Given the economic climate, state governments have proposed some ridiculous ideas as of late for raising revenue and closing budget gaps. But Nevada Governor Jim Gibbons takes the cake when it comes to innovation. In 2008, the Nevada Supreme Court ruled the state’s casinos did not have to pay a “use” tax on complimentary meals they provide to gamblers to promote business. Boyd Gaming Corporation and others expected refunds for taxes paid on comped meals from 2000-2008 to the tune of $20 million each.
However, rather than refund the $210 million owed in total, Gibbons is citing a recent win in court over Boyd Gaming and claiming it’s actually Boyd who owes the state $20 million—in unpaid sales taxes on these free meals.
As noted by The Tax Foundation’s Mark Robyn, “there are a lot of complicated concepts in taxation and economics, but ‘free’ is not one of them.” Unfortunately, while very creative, you can’t have a sales tax without a sale.
Details aside, it is asinine for the state to go after the golden goose of its tourism industry. By attempting to burden casinos with sales taxes on complimentary meals, Nevada is quite literally biting the hand that feeds it. Governor Gibbons should be thanking casinos for taking measures like providing comped meals that promote business, not stifling them.
The struggle in Nevada brings to mind similar madness in Tennessee last year, when legislators made moves toward levying a tax on complimentary hotel breakfasts. Free breakfasts, much like other complimentary services hotels offer, are not truly “free.” The cost is included in the room rate, distributed amongst all hotel guests, on the assumption that many will not take advantage of the service. Since hotels are already burdened heavily with hotel taxes on the local, state and federal level, raising an additional sales tax on a cost already embedded would amount simply to taxing each of these free breakfasts twice.
It is worth reiterating the counterintuitive nature of punishing industries for taking measures that promote commerce, all under the pretense of closing budget gaps and bettering a state’s economy. The sales tax on any item costing zero dollars should be zero dollars, no matter what.