The Sphere has been good for Nevada’s live entertainment tax. (Photo courtesy of Sphere Entertainment)
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Nevada’s live entertainment tax continues to exceed revenue projections while sales tax trends short of expectations, economic forecasters were told Thursday.
Neither revenue stream appears likely to upend the state’s current biennium budget, which in total is humming along a few percentage points above expectations, but economists are pondering the trends as they turn their eyes toward the future.
The Economic Forum, an appointed five-member panel of economic and taxation experts, met Thursday to begin the monthslong process of setting Nevada’s official revenue forecast, which is used as the base for the biennium budget passed on even-numbered years by the Nevada State Legislature and signed by the governor.
Live entertainment tax
Nevada’s live entertainment tax (LET) has been notoriously difficult to accurately predict, with actual revenue consistently coming in significantly higher than projected.
Non-gaming LET for the current fiscal year is currently 82% above projections, with three months of tax collection still to come. That translates to $46 million more being generated than expected.
“We knew there were a lot of things that were coming up — events we knew about, particularly F1 and the Super Bowl — but there were certainly some unknowns,” said Michael Nakamoto, a chief principal deputy fiscal analyst with the Legislative Counsel Bureau.
Chief among those unknowns, he added, has been The Sphere, the LED-covered domed venue in Las Vegas that opened in September 2023, roughly five months after the budget forecast was set.
“We knew there were going to be events there,” said Nakamoto, “but if you’d asked me back in May of 2023 whether I thought that U2 or some of the events at The Sphere were going to be as successful and popular and expensive as they are, I probably would have said no.”
Specific taxpayer information is confidential but Nakamoto pointed to publicly available information as a reference point. Tickets for Dead and Company, the Grateful Dead spinoff currently performing at the venue, start at “a few hundred dollars,” he noted.
He continued, “Say there’s a $500 ticket at The Sphere. I believe you have 18,000 that can sit in the Sphere. If all of them are paying $500 a ticket, at 9% the live entertainment tax is $45. Multiply $45 times 18,000 seats, you can start seeing just how much live entertainment tax is being generated just from this one facility.”
Other venues, such as Allegiant Stadium, are likely also bringing in LET revenue far beyond what was originally imagined or projected, added Nakamoto.
“Now that these things are happening, it certainly gives us better information so when we come back and start doing forecasts we have more real world data to work with than before,” he added.
Sales tax
Economic Forum member Marvin Leavitt pointed out that sales tax revenue came in less than projected in fiscal year 2023 and is underperforming again in fiscal year 2024. Most worrisome is that the difference between the expected revenue and actual revenue is widening over time.
“We’re in a period of relatively high inflation, which would tend to drive that tax up,” said Leavitt. “It is growing but not anywhere near the rate of some of the others we’ve seen. I’m just curious as to whether this is indicative of something in the background that we need to be concerned about as we look at the future.”
Through the first nine months of the fiscal year, sales tax is 2.3% below projections, confirmed Nakamoto, but because the state is performing well in “just about every other aspect of the General Fund” the end result is a wash.
Nakamoto said sales tax revenue began to soften almost immediately after the forum set the forecast in May 2023. After that, he said, “it seems like something has happened and the growth we thought would be there just has not been there.”
He continued, “Whether it is a factor of higher interest rates or inflation putting pressure on prices, that wages aren’t keeping necessarily up, whether the mix of visitors is maybe a little different and they’re not spending as much money… We’re not sure.”
The latter scenario seems unlikely given the on-track gaming tax revenue, he added.
Nakamoto added that February — “the month of the Super Bowl” — was one of the only months in the current fiscal year that “really held its own.”
He continued: “It’s something that we’ve mentioned that we’re keeping an eye on, and we continue to keep an eye on.”
Treasurer’s interest income
Coming in significantly higher than previous years is the revenue generated off investments overseen by the Nevada State Treasurer’s Office. In fiscal year 2020, interest income generated around $20 million for the state. In fiscal year 2023, it generated $116 million.
That makes it comparable today in revenue to the real property transfer tax, which the Economic Forum considers one of the state’s major revenue sources and takes a closer look at during budget cycles.
Nakamoto told the forum members myriad factors are contributing to that increase, including high interest rates yielding more returns for investors, the significant amount of federal dollars given to the state, and the increase of the Rainy Day Fund.
“There’s just significantly more money for the state to invest for any number of reasons,” he said. “Is it something that’s permanent? Probably not.”
He continued, “Once the federal money is spent, once the state money that is sitting around starts getting obligated and spent, and once interest rates go down, do we land somewhere closer to the $20 or $25 million we were at? Or is it somewhere higher than that? That remains to be seen.”
Nakamoto said his staff is in conversation with State Treasurer Zach Conine about the revenue source. Economic Forum Chair Linda Rosenthal requested the treasurer’s office give a presentation at an upcoming meeting.
Conine told the Current that on his first day as treasurer, his office had $2.7 billion to invest and at the beginning of this year had $10 billion. American Rescue Plan Act dollars make up “north of a billion, less than $2 billion” of what’s available, he added.
Conine, who worked in finance prior to running for office, said he has intentionally built up the state’s investment team to look for more opportunities.
“And they have been lucrative,” he added.
Specific meeting dates have not yet been set, but the Economic Forum is expected to meet again in mid-October, in mid-November (typically sometime Election Day), and in early December. By law, the forum must set the official revenue projections by Dec. 3.
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