What do you think of when you think Las Vegas? Maybe this? Or its famous ad campaign? Las Vegas has staked its claim to fame on the gaming industry, ever since Nevada was the first state to legalize gambling in the 1930s. And success is in the tourism numbers: the city of half a million residents attracted 40 million visitors last year, 72% of whom gambled during their stay.
At this point, State and Local Finance students may be saying to themselves, Wow! What a tax base! And what an opportunity for Las Vegas to export their tax burden onto all of those visitors by taxing casinos!
At least, that’s what we thought, and we were wrong. Las Vegas has an insignificant amount of own source revenue stemming from its major industry, gaming. Its business license fee on casinos generates less than 1% of its total revenues, and it has no tax on casino profits. And the taxes and fees it does have in place are a mixed bag when analyzed on efficiency, equity, adequacy, and feasibility grounds.
On a 5 point scale, we rated the efficiency of the license fee the highest, at 4. This is mainly because the gambling industry faces pretty inelastic demand: casino visitors are not going to be easily dissuaded from the slot machines by a moderate increase in prices. Feasibility earned a 3 from our group, because although political feasibility is low (given the immense power that the gaming industry wields in politics), the administrative feasibility is fairly high (the fee is collected as a part of the licensing process). Adequacy and equity of the fee score even lower, at 2 and 1, respectively. Adequacy is low mainly because the amount of revenue it brings in is so small. Equity is low because gaming taxes are almost universally regressive, especially among Las Vegas residents.
Ultimately, the case of gaming taxes in Las Vegas is a tale of fiscal federalism at its finest. Clark County and the State of Nevada both raise revenue from casinos and other gaming establishments, revenue which in part makes its way into Las Vegas’ budget. Although the Strip in downtown Las Vegas is a major tourism draw, the entire metro area (and the entire state) does have casino presence. If Las Vegas were to heavily tax casinos while neighboring cities did not, we might see that tourism leaving the City. In that light, the current structure of gaming fees and taxes are a good use of fiscal federalism, with the State raising most of the revenue and redistributing it to localities.