DENNIS MYERS Against the Grain Advertisement

It's important to note a little benchmark that has occurred before it passes unobserved.

Gov. James Gibbons, who as a state legislator voted repeatedly for tax increases but repented when he decided to run statewide and has become known for his opposition to taxes, endorsed a tax hike on June 26.

It was in item 18 of the recommendations he made in his official call to the special session of the Nevada Legislature: "An amendment to the sales and use tax in order to clarify the legislature's intent with respect to the taxability of free or discounted employee and patron meals."

This is a reference to sales taxes on food in Nevada. In the late 1970s the legislature went through several battles over Democratic efforts to repeal the sales tax on food. Eventually there was enough support for the change for it to pass the legislature, but lawmakers wanted to structure it in such a way that they could continue hitting tourists as hard as possible. They came up with an arrangement under which, in general, food that is already cooked is still taxable. The law calls this "prepared food intended for immediate consumption." Everything else is "food for human consumption."

This led to all kinds of interpretation problems. In March the Supreme Court of Nevada handed down a decision involving, again, food in Sparks. The Sparks Nugget had paid nearly two million dollars in sales tax on meals its chefs had cooked that were given away to employees and customers.

The court ruled, "In this appeal, we confront an issue of constitutional importance to Nevada: whether businesses in this state are required to pay sales or use tax on meals that they provide free of charge to patrons and employees. ... Since no taxable event occurred between the time appellant initially purchased the food used to prepare complimentary meals (in a tax-exempt transaction) and the time appellant gave those meals away, the meals were exempt from sales and use taxation under the plain and unambiguous language of the Nevada Constitution."

If I read it correctly, the court was saying that since the Nugget didn't sell the food, there is no sale to tax. At any rate, the Nugget will get its money back. (I wonder if the state has to pay interest for the period it held the money.) A long list of other companies have lined up seeking millions in refunds and the state must end the tax unless it wants to keep making refunds.

So that's where things stood -- a supposed tax on complimentary meals is invalid. If the governor and legislature did nothing, the old law stayed voided. The only way for it to be made valid is to pass a new tax law reviving it. That's a tax increase.

It's an article of Republican faith that repealing tax loopholes is increasing taxes -- an article often wielded in Congress when Gibbons was a member of the U.S. House. Removal of incentives hikes taxes, they say. They always put the word "loophole" in quotation marks. (They never put "incentives" in quotation marks.)

Gibbons himself vetoed repeal of a tax loophole in last year's legislature. His veto message said he was doing it for administrative reasons but his legislative allies believed he didn't want to have to defend a tax hike.

On June 27, Gibbons said of the comp meal issue, "I want them [the legislators] to close that loop so that we don't get ourselves in a further problem dealing with it down the road."

As it happens, the Democratic Assembly voted to re-impose the free meal tax but the GOP Senate balked, killing the measure. Senate Republicans, particularly William Raggio, did not want to be accused by primary election opponents of voting for a tax increase. Gibbons may even have had some second thoughts -- Raggio said the governor's staff warned that Gibbons would veto the measure if it was enacted. (That would have been a first in Nevada history -- a governor vetoing a measure that he called the lawmakers into special session to pass.)

So the Senate saved him from himself, but the idea that Jim Gibbons is opposed to tax hikes has taken a big hit, and the governor himself may have a better idea of how tough it is to govern without fiscal elbow room.