Tuesday, August 25, 2015

Updates to Nevada’s Live Entertainment Tax – Part 3

By Jennifer Gaynor, Greg Gemignani, Kate Lowenhar-Fisher and Jeff Silver

This is the final post in a series of blog posts about changes to Nevada’s Live Entertainment Tax.

“Service Charges”

Perhaps the biggest area of remaining debate is whether or not associated fees or “service charges” are to be included in the LET. The traditional payment of credit card or debit card fees to a financial institution that are unreturned to the venue remain clearly exempt under the revised law.

There is lively debate, however, on the definition of the term “service charge” and what additional “service charges” should and should not be included in the tax.

Senator Lipparelli, who sponsored the LET legislation (Senate Bill 266) in the Nevada Legislature, specifically stated in his testimony on April 7, 2015, in the Senate Committee on Revenue and Economic Development, that SB266 would add clarity to the “service charge” issue and that “service charges associated with the issuance of the ticket – to the extent that you hire someone to issue the tickets – have to be true charges paid out and not returned in any fashion.” This language suggest that Ticketmaster fees and other similar charges by third parties who sell and issue tickets would not be included in the LET, so long as the third-party vendor does not remit these charges back to the venue.

The current Board draft regulations, however, do not adopt the language that was suggested to clarify this issue in SB266. Instead, the draft continues to have language that may be unclear and, in fact, deletes the “service charge” exception to the LET that had previously been found in NRS 368A.

In the Board’s LET workshop on July 23, it was clear that there is ongoing disagreement on what should and should not be included in the LET as a “service charge.” Taxpayers argued that service charges by Ticketmaster or other third parties should be not taxed as part of the LET when that service charge is not remitted to the venue. They also argued that charges for additional services or amenities, such as special event parking or shuttles to the venue, should not be included in the LET, so long as those charges and services are optional and not required for admission to the venue.

The Board responded that “if the legislature wanted to keep the status quo [of not including such service charges in the LET], why would they delete the service charge exception?” They also commented that they do not want to risk operators “saying that the ticket price is $50 but $48 of this is for parking and only $2 is for admission.”

Several taxpayers objected to this and are submitting comments and proposals to amend the language to make it clear that what is being taxed is the admission to the facility, which should not include charges for other purposes, such as convenience fees for purchasing tickets online or having them shipped to the customer.

At this time, there is not another public LET workshop scheduled. The stated goal of the Board is to revise the regulations based on the hearings and any additional written comments they have received and to provide the revised draft for review by the Nevada Gaming Commission and then the Nevada Legislative Counsel Bureau, with the intent to have the new regulations promulgated by October 1, 2015.

The new law makes it clear that noncompliance with the collection and payment of the LET can be considered by the Board to be an unsuitable method of operation by a gaming licensee. The new law also provides for taxpayers to request an advisory opinion from the Board concerning matters relating to the LET.

The effective date of the law is October 1, 2015. The Board recently published a notice to explain how this will affect LET payments. This notice provides that if a taxpayer reports admission ticket sales on an accrual basis (i.e., advanced admission sales are reported in the month of the show/event rather than the month the sales occurred), it must report these sales on its September 2015 tax return or on an earlier month’s tax return. All admission charges reported beginning October 1, 2015, will be subject to the new 9% tax rate.

Thursday, August 20, 2015

Updates to Nevada’s Live Entertainment Tax – Part 2

By Jennifer Gaynor, Greg Gemignani, Kate Lowenhar-Fisher and Jeff Silver

This is the second post in a series of blog posts about changes to Nevada’s Live Entertainment Tax.

Exceptions and Exemptions

The new LET includes some new exceptions as well. The tax is no longer imposed on amounts paid for food, refreshments, or merchandise sold at the venue (unless the purchase of such items is required as part of the price of admission, e.g., a 2-drink minimum). The tax is also not imposed on amounts paid for access to tables, seats, lounge chairs, or particular areas near a swimming pool (i.e., the LET applies to the cover charge to enter a day club, but not to any extra amount the patron pays to rent a cabana or a lounge chair once inside). The value of admission provided to a patron on a complimentary basis is also excluded from the tax, unless the complimentary admission is associated with a separate purchase that is required for the patron to have access to the facility.

