Volume III Issue III
Page 1 Applied Analysis was retained by the Las Vegas Convention and Visitors Authority (the LVCVA ) to review and analyze the economic impacts associated with its various operations and southern Nevada s tourism industry more generally. This is the fourteenth in the series of reports; it is specific to the share of major tax revenues generated by the state s tourism industry. This report is an update of EIS Volume I, Issue III, The Tourism Industry s Revenues; it reflects the industry s fiscal impacts in 2010. FINDINGS IN SUMMARY Among the hundreds of taxes, fees and charges imposed by Nevada s state and local revenue systems, there are three that comprise the vast majority of all revenues: 1) retail sales and use tax; 3) ad valorem (property tax); and 3) gross gaming fees. The tourism industry pays all of the taxes and fees imposed on businesses generally while also bearing the additional burden of industry-specific levies such as lodging taxes, gross gaming win percentage fees, levies imposed on slot machines and table games, live entertainment taxes and taxes imposed on taxi cab trips. While some smaller industry-specific and general business levies considered, this analysis focuses on the share of major taxes borne by the tourism industry. Analysis of tax burdens is sometimes challenged by the fundamental question: who pays a tax? In a retail transaction, is it the customer who purchases the item that pays the tax at the point of sale, or is it the retail business responsible for remitting the tax to the state? Does a land and property-owning business pay ad valorem tax, or does it pass down all taxes to its customers? Because a tax wouldn t be collected if the business didn t exist, this debate, which tends to elevate form over substance, is concluded with the assertion that regardless of whether the patron or the business is paying the levy, tax generation can be analyzed at the industry level, allocating major collections to businesses, their employees, and their patrons. Analysis of Tax Burdens by Industry The first of two analyses considered herein estimates total major tax payments attributable to businesses, their employees and their patrons. This analysis allocates expenditures to the person or entity spending the money as opposed to the business collecting the tax. For example, gaming taxes are assumed to be generated by all industries when a teacher, doctor, auto mechanic or government employee spends a share of his or her annual income on gaming activities. In a similar fashion, business-to-business transactions are allocated to the business making the purchase as opposed to the business making the sale. Taxable inputs subject to sales and use tax, such as equipment purchases for a
Page 2 manufacturing plant, are assumed to be paid by the manufacturing company as this tax is generated by a separate transaction independent of whether the end product being manufactured is sold. Finally, taxes paid by employees and patrons of an industry are attributed to that industry (such as visitor retail spending, which is attributed to the leisure and hospitality industry). While an inexact science, this method provides a reasonable estimate of the major tax collections per employee per industry on a statewide basis. Exhibit 1 Estimated Major Tax Collections Per Employee By Industry Includes Retail Sales and Use Taxes, Ad Valorem (Property) Taxes and Gross Gaming Fees Natural Resources and Mining Manufacturing Leisure and Hospitality Construction $9,252 $8,919 $7,637 $7,210 Public Administration Unclassified Information Professional and Business Services Financial Activities Education and Health Services Trade, Transportation and Utilities Other Services $6,061 $5,843 $5,518 $5,518 $5,136 $4,835 $3,888 $3,245 Average for All Industries ($5,901) In summary, the analysis above indicates that statewide, the average employee generated approximately $5,900 in major tax payments during fiscal year 2010. The construction, leisure and hospitality, manufacturing and natural resources and mining industries (though each for a different reason) all account for higher-than-average major tax and fee collections, with the balance of sectors reporting yields below the overall average. Please refer to Exhibit 2 immediately following this text summary for further detail. Yields per manufacturing and natural resources and mining employees have increased over the past two years as industry activity picked up speed, necessitating substantial equipment purchases resulting in high retail sales and use tax generation. Significantly higher-thanaverage-wages in the natural resources and mining, manufacturing and construction industries also resulted in high major tax payment yields for these industries, as those with higher incomes are expected to spend a
