It’s not a lot of money, relatively speaking – roughly $9 million – barely 1 percent of the revenue generated annually by room tax in Clark County. But with Nevada’s tourism-based economy suffering the devastation of COVID, perhaps more acutely than any other state, the tax revenue lost to free and discounted rooms is exposing rare dissension between Southern Nevada resorts and the usually convivial Clark County Commission.
With the county facing a $315 million Covid-induced budget deficit and $1 billion loss of revenue, every dollar counts, Commissioner Jim Gibson noted two weeks ago, when the county postponed voting to capture more revenue by redefining the exemptions and deductions applied by resorts when they comp or discount certain rooms.
“Recent audits of resort hotels have brought to light that different operations are interpreting provisions of the transient lodging tax code in ways not intended by the drafter,” says the county’s agenda item.
“We have a duty to collect the tax the way the ordinance is written,” Gibson said at the meeting.
A proposed amendment to county ordinance on Tuesday’s agenda would redefine “gross receipts” and make “the value of discounts, room allowances or complimentary rooms” not deductible from the Transient Lodging Tax.
“In its current form, we can’t support the ordinance,” Nevada Resort Association president Virginia Valentine told the Commission on Dec. 1, noting it taxes revenue that has not been received and compromises a time-honored means of attracting visitors.
On a separate front, local public relations executives Mark Fierro and Sig Rogich are suing to recoup lost room tax revenue — not from resorts but from travel websites that buy blocks of discounted rooms, sell them at higher rates, but pay room tax on the discount.
“We have no intention of involving the casinos as defendants,” Fierro said in an email.
While the travel sites are receiving compensation, resorts argue they’re being assessed tax by the county on “phantom revenue” they’ll never receive, and some contend they’ve been overpaying, according to gaming attorney Mark Rubenstein.
A legal challenge by the Paris of room tax payments resulted in reduced liabilities for resorts.
Commissioner Larry Brown said the resulting tax calculation is “costing the county revenue we anticipated” and threatened “Draconian” measures if the industry failed to acknowledge the accounting rules are costing the county revenue.
“Plain meaning. Either you help us get to that place we were before the Paris interpretation or I think it’s incumbent upon us to protect the bonds and protect our revenue streams to do something even more restrictive.”
Brown declined through Clark County spokesperson Erik Pappa to say what he meant by “Draconian” and “doing something more restrictive.” He also refused to say why resorts should be called on to offset tax revenue lost to the county because of a court interpretation.
Brown is Chairman of the Board of the The Las Vegas Convention and Visitors Authority, the marketing arm of Southern Nevada’s tourism industry, which receives 80 percent of its budget from room tax. The other 20 percent is from facility fees, which have plunged in the absence of conventions.
From July 1 through September of 2019, the LVCVA generated $7.4 million in fees for the use of its facilities. For the same period in the current year, that number stands at $11,250, down 100 percent.
County Commission Chairwoman Marilyn Kirkpatrick, who said at the Dec. 1 meeting the resort industry and the county were “not going to be able to come to the middle because we’re at opposite ends” on the room tax issue, declined through Pappa to elaborate.
“Conversations continue,” said Dawn Christensen of the Resort Association.
As 2020 neared, it was on mark to be a landmark year for room tax revenue, according to the LVCVA, which receives roughly $280 million a year.
“FY 2020 proposed room taxes are expected to increase 2% over FY 2019 projected room tax,” the LVCVA’s Budget Book for 2019 said.
“In February, we were excited about how we were going to set records in a number of different ways, and by the time we got to March, we realized that the coronavirus was certainly going to have an impact on all of those issues,” LVCVA President Steve Hill said in April during a telephone meeting of the board.
Now projections are off the table.
“We’re not forecasting future tax projections due to the fluid nature of the pandemic,” LVCVA’s Lori Nelson-Kraft told the Current.
The LVCVA reported last week its General Fund Room tax revenue for the current fiscal year-to date is down 71 percent compared to the prior year, mainly due to the COVID-19 pandemic.
