Volume I Issue I. Tax Contributions of Southern Nevada Visitors

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1 Volume I Issue I Southern Nevada Visitors

2 Page 1 Applied Analysis was retained by the Las Vegas Convention and Visitors Authority (the LVCVA ) to review and analyze the impacts associated with its various operations and southern Nevada s tourism industry more generally. This is the first in a series of briefs; it focuses on the major tax contributions of southern Nevada s 39.2 million annual visitors. 1 Staying an average of four days and nights per trip, 2 these visitors account for roughly 18 out of every 100 people in southern Nevada on any given day. Visitors also spend billions of dollars in southern Nevada each year, the vast majority of which is subject to some form of taxation. This Economic Impact Series brief quantifies total visitor spending and estimates the combined value of visitors state and local tax payments. FINDINGS IN SUMMARY The average visitor to Las Vegas is conservatively estimated to spend approximately $715 per trip on everything from transportation to table games. This results in combined annual spending of nearly $28.0 billion, a value which amounts to 22 percent of Nevada s gross state product. Exhibit 1 Las Vegas Visitor Spending Profile Visitor Spending Per Visit Annual Total Lodging 3 $ $4,372,850,000 Eating and Drinking 4 $96.49 $3,772,684,348 Shopping 5 $ $4,477,063,126 Transportation 5 $62.66 $2,450,067,908 Shows 5 $47.87 $1,871,764,296 Sightseeing 5 $8.31 $324,929,210 Gambling 6 $ $7,962,482,595 Other 7 $69.86 $2,731,595,022 Total $ $27,963,436,505 Sources: Applied Analysis; Las Vegas Convention and Visitors Authority 1 See, Las Vegas Convention and Visitors Authority, Monthly and Year-to-Date Statistics. Available at Note that this analysis focuses on the 39.2 million annual visitors to the Las Vegas valley due to the availability of information. In total, 43.7 million visitor trips were recorded in all of Clark County, Nevada. 2 See, GLS Research, 2007 Las Vegas Visitor Profile Study. Page 9. 3 Estimate based on taxable lodging tax expenditures for Clark County (approximately $4.6 billion), discounted for visitor spending out of the Las Vegas valley and for the share of lodging expenditures attributable to locals. 4 Estimates based on data reported by the Nevada Department of Taxation, the Nevada Gaming Control Board, and GLS Research, 2007 Las Vegas Visitor Profile Study. Page 9. 5 See, GLS Research, 2007 Las Vegas Visitor Profile Study. Page 9. 6 Analysis is based on total gross gaming revenue and assumes that visitors account for approximately 75.3 percent of total gaming spending, a factor that reflects discounts for visitor spending and gaming revenue in outlying markets. 7 Analysis assumes that eight percent of visitor spending is not captured by the other major categories. Other items would include, but not be limited to, personal and professional services, admissions charges to trade shows, exhibits, meetings and conventions, and nontransportation leases and rentals.

3 Page 2 Nearly 80 percent of visitor spending is subject to some form of state and local taxation. Retail sales and use tax applies to most food and beverage and shopping expenditures; 8 gross gaming taxes are imposed on gaming win; live entertainment tax is imposed on most admissions and some merchandise, food and beverage purchases in entertainment venues; 9 and transient lodging taxes are added to hotel room rates; and rental car taxes are applied to some transportation expenditures. 10 Exhibit 2 Visitor Spending Profile and Nevada State and Local Taxes Imposed Gaming Win Percentage Fees: 3.5%-6.75% Gambling 28% Other 10% Room Tax: 7.0%-11.0% Lodging 16% Eating and Drinking 13% Retail Sales and Use Tax: 7.75% Shows 7% Sightseeing 1% Live Entertainment Tax: 5%-10% Transportation 9% Car Rental Governmental Services Tax: 12% Shopping 16% Retail Sales and Use Tax: 7.75% In total, visitors are estimated to generate $1.6 billion annually in major state and local tax payments. Please see Exhibit 3 at the end of the analysis. This translates into $41 per trip and an effective tax rate of 7.5 percent on taxable expenditures. There are a few important points that should be considered in evaluating these estimates. First, the $1.6 billion total visitor tax contribution figure should not be confused with the hospitality industry s combined tax burden. Visitor spending figures omit other significant industry contributions such as ad valorem taxes (i.e., property taxes), modified business taxes (i.e., payroll 8 Note that food purchased for personal preparation and consumption (e.g., food purchased at a grocery store) is not subject to Nevada s retail sales and use tax. 9 Note that if the occupancy of the venue is 7,500 or more, Nevada s live entertainment tax is not imposed on charges other than admission. 10 Rental cars are subject to rental car governmental services tax.

