Extras on Excise: Nevada’s Expansion of Live Entertainment Tax Raises Odds of Taxation

While Nevada made headlines in June over the enactment of its new commerce tax, the state legislature more quietly expanded its live entertainment tax with the passage of S.B. 266, the bulk of which takes effect on Oct. 1, 2015.

While this tax’s name and the sinful reputation of the state in which it is imposed may engender thoughts of illicit activities, the tax actually applies to a broad range of live entertainment events, some of which could legitimately be called family-oriented. Gasp! The various revisions that were made to the tax by the Nevada legislature have broadened the reach of the tax even further by eliminating or scaling back some of the exemptions that were available.

Specifically, while all NASCAR races at race tracks in Nevada were previously exempt from the live entertainment tax, under the revised law the NASCAR exemption will only apply if there are two races at a given race track in the state. Outdoor concerts are no longer exempt from the live entertainment tax nor are baseball games and exhibitions, unless they are conducted by a professional team based in Nevada that also participates in the event.

It is significant that these exemptions have changed under the revised law because their enactment in particular spurred numerous legal challenges by adult entertainment businesses. As I blogged last October, the businesses unsuccessfully argued that the live entertainment tax unfairly discriminates against adult content, pointing to the numerous exemptions as evidence of such discrimination. The Nevada Supreme Court disagreed, ruling in part that the tax is not content-based.

Perhaps as proof of the legislature’s inability to avoid controversy – or a desire to court it – the revised law explicitly includes both escort services and nude dancing in the definition of live entertainment. There is also a separate taxing clause for escort services even though the tax rate imposed is the same as for other forms of live entertainment. Time will tell whether these particular amendments will be the basis of another legal face-off.

Senate Bill 266 also amended the live entertainment tax rate and application. The tax is now imposed at a flat rate of 9 percent of the admission charge and is no longer imposed on food, refreshments and merchandise sold at a live entertainment event. Previously, the tax was 10 percent of the admission charge and 10 percent of the revenue from food, refreshments and merchandise purchased at the event. However, where the maximum occupancy exceeded 7,500 persons, the tax rate was 5 percent.

The treatment of nonprofit organizations has also changed under the revised law. Live entertainment provided by a nonprofit organization is now subject to the live entertainment tax but only for larger-scale events where at least 7,500 tickets are offered for sale or circulation to patrons. Previously, all live entertainment provided by nonprofits was exempt from the tax.

One of the more controversial provisions of the live entertainment tax involved the imposition of tax on larger gaming establishments whenever live entertainment is provided, even if they did not charge for admission to the area or premises. This is no longer an issue because the revised law eliminates the imposition of tax where no admission charge is collected.

The effect of these changes is to simplify the live entertainment tax and modify some of the more divisive specifications. Despite this, there will undoubtedly be resistance from various factions because larger casinos have been relieved from at least a portion of their live entertainment tax burden while other more provocative adult entertainment elements have been ensnared. My suggestion to interested observers is to put your feet up and see where the lawsuits lead.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will the revisions made to the Nevada live entertainment tax law generate more challenges to the constitutionality of the tax?

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