(Bloomberg Law) -- From the valets parking cars to the dealers at the blackjack tables to the bartenders at the city’s many bars, Las Vegas relies on people working for tips.
“Las Vegas was built on tips,” said James Reza, a city native who owns two high-end beauty salons in town.
Around 17% of workers in Nevada—the highest concentration in the country—make their living through tipped work, according to the Center for Business and Economic Research at the University of Nevada Las Vegas. Nationwide, tipped workers only account for about 2.5% of all workers, according to Yale’s Budget Lab.
To boost the incomes of these workers and win over voters in the crucial swing state where union power still holds weight, Vice President Kamala Harris and former President Donald Trump have both vowed to end taxes on tips.
Interviews with dozens of bartenders, rideshare drivers, servers, and small business owners in Las Vegas reveal the proposal, a centerpiece of national policy discussions, is certainly popular. Yet Nevadans are also clear-eyed about the candidates’ electoral intentions and befuddled by how this new system would actually work.
“I don’t know how much it would benefit them if it actually happens,” Reza said, referring to service workers.
Lawmakers of both parties, while quick to embrace the idea coming from the top of their presidential tickets, admit they haven’t nailed down exactly what taxes will be exempted from tips and who would still pay.
“For me, the devil will be in the details of all of this,” said Rep. Susie Lee (D-Nev.), whose district includes parts of Las Vegas.
Harris announced her intention to push for the tax benefit at a rally last week at the University of Nevada, Las Vegas. Meanwhile, after igniting the discussion with a “no tax on tips” promise in June, Trump is returning to Las Vegas Friday to reinforce his pitch to workers.
“It would be amazing” if tips became tax-exempt, said Daniel Cervantes, a bartender at CraftHaus Brewery in Las Vegas’ Arts District. “It would help me afford a better home, a place closer to work.”
Tax Balancing Act
President Joe Biden has signaled support for tax-free tips, as well as top congressional leaders, Senate Majority Leader Chuck Schumer (D-N.Y.) and House Speaker Mike Johnson (R-La.).
The challenge, though, is writing a law that balances offering maximum benefit for workers while also ensuring that it won’t become a tool for wealthy tax dodgers.
Republicans recently introduced legislation with support from some Nevada Democrats. Rep. Steven Horsford (D-Nev.) has said he’ll introduce his own bill soon.
Tips account for nearly 10% of underreported income that makes up the tax gap, the difference between taxes paid and taxes owed, according to a 2019 Treasury watchdog report. When it was last measured in 2006, tips represented $23 billion of the $235 billion in total underreported income, Treasury found. Cracking down on noncompliance among tipped workers is a challenge for the IRS, said Ric D. Hulshoff, a Las Vegas tax attorney who previously worked at the agency.
Lawmakers say they want income and industry limitations, a new definition of what a tip is, and other potential guardrails to prevent abuse by wealthy, non-tipped workers and employers.
Both Lee and her Republican challenger for the swing district, Drew Johnson, support an income cap and restricting the benefits to certain industries. Lee said she wants to ensure that “Wall Street hedge fund managers” can’t claim their bonuses as tips.
Keeping the benefits limited to the service industry is Johnson’s “biggest concern,” he said, adding that he would support proposals that also exempt tips from federal payroll taxes.
‘God Bless the IRS’
Unions and workers say they’ve had a tense history with the IRS on tip reporting since agents in the 1980s came to casinos and sat behind blackjack tables checking how much dealers were taking home in tips.
Workers said it’s not unusual to go through an entire shift without many tips, particularly when serving tourists from cultures where generous gratuities aren’t the norm. Some workers still must pay tax on the tips the IRS expected them to receive, though, due to some agreements casinos have with the agency in which workers pay taxes based on tip averages.
Tipped employees may still face audits, too. The Legal Aid Center of Southern Nevada has partnered with local unions on a program that provides legal assistance for workers under audit.
Exempting tips from taxes might be a chance for a new relationship between the IRS and Nevada’s tipped employees.
“God bless the IRS,” quipped Leain Vashon, who’s been bell captain at the Paris Hotel for nearly 25 years, and is a member of the Culinary Workers Union Local 226. “I’m not looking to get rid of taxes totally. I just want to be able to have a fair tax for me and for everyone else who’s working.”
Local 226, which represents over 60,000 service workers in Las Vegas and Reno, Nev., and holds strong sway in the state’s politics, has been instrumental in bringing the tax-free tips to the top of the Democratic agenda. The union’s Secretary-Treasurer Ted Pappageorge initially called Trump’s idea an “empty promise,” but was quick to mobilize with the Nevada delegation to endorse a bill from Sen. Ted Cruz (R-Texas) that would provide a 100% deduction for tipped wages, and introduce their own.
Pappageorge said the union also held conversations with Harris’ team ahead of her endorsement of the idea.
“We have relationships,” he said. “If there’s any discussion going on about gratuities and involves our members, we’re going to be in the conversation.”
Just a Political Move?
Despite building excitement around the tax-free tips proposals, Las Vegas workers and businesses remain skeptical.
“It’s definitely a double-edged sword,” said John Simmons, owner of the tapas restaurant Firefly off the Las Vegas Strip. “I want people to have a break, but then I also see that these politicians are using it in order to buy votes.”
Cervantes, the bartender, said it will ultimately come down to Congress to pass legislation codifying the proposal. Neither one of the candidates can act unilaterally if they take over the White House in 2025, he said.
While Pappageorge and lawmakers say they’ll make good on this promise, business owners and employees won’t count on any proposal until Congress makes serious moves.
Until there’s a law, “nobody will know who this helps and how much,” said P Moss, a Las Vegas and New York City restaurant owner.
To contact the reporters on this story: Samantha Handler in Washington at shandler@bloombergindustry.com; Diego Areas Munhoz in Washington, D.C. at dareasmunhoz@bloombergindustry.com
To contact the editors responsible for this story: Alex Ruoff at aruoff@bgov.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com
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