Sen. Joe Neal's proposed 5 percent increase in the gaming tax would raise total state taxes on casinos to nearly 60 percent of their profits, says Nevada Resort Association Director Bill Bible.
Neal is circulating a petition that would increase the gross gaming revenue tax on Nevada's largest casinos from 6.25 percent to 11.25 percent.
Bible said the 5 percent increase sounds small when compared with the nearly 30 percent most families and small businesses pay in income taxes. But he said the gaming tax is on the gross winnings of casinos - before any expenses such as employee salaries, operating costs, or utility bills are deducted.
Income taxes levied on individuals and corporations, he pointed out, are "net" taxes - levied after a homeowner or small businessman deducts legitimate expenses.
The difference between gross and net, according to figures from the Nevada Gaming Abstract, is dramatic. Nevada casinos in the $1 million a month category grossed $13.9 billion in 1998 - $7.74 billion from gaming.
Those casinos made a net after costs and expenses were deducted of $1.7 billion.
So, while the $591 million big casinos paid the state - in taxes, licenses and fees - was only about 7 percent of gross gaming revenues, it's more than a third of their net profit.
"When you figure the $591 million against net, the gross gaming tax we already have is equivalent to 34 percent," said Bible. "That's about equivalent to the 35 percent federal corporate income tax."
He said Neal's proposed 5 percent increase to the gross gaming tax would add another $387 million to the state's coffers - which would raise the total state tax to 57 percent of the net income those casinos make.
"It's the only industry in Nevada paying a gross proceeds tax," said Bible.
Mining, under state law, pays a "net proceeds of mines" tax to the state - not gross.
"When you get to the bottom line, the 6 percent tax is equivalent to a 34 percent income tax and 11 percent is equivalent to 57 percent," he said. "And that's before the federal taxes."
Bible's numbers were backed up by Professor Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at UNR.
Eadington said he is especially concerned about the effect of the tax on those casinos that may have a large "gross" but small profit margin.
"With a gross revenue tax, you basically punish those companies that operate at low profit margins," he said. "And punish less those companies that operate at high margins."
He said because a gross tax comes off the top before any deductions, it could put casinos with a narrow profit margin in the red.
"So a gross tax can have a distorted effect on those companies," he said. "I would make the case that it's very bad tax policy."
Neal, however, said his goal is to hit the "big boys making big profits," not to put marginal casinos out of business. He said he would be willing to talk about some way of protecting those marginal operations once the 2001 Legislature starts but that he still believes the largest casinos, those in Gaming Control's $72 million a year and up category, can afford the extra 5 percent.
"Under the law, I can't get the specific books on the casinos, so we had to dig up a rate based on what they are paying outside of the state," Neal said.
He said most of those that would have to pay the rate proposed in his initiative petition "are the big boys."
"The big guys can afford it," he said. "They are feeding on the little fellows.
"We don't want to put anybody out of business," he said. "They have to tell us which are the houses that would be put out of business and we'll talk about them."
"What we're probably going to have to do is completely rework that whole structure," he said.
But Neal made it clear that, since his earlier proposed 2 percent increase was buried by the 1999 Legislature, he intends to deal from a position of strength with signed petitions in hand in 2001.