The new LET also does not include license or rental fees for luxury suites, boxes, or similar products at facilities with a maximum occupancy of at least 7,500 persons. Instead, if the license or rental fee includes the admission of a certain number of patrons to a facility where a live entertainment event is provided, the admission charge is an amount equal to the lowest priced admission charge for the live entertainment event multiplied by the number of admissions to the live entertainment event included in the license or rental fee regardless of the number of admissions actually used. For purposes of this calculation, the “lowest priced” admission must be legitimately available for sale to the public.

For venues with less than 7,500-person occupancy, however, the LET must be paid for such license or rental fees. One taxpayer suggested in the Board’s July 23 public workshop on the new LET regulations that, for these smaller venues, they should continue to use “historical practices” to calculate that admission charge – which they submitted should be the number of luxury boxes divided by the ticket price times the number of live events. This would produce a similar result as seen for venues with greater than 7,500 seats. Hopefully this issue will be clarified in the final regulations.

Other special exemptions:

  • Charitable live entertainment activities where fewer than 7,500 tickets are sold are exempt.
  • Venues with fewer than 200 seats remain exempt from the LET.
  • NASCAR events will be exempt if they give Nevada a second race weekend.
  • Professional sports will be exempt if one of the teams playing in the contest is domiciled in Nevada.
  • Combat sports are exempt from the LET, but are subject to the levies imposed by other sections of the law that have oversight by the Nevada Athletic Commission.
  • Collegiate sports involving Nevada’s schools are exempt, with the exception of the Silver Bowl, which would not be exempted.

Tuesday, August 18, 2015

Updates to Nevada’s Live Entertainment Tax – Part 1

By Jennifer Gaynor, Greg Gemignani, Kate Lowenhar-Fisher and Jeff Silver

This is a first in a series of blog posts about changes to Nevada’s Live Entertainment Tax.

To raise revenue and address its struggling K-12 education system, Nevada legislators made several major changes to the state’s tax structure in 2015. These include introduction of the Commerce Tax, which is a gross revenue tax on each business in the state whose Nevada gross revenue exceeds $4 million in a fiscal year, a $1 per pack increase in the tax on cigarettes, and an increase in the state business license fee for corporations from $200 to $500.

Perhaps the most interesting change for gaming and entertainment companies, however, is the modifications to Nevada’s Live Entertainment Tax (“LET”).

The Old LET

Previously, the LET formula was that facilities with occupancy limits of fewer than 7,500 persons were required to charge the patron a 10% tax on admission, food, and merchandise. Facilities with occupancy above 7,500 persons were taxed at a 5% rate.

Exemptions included:

  • Events where all admission proceeds went to a nonprofit organization;
  • Facilities without gaming and with a maximum occupancy less than 200;
  • Unarmed combat (boxing/MMA);
  • Street vendors who sold merchandise outside the venue;
  • Live events at trade shows;
  • Live entertainment when only musical performers moved about the audience/venue;
  • Entertainment provided only in the common area of a shopping mall;
  • Entertainment during food or product demonstrations at a shopping mall or craft show;
  • Live entertainment as part of an amusement ride (but not the primary reason for the attraction);
  • Free entertainment provided in an outdoor area to the public;
  • Free entertainment provided as part of a restaurant’s ambience;
  • Outdoor concerts at nongaming establishments
  • NASCAR races; and
  • Minor league baseball games.

The New LET

The Nevada Legislature, with Senate Bill 266, set out to simplify the LET structure and clarify areas which have been too subjective in the application of the tax. Under the new LET structure, all live entertainment events are taxed uniformly. The new tax rate is a flat rate of 9% of the admission charge to a venue where live entertainment is provided.

There is no distinction based on whether live entertainment was provided by licensed gaming facilities or non-licensed entities or on the size of the facility. The new LET also makes it clear that it is a tax on admission charges. Simply put: if admission is charged and there is live entertainment, the LET will apply. If no admission is charged, the LET does not apply.

There are some previously exempt venues that are now under the LET umbrella. This includes outdoor entertainment on both gaming and non-gaming property, legal escort services, nonprofits that sell more than 7,500 tickets per event, and nonprofits where patrons provide the entertainment if the nonprofit sells more than 15,000 tickets to the event (e.g., the Burning Man festival in northern Nevada).

