Meal tax: Another burden on state businesses

The roots of Nevada’s economic recovery have barely taken hold of the topsoil. But the regulators of the Nevada Tax Commission insist on stomping through the garden in work boots, shovels in hand.

Hotels and restaurants – the region’s biggest economic and employment sectors – just had their taxes increased. The Tax Commission voted 5-2 Monday to require hotels and restaurants to collect sales taxes on complimentary meals for guests and employees, effective retroactively. These businesses are obligated to pay their first bill by July 31 on all food given away since Feb. 15. Failure to pay results in a 25 percent penalty and 9 percent interest on the balance.

"Most businesses will be challenged to set aside enough to pay the taxes," Ed Lepere, vice chairman of the Nevada Restaurant Association and general manager of Lawry’s The Prime Rib in Las Vegas, told the commission.

"You’ve created an anti-business climate," said Andre Rochat, owner of Andre’s restaurant.

The commission’s decision, which makes no economic sense, is perplexing from a practical standpoint as well. A lawsuit challenging the rule has not yet been heard in District Court, and it will be appealed to the Nevada Supreme Court regardless of whether the hospitality industry or the state prevails. Mr. Lepere, Mr. Rochat and nearly a dozen other speakers pleaded with the panel to delay action until the courts can determine whether it’s lawful.

But the commission moved forward regardless, even though Chris Nielsen, deputy director of the Department of Taxation, said there’s no simple way to track comped food and beverages. It’s up to casinos and restaurants to figure it out, with the caveat that free meals for workers are taxed on the employer’s cost, but free meals for guests are taxed on the menu price. Each nuance is another burden.

This goes far beyond the massive employee cafeterias at the Strip’s largest resorts. It hits every neighborhood eatery, where sample plates are sent out "compliments of the chef" and desserts are given away to make up for long waits and kitchen mistakes. Those get taxed now. So do comps for casinos’ best customers. Has every business been keeping track of those perks since Valentine’s Day? Not likely.

And what about loyalty club giveaways and coupon promotions? It’s unclear.

Hotel occupancy rates have been increasing steadily. Restaurant sales, meanwhile, are flat – they increased just 0.2 percent in Clark County in March, to $752 million. That figure represents 27 percent of all consumer spending in Southern Nevada. Although the Tax Commission doesn’t have firm estimates on how many dollars their new tax will bring in, it’s safe to say it’s substantial.

It’s a basic law of economics that when you tax something, you get less of it. Nevada hotels and restaurants that somehow have survived the recession don’t need higher costs and reduced productivity. Fixing this mess should be at the top of the 2013 legislative agenda.