Principle, not money, bothers casinos

August 1, 2003 - Last month, the Nevada Legislature raised the tax rate on casino revenue (from 6.25 percent to 6.75 percent) for the first time in 14 years and also introduced a payroll tax - part of a tax package that is expected to cost the industry an estimated $222 million in incremental taxes over the next biennium.

It is the political implications of that move - not the financial hit to the balance sheet - that has most upset Nevada's dominant industry.

"It is going to bring the industry to its knees? No," MGM MIRAGE spokesman Alan Feldman said of the tax plan.

"This is not an appropriate way to provide for the state," he said. "We have a broken tax structure in Nevada. It doesn't spread responsibility out evenly across business sectors."

The flat tax on gross receipts - rather than the payroll tax plan that was ultimately approved - would have given non-gaming business such as banks and car dealers a greater share of the tax burden, he said.

The last frenzied negotiations over the $836 million tax package occurred as some companies were discussing their latest quarter earnings. During conference calls with investors over the past few weeks, executives assured investors that the tax increases weren't enough to thwart either new projects or debt-repayment goals.

In many cases, analysts - who have been fairly quiet about the tax increases so far - had already factored them into their company earnings estimates.

The increases aren't expected to hurt balance sheets but will influence the market in other ways, McDonald Investment analyst Dennis Forst said.

"It's more the psychological issue that taxes have gone up," he said. "It makes (stock) investors slightly more nervous about Nevada."

Under the new plan, MGM MIRAGE said it expects to pay about $30 million in incremental taxes over the next two years. Harrah's Entertainment Corp. would pay $2.6 million this year and $6.9 million in 2004. Park Place Entertainment Corp. would pay an extra $12 million a year, while added taxes would add up to "less than $10 million" a year at Mandalay Resort Group.

All told, the gaming industry will be paying roughly 27 percent of the new tax burden, according to figures produced by Applied Analysis, a Las Vegas research firm that crunched numbers for state and private sector clients during the legislative session. The industry will pay about 19 percent of the payroll tax, 24 percent of the business license tax increase, 24 percent of the liquor tax increase and 25 percent of the cigarette tax increase, the firm says.

Companies say they are prepared to pass along much of that cost to consumers in the form of higher prices. Alcohol prices will be tougher to stomach, as many casinos already supply liquor to favored gamblers for free, executives say.

"I think it would be terribly naive to think (higher taxes) are going to have no impact on the economy," Applied Analysis principal Jeremy Aguero said. "I also think it would be terribly naive to think it will change the way gaming does business."

The new tax landscape raises broader questions about the growth of the industry nationwide, he said.

Two of the best performing gaming companies in recent months - International Game Technology and Station Casinos Inc. - are now doing a material amount of business outside the state, he added.

IGT now sells more slot machines outside Nevada, while Station Casinos - which has signed deals to manage casinos for Indian tribes - now receives fees from a lucrative tribal casino in California that has no gaming tax and is poised to compete with Nevada properties, he said.

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