The subjectivity regarding whether or not the activity at the venue is “entertainment” or merely “ambient entertainment” is also addressed by defining the term “performance” to broadly include a “live entertainment activity” that is not an “ambient activity.” The Nevada Gaming Control Board (“Board”) felt it was simpler to define the exception than to define the activity of a “performance.” There were some comments by taxpayers at the Board’s July 23, 2015, LET workshop that the new definition of “ambient activity” – “live entertainment that is presented in the background of a facility in a manner that only serves to enhance or complement the mood, character, quality, tone or atmosphere of the facility” – may still be too unclear. The suggestion is that the term “background” may be confusing where, for example, go-go dancers are up on platforms or stages and that the Board should use a “primary purpose” analysis instead.

Similarly, the revised LET seeks to clarify that events where disc jockeys perform are live entertainment, regardless of whether or not the disc jockey speaks at the event. It does so by adding a definition of “performance by a disc jockey” as “the playing of recorded music, the mixing of audio or the adding of sound, video and lighting effects by a person or group of persons to a patron or group of patrons.”

Tuesday, July 28, 2015

The Intersection of Federal Labor Law, Tribal Gaming and a Deep Division Within Two Sixth Circuit Three-Judge Panels

By Dennis J. Whittlesey

Two separate three-judge panels of the United States Court of Appeals for the Sixth Circuit have rendered labor law decisions concerning Indian casinos in Michigan only 22 days apart. While each of the panels ruled that the National Labor Relations Board (“NLRB”) can assert jurisdiction over tribal casinos, the situation can best be described as “unsettled or even confusing.”

While each of the panels ruled against the tribal casinos, four of the six judges states clearly that they disagreed with that conclusion as a matter of law.

Given the development of these parallel rulings and the fact that a majority of judges disagreed with the decisions rendered, it seems inevitable that at least one (if not both) of these cases will be heard by the full Sixth Circuit in an en banc review and decision.

The first case involved the NLRB and Little River Band of Ottawa Indian Tribal Government and was decided on June 9 in a 2-1 split of the panel. The second case involved the Soaring Eagle Casino and Resort, an enterprise of the Saginaw Chippewa Tribe, and was decided on July 1 in another 2-1 split. However, the current debate arising from these two decisions springs from the fact that of the six judges who heard the two cases, four of them expressed serious doubts about the legal rationale for the decisions and, consequently, the outcome.

Two judges on the Little River court ruled that the casino operated on tribal lands falls within the scope of the National Labor Relations Act and, consequently, under NLRB jurisdiction. This litigation followed enactment by the tribal council of an ordinance to regulate employment and labor-organizing activities of its employees, including casino employees, most of whom are not tribal members. However, the rationale for the decision was disputed in a lengthy dissent written by the third panel member, who emphasized that the NLRB was clearly impinging on the Tribe’s sovereignty and called attention to the absence of any Congressional intent, either express or implied, to authorize such interference with tribal rights.

The result of the Soaring Eagle court should have gone the other way, since all three judges of that panel declared their belief that the tribal casino was established as a subdivision of the Tribe and managed by the Tribe’s governing body, which in turn should dictate that the enterprise was subject to tribal laws. The two judges explained that while they disagreed with the result of the Little River decision, they were obligated to follow that ruling until it is overturned by either the Sixth Circuit en banc or the U.S. Supreme Court.

The critical statute in these cases is the National Labor Relations Act of 1935 (“NLRA”). And, as the two dissents make clear, these two decisions are ostensibly at odds with the Indian Reorganization Act of 1934 (“IRA”), which enacted comprehensive provisions governing Indians and Indian tribes. Yet, despite the then-brand new law rewriting previous Indian law across the board, the NLRA made no mention of Indian tribes or businesses owned and operated by them. And this omission was the foundation for the concerns expressed by four of the six judges.

To be fair to the Little River panel majority, the two judges rejected the Tribe’s claim that its inherent tribal sovereignty precluded application of the NLRA to tribal businesses, including casinos, noting that there is no exception in that law for Indian tribes and tribal businesses. They also rejected the Tribe’s claim that it has a right to exclude the NLRB from its businesses by virtue of the tribal understanding in execution of treaties with the United States in 1855 and 1853. This claim was predicated upon application of the so-called Indian Canon of Construction, which provides that interpretation of treaties must follow the understanding of treaty tribes at the time of treaty execution. Thus, the majority concluded that the NLRA applies to on-reservation casinos operated on trust land.