Page 3 proportionately higher amount on retail, residential property tax and local gaming activities. Not surprisingly, leisure and hospitality employees continue to account for a higher-than-average yield in gaming percentage fees and retail sales and use tax due to the allocation of visitor contributions to the sector in these categories. Property tax allocations to the industry are significant due to the significant real property value attributed to the state s hotels and hotel casinos. Nevada s business tax climate continues to be among the most favorable in the nation as the tax system is designed to be heavily dependent on visitor spending. 1 Overall, this analysis suggests that the leisure and hospitality industry, its employees and its patrons account for roughly 36 percent of Nevada s major tax collections, or $2.4 billion out of $6.5 billion. The second ranked industry in terms of total contributions is education and health services, which is the second largest single sector comprising the state s total wage payments, representing 18 percent of overall wages. Analysis of Specific Taxes The analysis above provides a general framework for analyzing the source of major tax payments; that said, the super-sector based analysis stops short of answering some of the key questions that are often asked about who pays what taxes. These questions include, but are not limited to: Retail sales and use tax: What share of sales tax is contributed by visitor spending? Property tax: What share of southern Nevada s assessed value is attributable to hotels and hotel casinos? Other major taxes: What are the levies actually imposed on hotel and hotel casino operators and how much money do they generate each year? In this section, we address these questions. What share of sales tax is contributed by visitor spending? In this section, we will focus on southern Nevada, which represents approximately three-quarters of taxable retail sales in the state. Based on adjusted results of the 2010 Visitor Profile Survey conducted by GLS Research for the LVCVA, visitor spending is estimated at approximately $643 per trip or $24 billion annually (down from $715 per trip or $28 billion annually in 2008). 2 A breakdown of these expenditures is summarized in Exhibit 3. 1 See, The Tax Foundation, 2011 State Business Tax Climate Index. October 2010. Nevada ranked 4 th nationally, behind only South Dakota, Alaska and Wyoming. 2 Please refer to Vol 1, Iss 7 in this series, The Economic Impact of LVCVA/LVE-Sponsored Special Events on the Southern Nevada Economy for a discussion regarding the adjustment
Page 4 Although visitors spend a significant amount of money while in southern Nevada, not all of their expenditures are subject to the state s retail sales and use tax, which is applied only to the sale of tangible personal property purchased for use or consumption. 3 Nevada s sales tax also has some exemptions, including, for example, food purchased for home consumption (e.g., most food purchased at a grocery store). While this analysis assumes relatively few visitors purchased food that they intend to prepare themselves, assuming that 100 percent of visitor food and beverage expenditures are taxable would be overly aggressive. Thus, for purposes of this analysis, we conservatively assume that 90 percent of visitor s eating and drinking expenditures are taxable and 85 percent of visitor s shopping expenditures are taxable. Other traveler expenditures may be subject to some other form of taxation, such as transient tax imposed on lodging expense, but are not assumed to generate retail sales and use taxes. Exhibit 3 Las Vegas Visitor Spending Profile Visitor Spending Category Per Visit Annual Total Room 4 $84 $3,142,020,136 Food & Beverage 5 $76 $2,831,859,907 Local Transportation 6 $63 $2,339,784,450 Shopping 6 $123 $4,584,738,000 Entertainment 6 $49 $1,839,868,800 Sightseeing 6 $7 $269,185,350 Gaming 7 $185 $6,894,695,434 Other 8 $57 $2,122,320,153 Total: Adjusted $643 $24,024,472,230 In total, approximately $6.2 billion in visitor expenditures are assumed to be subject to Nevada s retail sales and use tax. During fiscal year 2010, Clark of visitor expenditures such that the sum of the parts is not greater than the whole; see also Vol 1, Iss 1 in this series, Tax Contributions of Southern Nevada Visitors. 3 Nevada Revised Statutes, Sections 372, 374, 377, 377A, 377B, and 543.600 et seq. 4 Estimate based on GLS Research, 2010 Visitor Profile Study and estimated lodging tax expenditures in Clark County; discounted for the share of lodging expenditures attributable to locals. 5 Estimate based on GLS Research, 2010 Visitor Profile Study and data from the Nevada Department of Taxation and the Nevada Gaming Control Board 6 Estimate based on GLS Research, 2010 Visitor Profile Study 7 Estimate based on GLS Research, 2010 Visitor Profile Study and data from the Nevada Gaming Control Board 8 Analysis assumes that a prorated amount of visitor spending is not captured by the other major categories; including, but not limited to, personal and professional services, admissions to exhibits, meetings and conventions and non-transportation leases and rentals.
