Sales Tax Slice: The House Really Does Always Win - Las Vegas Casino Purchases Airplanes, Escapes Sales and Use Taxes


Most people have probably heard the popular phrase, “the house always wins.”  Indeed, it’s often paired with the familiar and belated advice, “you should have quit while you were ahead.” The phrase, to the uninformed, typically refers to the sentiment that, no matter how much money a gambler wins, in the end, the casino will come out on top. As such, it’s no secret that casinos use tricks or incentives to entice people into their establishments. Whether it’s the draw of a free adult beverage, a voucher for a buffet or a complementary ticket to a show, casinos are keenly aware that the expense of simply getting customers into their doors is ultimately well worth the reward. 

High rollers, as gamblers with large bank accounts are typically dubbed, however, require a little more attention. Indeed, the theory goes like this: people with more money will gamble with higher stakes, and while they may win big some of the time, in the end, that popular phrase usually proves accurate. Accordingly, it’s in a casino’s best interest to fill their seats at card tables with as many high rollers as possible. 

To do that, casinos go the extra mile . . . literally.  

Last week, the Nevada Supreme Court tackled the issue of the application of the state’s use tax on four airplanes purchased by Harrah’s, a casino entertainment company registered to do business in Nevada, and delivered outside of the state. The airplanes’ function? Transporting Harrah’s executives and customers to and from its establishments worldwide. 

Thus, if you like to gamble or if your bank account is large enough, Harrah’s (as well as many other casinos around the world) will provide you with travel arrangements to ensure that you spend (or lose?) your money at one of their establishments.

Specifically, the case involved four airplanes that were purchased by Harrah’s, two of which were delivered to Harrah’s in Portland, Oregon and the other two to Harrah’s in Little Rock, Arkansas. After their purchase and delivery, according to the flight logs, the two planes that were delivered to Arkansas flew to Las Vegas on their first flights and the other two planes made their first flights to Arkansas and California. 

Harrah’s paid Nevada use tax on the purchases in the amount of $8.6 million and sought a refund, claiming it was entitled to a presumption of nontaxability, which the Nevada Department of Taxation failed to overcome.  No other sales or use taxes were paid to any other state on the purchase of the planes.

Nevada imposes use tax on the in-state storage, use, or consumption of tangible personal property acquired outside the state. However, property delivered outside the state for use in interstate commerce is presumed not purchased for storage, use, or consumption in the state when the property’s “first use” occurs outside of Nevada and when it is continuously used in interstate commerce for one year. In other words, if Harrah’s airplane purchases fell under the statutory presumption, and the state failed to rebut it, Harrah’s would be entitled to a refund of use taxes paid.

In short, that’s precisely what happened for two of the planes. The court interpreted the presumption’s phrase, “first used in interstate and foreign commerce outside the state” as imposing an additional requirement of exclusivity. Specifically, the court determined that the word “outside” requires that the airplanes’ first use in interstate commerce occur “entirely outside” of Nevada. Accordingly, the court found that only the two planes making their first flights to Arkansas and California met the presumption’s “first use” requirement.

Based on that, and the parties’ stipulation of facts, including that the airplanes were continuously used in interstate commerce since their purchase in 2006, the court ruled that those two planes were entitled to a presumption of nontaxability, which the department failed to rebut. 

Thus, Harrah’s prevailed and it will receive a refund to the tune of roughly $3.7 million. As such, whether shrewdly or unintentionally, the casino managed to escape tax liability altogether on two of the airplane purchases, a detail which did not escape the court’s awareness.  Indeed, the court, in a footnote and perhaps recognizing that such a ruling may not sit well with some, provided justification for its conclusion.

Specifically, the court noted that “[w]e are aware that, as a result of our interpretation, Harrah’s will not have paid any sales or use tax on two of their aircraft. Nevertheless . . . [the state] only imposes use tax on goods purchased for storage, use, or consumption in Nevada, not those purchased for use in interstate commerce. Any expansion of Nevada’s use tax must come from the Legislature, not this court.”

In the end, whether Harrah’s really “won” is debatable, but the fact remains, the casino found a way to keep $3.7 million.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Is this a fair outcome given the facts and circumstances?

Sign up for a free trialof the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state sales and use taxes.

Follow us on Twitter: @BBNAtax

Follow me on Twitter: @SALTchrisyoung