Nevada’s constitution exempts food for human consumption. The Nevada Department of Taxation believed that Use Tax was owed on meals that were given out free of charge (either to employees or as complimentary meals to patrons); the Nugget Hotel in Sparks, Nevada thought that the plain language of the Nevada Constitution exempted such food from tax. The Nevada Supreme Court gave the answer earlier this week.
Use Tax is the equivalent of sales tax on items purchased from out-of-state where no sales tax is charged. For example, if you purchase a book on Amazon.com and are not charged sales tax and live in California, you are supposed to remit Use Tax to the Board of Equalization. The Nevada Department of Taxation believed that there’s no such thing as a free lunch, and that the Nugget owed Use Tax on the free food.
The Nevada Supreme Court disagreed.
“…[T]he Nugget’s initial purchases of unprepared food did not “escape” sales tax liability since Nevada’s constitution exempts such purchases from sales and use taxation. Indeed, Nevada’s constitutionally mandated food exemption applies to all “food for human consumption,” unless that food is “prepared food intended for immediate consumption.” Because the food at issue in this case was not “prepared food intended for immediate consumption” at the time it was purchased by the Nugget, the Nugget’s initial purchase was exempt from sales taxation. Furthermore, the Nugget’s later “use” of that food to prepare complimentary meals was not subject to use taxation since the Nugget’s “use” did not follow an otherwise taxable purchase that had “escaped” sales tax liability.”
So many Nevada casinos may be requesting tax refunds from the Nevada Department of Taxation. Nevada, too, has a state budget crisis. This ruling may exacerbate that a bit, but it does prove that sometimes there really is such a thing as a free lunch.