The Soaring Eagle panel declared that it was bound by the prior ruling, but it did not agree with the analysis of inherent sovereignty rights. The majority then proceeded to explain why they believed that the prior decision was wrong. Indeed, the court noted that “although Congress was silent regarding tribes in the NLRA, it was anything but silent in its contemporaneously-stated desire to expand tribal self-governance [in enacting the IRA the year before].” It even went further in noting the 1988 enactment of the Indian Gaming Regulatory Act “’to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments,’ and ‘to ensure that the Indian tribe is the primary beneficiary of the gaming operation’.”

As stated above, the stage is set for the issue to be heard by the full Sixth Circuit. The ultimate determination is important for many reasons. When four of six judges disagree with the results of these two cases, all elements of the gaming industry – both Indian as well as non-tribal – have a stake in securing a final resolution of what at best is an unclear state of the applicable law.

Thursday, July 23, 2015

Updates to Nevada’s Gaming Laws – 2015 Legislative Session (Cont.)

By Jennifer Gaynor, Kate Lowenhar-Fisher and Greg Gemignani

This is the final blog post regarding the 2015 Nevada legislative session.

Procedural and Administrative Changes and Clarifications

AB40

A key administrative change effected by AB40 is to change the name of the “State Gaming Control Board” to the “Nevada Gaming Control Board.”

This bill also serves to clarify that certain actions and proceedings of the Board are not subject to certain provisions of the Nevada Open Meeting Law (“OML”). Specifically, the OML requires all deliberation, actions, and discussions of a public body to take place in a public setting. This bill grants a limited exemption to the Board from the open meeting law related to the Board’s investigative activities while inquiring as to whether a violation has occurred and, if so, what actions should be taken in determining if those violations have occurred. The OML still applies to the Board’s procedures, including monthly meetings.

Updates to Nevada’s Live Entertainment Tax (NRS Chapter 368A)

SB266

Under existing law, the rate and imposition of the tax depended upon the size of the facility in which the live entertainment is provided, with the break being 7,500 persons or fewer. Those facilities were to charge the patron a 10% tax on admission, food and merchandise. The old law provided a reduced tax rate for facilities above 7,500 persons, where the rate was reduced to 5%. The new tax rate will be a uniform 9% of the admission charge to a facility where live entertainment is provided, however, the tax is not imposed on amounts paid for food, refreshments or merchandise. The value of certain admission provided to a patron on a complimentary basis is excluded from the tax.

Additionally, under the new law, there is no distinction in the size of the facility or whether live entertainment was provided by licensed vs. non-licensed entities. The prior exclusion for events that were provided outdoors was eliminated. All live entertainment events are taxed uniformly (with certain exemptions for charitable activities where fewer than 7,500 tickets are sold), however, NASCAR would be exempt if they give Nevada a second race weekend and professional sports would be exempt if one of the teams playing in the contest is domiciled in Nevada. Combat sports are exempt from the live entertainment tax but are subject to the levies imposed by other sections of the law that have oversight by the Nevada Athletic Commission. Finally, collegiate sports involving Nevada’s schools are exempt, with the exemption of the Silver bowl, which would not be exempted.

The effective date of the law was July 1, 2015, which would be applicable to events that were previously subject to the old law; however, if not previously taxed under the old law, the effective date would be October 1, 2015. For example, the National Finals Rodeo would be covered under the new law, but prepaid tickets sold prior to October 1, 2015, would be exempt.

Amendments to Other Areas of Privileged Licensing

SB22

This bill moves the local licensing and regulatory power over certain persons and businesses, including importers of liquor, wholesale dealers of beer or wines and liquors, winemakers, instructional winemaking facilities, breweries, brew pubs and craft distilleries, from the board of county commissioners of the county in which the applicant maintains his or her principal place of business to the governing body of the city in which the business is located, if the applicant’s principal place of business is located within an incorporated city.

Tuesday, July 21, 2015

Updates to Nevada’s Gaming Law – 2015 Legislative Session (Cont.)

By Jennifer Gaynor, Kate Lowenhar-Fisher and Greg Gemignani

This is a continuation of the blog post on July 16, 2015 regarding the 2015 Nevada legislative session.

