Ruling could drive shortfall to $1 billion

The state is scrambling to gauge the impact of a new Nevada Supreme Court ruling that, if pursued by hotel-casinos and other businesses it benefited, could push the state's soaring revenue shortfall closer to $1 billion.

The high court's decision last week held that food provided for free by businesses to customers or employees isn't taxable. The ruling favored John Ascuaga's Nugget in Sparks, but similar claims have been filed by many major hotel-casinos.

In the Nugget's case, the amount of taxes already paid by and now owed to the resort by the state is about $1.2 million. That includes the claim that was litigated plus interest, along with follow-up claims based on the same argument: "comped" meals aren't taxable.

That amount is small change compared with refunds that already are being sought or that can now be requested by other resorts or other businesses that provide complimentary meals in this tourist-dependent state.

"This is not a good time" for the state, Nevada Taxation Director Dino DiCianno said in responding to questions about the scope of the Supreme Court ruling - an impact that wasn't included in the formula used by Gov. Jim Gibbons' office to calculate the latest state revenue shortfall of about $900 million.

DiCianno said Tuesday he's assembling a list of other businesses that have filed claims for refunds of taxes paid on "comped" food, and also will get guidance from the state attorney general's office on how to proceed.

Asked to comment on the prospect of the combined refund claims approaching $100 million, DiCianno said that's possible but he's not going to venture a guess until his list of claimants is complete.

"I want to be accurate about it because the amount is significant," he added.

Whether the attorney general's office can help in figuring a way to ease the impact by, for example, delayed payments, remains to be seen.

"We don't know that yet," DiCianno said. "We need to be advised on that. I need to know what all the ups and downs are before I make a decision."

John Bartlett, the attorney who represented the Nugget in the tax case, said Tuesday he also represents many other resorts with claims on file with the Taxation Department, and is aware of similar claims being handled by other lawyers.

"There's a lot of bucks involved, no doubt about it," Bartlett said. "Most of the major casinos have turned in refund claims." He didn't name specific clubs.

An appeal by the state of the Nevada Supreme Court ruling to a federal court, a move that could delay any refunds, isn't in the cards since the case involves a state issue, Bartlett said.

DiCianno agreed with that view, saying the state high court "is the law of the land here, no question about that. I think that's a fair statement" about the lack of a federal issue.

Bartlett also said that as far as the Nugget is concerned, "we're willing to sit down and talk about how best to handle this" so that the state isn't harmed even more during the current economic downturn that has led to the huge shortfall projections through mid-2009.

"Nobody wants to harm the state," Bartlett said, adding that options for refunds could include deferrals or tax credits for any of the businesses with refund claims. That would soften the impact of immediate payments from the state.

The state Supreme Court, in its 6-1 ruling favoring the Nugget, said the Nevada Constitution exempts most "food for human consumption" from sales and use taxes," and "no taxable event occurred when the Nugget provided complimentary meals to its patrons and employees."

The majority ruling states that the food used to prepare the "comped" meals qualified as nontaxable "food for human consumption" when it was initially purchased by the Nugget, and "no taxable event" occurred between that time and the time the food was given away.

Larger shortfall

Last week's Nevada Supreme Court ruling concluded that food provided for free by businesses to customers or employees isn't taxable. The ruling allows businesses to request refunds from the state that could total $100 million, pushing the state's budget shortfall closer to $1 billion.