A Baton Rouge judge has sided Tuesday with the Louisiana Department of Revenue in a key question in the state’s dispute with Harrah’s over whether the casino should be paying taxes on complimentary or discounted hotel rooms, setting up a trial where the state could seek tens of millions in back taxes from the company.
Judge William Morvant of the 19th Judicial District ruled that Harrah’s should be paying those taxes dating back to 2001, when lawmakers revised the deal that allows the company to operate Louisiana’s only land-based casino.
The issue drew the interest of state leaders including Gov. John Bel Edwards as lawmakers passed an extension of Harrah’s license during the legislative session that ended last month. The amount of taxes at stake is estimated to be between $30 million and $50 million.
While the litigation remains ongoing, the ruling Tuesday answers a key question in the case. A trial is scheduled for September to determine how much money Harrah’s owes in back taxes.
“There’s nothing vague and nothing ambiguous about this,” Morvant said of the tax law in question.
The dispute centers around Harrah’s practice of handing out discounted or complimentary hotel rooms to guests it thinks will spend money at its casino, dating back to 2001. That year, Harrah’s emerged from Chapter 11 bankruptcy and convinced state lawmakers and officials to loosen their regulatory grip on the casino, allowing it to get into the restaurant and hotel business. The state also lessened the casino’s annual lease payment from $100 million to $60 million.
Soon after, Harrah’s began handing out discounted and complimentary rooms at third-party hotels. In 2006 the company opened its own hotel where it has since regularly offered free and discounted rooms to its customers.
In the lawsuit, the state is seeking sales and occupancy taxes that it says Harrah’s neglected to pay over the years on those free and discounted rooms. Harrah’s has been paying local hotel taxes imposed by Orleans Parish on the discounted and comped rooms, but not the state hotel taxes.
Harrah’s has argued the 2001 law exempts them from paying sales and occupancy taxes to the state on hotel rooms they “comp” or discount, either at its own hotel or at third-party hotels. The Department of Revenue disputes that, saying if Harrah’s gives away a $200 hotel room, it should pay the 9 percent in hotel taxes on that room, or $18.
The tax dollars would go to the Superdome Commission and the Ernest N. Morial Convention Center. The sales taxes in question amount to about $2 million to $3 million per year to those entities, though that figure would rise once Harrah’s opens a new hotel it has in the works. Louisiana Senate President John Alario, R-Westwego, previously said the Department of Revenue told him the back taxes are worth $40 million to the state.
Morvant ruled that Harrah’s should not only be paying taxes on complimentary and discounted rooms at its own hotel, but also at the rooms it buys from third-party hotels. Harrah’s argued in court it paid taxes on those rooms already when it bought them from the hotels, but the state disputed that assertion.
The dispute between the state and Harrah’s over the taxes was ongoing while state lawmakers this spring were considering whether to extend Harrah’s license from 2024, when it was scheduled to expire, to 2054. Lawmakers eventually agreed to extend the license as long as Harrah’s pays tens of millions more to the state over the 30 years.
The Legislature did not strengthen language in the legislation to make sure Harrah’s would pay the taxes on comped and discounted rooms.
If the state wins the lawsuit, Harrah’s would also have to pay taxes for discounted and comped rooms for the 340-room hotel it is planning to build as part of that license extension.