Extending the Reach of Nevada’s Gaming Regulation: SB38, SB40 and SB409

SB38

Senate Bill 38 extends the reach of the Board to a new category of licensees, to nightclubs and day clubs that are located on the premises of a Nevada licensed casino resort. Senate Bill 38 essentially treats club operators in a manner similar to gaming licensees. If required by the Board or the Nevada Gaming Commission, the employees of such clubs shall be subject to a background investigation similar to those conducted for gaming employees.

As noted in a previous blog post, Senate Bill 38 also expands the powers of the Board to regulate and license associated equipment manufacturers (“AEMs”). Specifically, licensing or findings of suitability for AEMs will move from discretionary to mandatory. This change will also shift the burden for the cost of any licensing investigations from the Board to the AEM applicant. Finally, the employees of an AEM are now deemed to be “gaming employees” and subject to regulation as such.

This bill also removes certain licensure requirements for manufacturers of equipment associated with interactive gaming. The Board determined that there are two categories of interactive gaming service providers with no need for licensure: those who provide certain intellectual property related to identifying interactive gaming systems and those who provide information regarding persons for customer lists and databases. The Board has similarly considered removing licensing requirements for cash access and wagering service providers, and had language to this extent in the initial draft of the bill, but decided to keep those requirements in place.

Finally, SB38 amends Nevada’s charitable lottery laws to expressly list nonprofit alumni organizations and legal bar associations as qualified nonprofit organizations that may offer charitable lotteries and to permit statewide charitable lotteries. It also clarifies language in the statute regarding triggers for charitable lottery registration requirements to be consistent with the Board’s practice.

SB40

Filed on behalf of the Board, Senate Bill 40 targets illegal offshore wagering sites and other illegal bookmakers. It prohibits a person from receiving any compensation or reward, or any percentage or share of the money or property played for, in return for facilitating a bet on a future contingent event, unless that person has the required gaming license to do so. The Board brought this bill because Nevada did not have an illegal bookmaking law to use to prosecute this illegal activity. The intent was to make a specific illegal bookmaking statute the Board can utilize in future prosecutions instead of a licensing statute (NRS 463.160)

SB409

Senate Bill 409 amends Nevada’s consumer reporting laws to remove restrictions on what a credit reporting agency may report to gaming operators. Now a credit reporting agency is no longer prohibited from reporting to gaming licensees information about a job applicant regarding bankruptcies older than ten years, other civil judgments older than seven years, and criminal convictions older than seven years. Now there is no limitation on how far back such checks may run.

Thursday, July 16, 2015

Updates to Nevada’s Gaming Laws – 2015 Legislative Session

By Jennifer Gaynor, Kate Lowenhar-Fisher and Greg Gemignani

This is the first in a series of blog posts addressing the 2015 Nevada legislative session.

Now that the dust has settled on the 2015 Nevada legislative session, we find the gaming landscape has been altered in some pretty interesting ways. There are a few bills that will allow Nevada gaming licensees to explore a diverse new world of gaming technologies and offerings, other bills that serve to extend the reach of Nevada’s gaming regulators to new entities and activities, and yet others that clarify administrative issues and procedures.

Exploring New Worlds of Gaming: SB9, SB443 and SB445

SB9

This bill gives Nevada’s gaming regulators a policy directive and enhanced rulemaking authority to develop technical standards for “hybrid” games – games that are a blend of skill and chance, where the outcome will be determined by both as well as external factors including frequency of play, use of other casino services, and use in combination with other technologies. The idea is to ensure Nevada’s leadership in the next generation of gaming, and to attract a new generation of customers who relate to electronic skill-based game play and would be drawn to features such as bonus rounds that reward the skill of a player, integration of the games with their social media accounts, interactive networked game play, and the use of electronic commerce transactions. The first public regulation workshop on SB9 was already held by the Nevada Gaming Control Board (the “Board”) on June 24, 2015, with the next to be held sometime this summer.

SB443

Senate Bill 443 is the “entity wagering” bill. It allows the formation of business entities to place race and sports pool wagers, where out-of-state investors can join business entities and share the profits and losses from wagers at Nevada gambling establishments.

SB445

Senate Bill 445 permits licensed race and sports book operators to provide centralized management to race and sports book operations in Nevada and other jurisdictions where such bets are legal.