Page 5 County reported $27.9 billion in taxable retail sales, suggesting that just over 22.0 percent of its taxable retail sales receipts were attributable to visitor expenditures. This also suggests that 16.3 percent of the $37.8 billion in statewide taxable retail sales are attributable to visitors in southern Nevada. Pleasee see Exhibit 4. Contribution to Major Public Exhibit 4 Statewide Total Retail Sales and Use Tax Distribution Clark County Taxable Sales ( Residents) 58% Clark County Taxable Sales (Visitors) 16% Other Nevada Counties Taxable Sales 26% What share of southern Nevada s assessed value is attributable to hotels and hotel casinos? Nevada s property tax has three components: a tax on land, a tax on improvements and a tax on personal property. 9 For taxation purposes, land is assessed at its full cash value, improvements are valued at replacement cost less a depreciation factor of 1.5 percent per year up to 50 years, and personal property is valued at replacement cost less an appropriate depreciation factor. In 2005, the Nevada State Legislature passed a property tax cap measure that created a disconnect between the assessed valuation formula and real property tax collections. 10 As such, property tax collections are calculated by applying the appropriate tax rate to each $100 of assessed value (35 percent of taxable value) and adjusted, as necessary, for the tax cap limitations. To ensure both concepts are captured in this analysis, AAA obtained property valuation from the Clark County Assessor s Office and data on calculated tax liability from the Office of the Clark County Treasurer. Clark County reported approximately $175.8 billion of taxable property value at the close of calendar year 2010, a decline of nearly 40 percent compared to values at the start of 2008. 11 Based on 2010 values, this 9 See, Nevada Revised Statutes, Section 361; Nevada Constitution, Article 10 10 See, Nevadaa State Legislature Assembly Bill 489 (2005) 11 Based on an analysis of the Clark County Assessor s parcel database, January 3, 2011; AOEXTRACT and supporting files.
Page 6 property generates approximately $1.7 billion in tax collections annually. Hotels and casino hotels accounted for only 1.5 percent of all improved acreage (3,821 acres), but 13.7 percent of all taxable value ($24.1 billion) and 14.6 percent of the total tax liability ($241.5 million). Exhibit 5, which follows, demonstrates that an average hotel/hotel-casino acre generates $6.3 million in taxable value and $63,200 in property tax liability, roughly ten times the value reported for all other land uses (which report an average value per acre of $695,000 and $6,600 in property tax liability). Focusing only on nonresidential uses, Clark County s hotels and hotel casinos accounted for 2.6 percent of all improved acreage, 32.5 percent of all taxable value and 40.3 percent of total tax liability. Exhibit 6, which follows the text summary at the conclusion of this analysis, provides a more detailed summary of land use, taxable value and property tax liability by major land use. Exhibit 5 Taxable Property Value and Property Tax Liability per Acre 12 Land Use Average Taxable Value Per Acre Average Property Tax Liability Hotels and Hotel Casinos $6,315,734 $63,207 Residential $949,607 $9,986 Other Commercial $670,687 $6,840 Industrial $497,150 $5,065 Non-Profit Community Facilities $281,321 $109 Transp., Comm. and Utilities $169,587 $224 Minor Improvements $73,525 $558 Ag, Ranch, Wildlife, Natural Resources $6,661 $68 Overall Average $695,001 $6,593 Average Excluding Hotel/Hotel Casinos $378,363 $3,264 Notably, hotel and hotel-casino companies make up the majority of Clark County s largest property tax payers. Six of the top ten are directly linked to southern Nevada s tourism industry. Refer to Exhibit 7, which follows, for details. 12 Values are as of January 3, 2011.
Page 7 Exhibit 7 Clark County s 20 Largest Property Taxpayers 13 Rank Taxpayer Appraised Value 1 MGM Resorts International (MGM MIRAGE) $16,302,758,429 2 Caesars Entertainment (Harrah s) $5,073,032,526 3 NV Energy $4,350,361,677 4 Las Vegas Sands Corporation $1,994,306,514 5 Boyd Gaming Corporation $1,735,725,640 6 Wynn Las Vegas LLC $1,685,065,857 7 General Growth Properties $1,554,785,991 8 Station Casinos Incorporated $1,358,549,940 9 Universal Health Services Incorporated $531,986,349 10 Basic Management Incorporated $526,935,943 11 World Market Center Las Vegas $484,156,014 12 McCarran Center Limited Corporation $453,294,006 13 Camden Property Trust $435,870,420 14 Olympia Group LLC $429,443,306 15 Greenspun Companies $425,494,689 16 Treasure Island LLC $396,875,000 17 Harsch Investment Properties $385,266,757 18 Marnell Corrao Associates Incorporated $383,181,000 19 NV Prop 1 LLC (Cosmopolitan under construction) $350,989,234 20 Hospital Corporation of America $345,480,477 What other taxes do hotels and casinos pay? There are two misconceptions commonly underlying this somewhat innocuous question: 1) it tends to gloss over the simple fact that tourism companies pay all of the taxes, fees and charges imposed on Nevada businesses generally. This includes, without limitation, the modified business tax (payroll taxes), local business license fees, Secretary of State filing fees, property taxes, sales taxes and franchise taxes; and 2) the misconception that the percentage fees imposed on gross gaming win are the only gaming taxes imposed on the industry. Although percentage fees are the largest single levy imposed on hotel-casino operators, they are one of several taxes, fees and charges imposed specifically on hospitality business purveyors. Exhibit 8 provides a summary of the taxes imposed specifically on hotel and hotel casino operators. 13 Values are as of April 1, 2010, the most recent published Largest Taxpayers in Clark County 2010-2011 Secured Tax Roll Based on Assessed Values report by the Clark County Assessor.