4 Page 3 taxes) and various state and local gaming taxes (e.g., city-county gaming taxes, slot license fees and quarterly fees on games). Second, every visitor dollar spent is not necessarily subject to taxes. Eating and drinking, shopping and transportation expenditures have been discounted to reflect that items such as food for home consumption (e.g., food purchased at a grocery store) is exempt from Nevada s retail sales and use tax. Finally, it is important to note this analysis also omits some taxes paid by visitors. Cigarette taxes, for example, are $0.80 per pack in Nevada. Some visitors certainly smoke, and it is likely that their combined contribution to Nevada s cigarette tax is fairly consistent with visitors share of the region s full-time equivalent population (about 18 percent). That said, whether those expenditures are accounted for as shopping, other or not at all is simply unknown. No effort has been made to inflate the tax rates or the taxable expenditures in an effort to account for these additional visitor contributions. In all, we believe this analysis represents a fairly conservative estimate of visitor spending and tax payments. Forthcoming briefs in this series will take a closer look how these tax dollars are spent and what share they make up of total state and local collections. That said, visitor tax contributions are a vital element of Nevada s tax system. The ability to generate $1.6 billion in tax payments from individuals that do not demand the full spectrum of public services (e.g., visitors do not send their children to Nevada s schools) has helped Nevada preserve among the nation s lowest personal and business tax burdens. That spending also fuels economic activity in and out of the gaming sector. METHODOLOGY Baseline travel volume and consumer spending data for this report were obtained from several publicly-available sources, including the Las Vegas Convention and Visitors Authority, the Nevada Gaming Control Board, the Nevada Commission on Tourism, the Nevada Department of Taxation and the Travel Industry Association. Per trip spending estimates were applied to combined visitor counts to estimate aggregate taxable spending. Total spending figures were benchmarked against publicly available data such as total room revenue or total food and beverage sales to ensure that the sum of the parts were not greater than the whole relative to estimated spending levels. Tax rates were obtained from the Nevada Department of Taxation, the Nevada Revised Statutes and the Nevada Taxpayers Association s Nevada TaxFacts publication. These rates were then applied to the aforementioned tax bases to estimate total and per capita tax contributions.

5 Page 4 ANALYSIS LIMITATIONS This analysis used the best available data to estimate visitor spending and tax contributions. In many cases baseline data were either incomplete or inconsistent. Efforts were taken to minimize the impacts of these inconsistencies, and we believe the analysis provides a fair and reasonable response to the principal questions presented, erring on the side of being conservative. 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.

6 Page 5 Exhibit 3 Estimated Visitor Spending and Tax Contribution Totals Visitor Spending [1] Share of Spending Estimated Applicable Estimated Category Per Visit Annual Total Subject to Taxation [2] Tax Base Tax Rate [3] Tax Collections Eating and Drinking $96 $3,772,684,348 90% $3,395,415, % $263,144,733 Gambling $204 $7,962,482, % $7,962,482, % $487,303,935 Lodging $112 $4,372,850, % $4,372,850, % $395,742,925 Other $70 $2,731,595,022 0% $- 0.00% $- Shopping $115 $4,477,063,126 85% $3,805,503, % $294,926,533 Shows $48 $1,871,764,296 90% $1,684,587, % $126,344,090 Sightseeing $8 $324,929,210 0% $- 0.00% $- Transportation $63 $2,450,067,908 15% $367,510, % $44,101,222 Total $716 $27,963,436, % $21,588,350, % $1,611,563,438 Notes: [1] Visitor spending based on data obtained from GLS Research, the Las Vegas Convention and Visitors Authority, the Nevada Gaming Control Board, and the Nevada Commission on Tourism. [2] Estimates by Applied Analysis based on consumer spending profiles, discussions with industry representatives and internal databases. [3] Tax rates based on weighted average rates reported during FY 2008 where available. Where not available the levied tax rate was assumed to apply.