From July through September 2019, the LVCVA received $70.9 million in room tax revenue. That’s been slashed to $20.4 million for the same period this year.
- The year-to-date occupancy rate of 42.3 percent is down 52.3 percent compared to last year.
- The average daily room rate of $86.59 is down 239 percent compared to last year.
- The average number of rooms occupied daily (53,336) is down 62.6 percent from last year.
The Transient Lodging tax — better known as the room tax, was conceived in 1955 by state lawmakers as a means of funding recreation and spreading the word about all Clark County had to offer.
But according to the LVCVA, the percentage of room tax revenue dedicated to tourism has “gradually declined from 90 percent in the 60s to 35 percent in the last decade.”
Through the years, the room tax, generated primarily by Nevada’s golden goose, the gaming industry, has been called on to feather more and more nests – from essential services such as education and transportation, to the nonessential — a $750 million taxpayer investment in a football stadium, paid for by about six percent of the room tax generated in Southern Nevada — and a $900 million bond sale to pay for the expansion of the Las Vegas Convention Center, funded by a .5 percent increase in the room tax, approved by state lawmakers in 2016. Both projects are financed by general obligation bonds, meaning they are backed by the full faith and credit of Clark County government.
Despite the plummet in revenue, the LVCVA’s Consolidated Annual Financial Report, presented last week, says in fiscal year 2020, the “General Fund room taxes and gaming fees of $234.8 million exceeded 2.4 times the amount necessary to pay the $98 million of principal and interest payments for all LVCVA debt service payments, during the fiscal year.”
Aside from the LVCVA’s one-third share of room tax revenue, the bulk — 23 percent — goes to the state for education and other programs.
Local jurisdictions retain 12 percent of Southern Nevada’s room tax. Clark County transportation projects receive eight percent, and 12 percent goes to local school construction.
The Stadium Authority, which projected room tax revenue of $29.9 million in fiscal year 2020, has already dipped into its deep reserves to pay $11.5 million of $16 million due Dec. 1 on its debt service. That leaves $57,257,616 in the stadium’s reserve fund, according to Clark County.
“Fortunately, the financing for the Stadium Authority bonds included the funding of a debt service reserve fund to weather economic declines like the one Las Vegas is currently experiencing due to the pandemic,” the county said in a statement.
Government finance expert Guy Hobbs says he’s “emphasized the importance of deep reserves” since the Great Recession rocked Southern Nevada more than a decade ago.
In recent decades, Nevada has shifted from a property-tax based revenue system to one rooted in more volatile streams such as sales, gaming, and room tax.
“Using room tax, in part, for roadway improvements — from a nexus standing, you can say tourism should pay for part of that impact,” Hobbs says, adding the same could be said for education. “A lot of the folks we’re educating could be future employees of the hospitality industry.”
But he warns a tax system based on “any volatile source has fluctuations that go well beyond normal cyclical downturns.”
Before the so-called Tax Shift of the 1980s, which rendered Nevada’s local governments dependent on sales tax, Hobbs says “we were mostly property tax-driven at the local level. We’ve tilted away from a very stable revenue source to less stable. I’m not saying you should load it all on property tax because that would be prohibitive, too.”
But he notes the sales tax base, which is shifting from tangible goods to services, is “shrinking at the same time you’re increasing the rate.”
“It wasn’t until the last Great Recession — the one this millennium — that people started to realize there’s a correlation between things like economic downturn and gaming revenue and sales tax.”
Nevada’s gaming industry, he says, was once deemed “recession-proof.”
“It’s not true,” Hobbs says.
Insiders are remaining tight-lipped about Tuesday’s vote to redefine room tax exemptions at a time when the industry is struggling.
“I don’t see the Commission voting against the gaming industry,” said one who asked not to be named.
Commissioner-elect Ross Miller will replace Brown and Commissioner-elect William McCurdy will replace Lawrence Weekly at the Commission’s first meeting in January, leaving open the possibility the matter could be reconsidered then.