Page 8 Exhibit 8 Industry Specific Taxes Imposed on Hotels and Hotel Casinos FY 2010 Tax or Fee Common Rate Yield Gross Gaming Revenue 3.5 percent for first $50,000 per $630.5 M Percentage Fee month; 4.5 percent for next $50,000 to $134,000 per month; 6.75 percent for revenue over $134,000 per month Transient Lodging Tax Ranges from 7 to 16 percent; most $420.0 M commonly ranges from 10 to 13 percent Entertainment Tax 10 percent if occupancy is between $108.2 M 200 and 7,500 Annual Slot Tax $250 per machine per year $47.7 M Quarterly Nonrestricted Slot $20 per machine per quarter $14.0 M Tax Quarterly Restricted Slot Tax $81 per machine per quarter for 1 to 5 $8.7 M machines; $405 plus $141 per machine in excess of 5 up to 15 for each quarter Annual Game Fee $16,000 plus $200 for each game over $2.6 M 16 Quarterly Game Fee $20,300 plus $25 for each game over $6.7 M 35. For 1 to 16 games, the quarterly fee ranges from $12.50 to $125 per game. Other Gaming Collections Various $10.0 M Total Collections $1,248.3 M Beyond the levies outlined above, there are also a number of taxes imposed on the industry by local governments. Calculating the total payments generated by these taxes is difficult because information is collected and reported differently by the various jurisdictions. That said, Nevada Revised Statutes specifically provides for city-county gaming taxes 14 and county gaming fees 15 that take the form of simple flat charges imposed on each slot machine and table game versus the more complicated gross receipts taxes imposed on Clark County s largest gaming operators. What about other taxes? It is beyond the scope of this briefing to analyze and allocate smaller, general levies imposed on business or consumption in Nevada. That said, it is worth noting that Nevada s modified business tax is estimated to have generated $385 million in fiscal year 2010, and the tourism industry is the state s largest single employer. Insurance premium taxes and franchise fees, which generate millions of dollars for local governments each year, could also be considered. As visitors account for roughly 17 percent of southern Nevada s full-time equivalent population, they likely contribute at 14 See, Nevada Revised Statutes, Section 463.395 15 See, Nevada Revised Statutes, Section 463.390 and 463.323
Page 9 least proportionately to the state s liquor and cigarette taxes, which generated $42.6 million and $101.5 million, respectively in fiscal year 2010. In addition, recently completed hotel and hotel casino developments such as M Resort, CityCenter, and Cosmopolitan generated substantial amounts in taxable construction materials, as well as building fees, exactions and real property transfer tax. Renovations, ongoing maintenance and refurbishments, such as the recently announced $99 million renovation of Wynn Las Vegas 2,700 rooms and suites, also generate sales tax on materials purchases. Engaging in further study to estimate the value of these smaller but significant contributions to state and local coffers would only serve to add to the estimates provided in earlier sections of this analysis. METHODOLOGY General information on taxes, tax rates and historical collection data were obtained from the Nevada Department of Taxation, Nevada Legislative Counsel Bureau, the Nevada Commission on Tourism, the Nevada Gaming Control Board, the Nevada Taxpayers Association, the Clark County Assessor s Office, the Office of the Clark County Treasurer and various local government publications. Industry-level employment and wage data was obtained from the Nevada Department of Employment, Training and Rehabilitation. Data on visitor estimates and spending was obtained from the Las Vegas Convention and Visitor Authority s Visitor Profile Study prepared by GLS Research. ANALYSIS LIMITATIONS This analysis used the best available data to estimate the share of various major tax payments attributable to the tourism industry, its employees and its patrons. It relies heavily on data reported by third-party data providers; and, although we have no reason to doubt the accuracy of these data, they have not been subjected to any auditing or review procedures by AA. In some cases data were either incomplete or inconsistent. Efforts were taken to minimize the impacts of these challenges, and we believe the analysis provides a fair and reasonable response to the fundamental question presented. Finally, it is important to note that this is a preliminary undertaking that will be supplemented by on-going and future analyses. This report is not intended to be comprehensive and may not be appropriate for all purposes.
