief filed Monday, the Legislature said the court should examine the issue of legislative intent on the question of whether meals provided by casinos to patrons and employees free of charge should be subject to tax. The controversial ruling came in a tax refund request filed by the Sparks Nugget.

The brief says a measure placed on the ballot in 1984 and approved by voters amended the state constitution to make food purchased for later consumption, such as food purchased at a grocery store, exempt from state sales tax.

But the measure was tailored to make clear that prepared food consumed at restaurants, including casinos, was subject to taxation, the brief says.

The Supreme Court has not acted on the request to reconsider its March 27 decision, which has nearly $100 million worth of fiscal implications for the state and local governments.

The state is liable for at least $24 million, and probably a portion of the $29 million that local school districts could lose in the 92 tax refunds from different casinos on file.

Senate Minority Leader Dina Titus, D-Las Vegas, supports the decision by lawmakers to weigh in, saying the sums are significant given the state's more than $900 million shortfall.

"Right now we're down to the penny with a balanced budget," she said. "If that's another hit we have to take, we'll have to look for more cuts."

Assembly Speaker Barbara Buckley, D-Las Vegas, called the Tax Department's estimates of possible refunds alarming. She said there was "spontaneous unanimity" on the part of lawmakers to file a brief in the case.

The legislative intent issue was not placed in front of the court while it considered its original opinion, Buckley said.

"We felt our perspective was not argued and the court did not have the opportunity to consider it," she said.

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.

The amicus brief filed by the Legislature notes that a review of newspaper articles and ballot information at the time of the 1984 vote shows voters clearly intended that the exemption "apply exclusively to food purchased for household or family use and prepared and consumed for noncommercial purposes."

The ballot measure, "did not intend to apply to food purchased by a retailer, such as a casino or restaurant, and prepared and consumed on the retailer's premises for commercial or business purposes, whether or not the retailer imposed a charge for the prepared food," the brief says.

The Legislature's brief does not raise an issue cited by the court itself in a footnote in its opinion -- that free casino meals potentially could be subject to taxation when there has been a transfer of personal property "for a consideration."

The issue is raised in the petition for rehearing filed Monday by the attorney general's office on behalf of the Tax Department, however. The argument is that in the case of employees, there is a consideration because a free meal is part of the compensation package. A company might pay an employee $9 an hour instead of $10 an hour because free meals are provided.

In the case of casino patrons, a "comped" meal is typically provided based on the amount wagered. With the new system of cards tracking an individual's play, a casino can decide to comp a meal in exchange for that consideration.

Contact Review-Journal Capital Bureau reporter Sean Whaley at swhaley@reviewjournal.com or 775- 687-3900.