Las Vegas Convention and Visitors Authority Economic Impact Series Nevada Tourism: The Industry's Exhibit 2 Estimated Tax Payments by Major Employment Sectors Includes Statewide Payments Allocated to the Businesses, Their Employees and Their Patrons Sector Gaming Percentage Fees Retail Sales and Use Taxes Property Taxes Total Major Tax Payments Employment Major Taxes Per Employee Natural Resources and Mining $ 2,922,459 $ 68,738,641 $ 57,421,724 $ 129,082,824 13,952 $ 9,252 Construction $ 8,689,204 $ 234,307,889 $ 185,229,176 $ 428,226,269 59,390 $ 7,210 Manufacturing $ 5,039,869 $ 233,694,796 $ 99,025,490 $ 337,760,155 37,869 $ 8,919 Trade, Transportation and Utilities $ 21,712,394 $ 382,637,646 $ 426,614,367 $ 830,964,407 213,752 $ 3,888 Information $ 1,972,300 $ 33,997,959 $ 38,752,596 $ 74,722,855 13,543 $ 5,518 Financial Activities $ 7,151,824 $ 123,281,144 $ 140,522,091 $ 270,955,059 52,760 $ 5,136 Professional and Business Services $ 18,800,620 $ 359,027,054 $ 369,402,597 $ 747,230,271 135,429 $ 5,518 Education and Health Services $ 22,574,387 $ 389,130,965 $ 443,551,179 $ 855,256,532 176,891 $ 4,835 Leisure and Hospitality $ 529,383,508 $ 949,643,464 $ 889,552,797 $ 2,368,579,769 310,154 $ 7,637 Other Services $ 2,301,189 $ 39,667,245 $ 45,214,735 $ 87,183,169 26,870 $ 3,245 Public Administration $ 10,285,859 $ 177,304,750 $ 202,100,932 $ 389,691,541 64,292 $ 6,061 Unclassified $ 132,953 $ 2,291,805 $ 2,612,316 $ 5,037,074 862 $ 5,843 Total $ 630,966,565 $ 2,993,723,360 $ 2,900,000,000 $ 6,524,689,925 1,105,762 $ 5,901 Source: Applied Analysis based on information provided by Nevada Department of Taxation, Nevada Legislative Counsel Bureau, the Nevada Commission on Tourism, the Nevada Gaming Control Board, the Nevada Taxpayers Association, the Clark County Assessor s Office, the Office of the Clark County Treasurer and various local government publications.
Las Vegas Convention and Visitors Authority Economic Impact Series Nevada Tourism: The Industry's Exhibit 6 Clark County Taxable Property Value and Tax Liability By Land Use, 2010 Land Use Acres Share of Total Taxable Value Share of Total Taxable Value Per Acre Share of Average Tax Liability Share of Total Tax Liability Per Acre Share of Average Residential 107,007 42.3% $101,614,608,443 57.8% $949,607 136.6% $1,068,552,802 64.1% $9,986 151.5% Industrial 14,077 5.6% $6,998,559,877 4.0% $497,150 71.5% $71,295,194 4.3% $5,065 76.8% Hotels and Hotel Casinos 3,821 1.5% $24,130,461,177 13.7% $6,315,734 908.7% $241,495,700 14.5% $63,207 958.7% Other Commercial Properties 38,779 15.3% $26,008,811,520 14.8% $670,687 96.5% $265,237,370 15.9% $6,840 103.7% Non-Profit Community Properties 39,700 15.7% $11,168,505,500 6.4% $281,321 40.5% $4,316,042 0.3% $109 1.6% Agricultural, Ranching, Wildlife, and Natural Resources 5,058 2.0% $33,691,811 0.0% $6,661 1.0% $344,772 0.0% $68 1.0% Transportation, Communication, and Utilities 26,363 10.4% $4,470,893,891 2.5% $169,587 24.4% $5,903,445 0.4% $224 3.4% Minor Improvements 18,078 7.1% $1,329,183,051 0.8% $73,525 10.6% $10,085,639 0.6% $558 8.5% Total 252,884 100.0% $175,754,715,271 100.0% $695,001 100.0% $1,667,230,964 100.0% $6,593 100.0% Source: Applied Analysis based on data provided by the Clark County Assessor's Office and the Office of the Clark County Treasurer.