CARSON CITY, Nev. (Legal Newsline)-The Nevada Supreme Court has rejected a request by the state attorney general to reconsider its 6-1 ruling that food provided for free to casino patrons and some employees is tax exempt.

"The ruling has the potential to not only apply to the payment of use tax on meals, but also to the payment of sales tax," Attorney General Catherine Cortez Masto wrote to the court in a petition for a rehearing.

"The potential fiscal impact of this decision could be devastating to the state," the Democrat said in court papers filed in April.

In a four-page order this week denying the request, the high court said it rehears cases only when it has overlooked or misunderstood a fact or legal issues.

In the case, the justices sided with John Ascuaga's Nugget, a casino resort in Sparks, which is requesting a $1.3 million refund from the state for taxes it paid on complimentary meals between April 1999 and February 2002.

Observers say the ruling could cost ultimately the Silver State $100 million.

Masto and leaders in the state Capitol have said that the court's ruling in favor of the Nugget will worsen the state's budget shortfall, expected to reach $900 million by mid-2009.

To help balance the books, Republican Gov. Jim Gibbons in January ordered a 4.5 percent across-the-board budget reduction, and that cut was to help bridge the gap without taking into account claims by the Nugget and other casinos.

The court's majority opinion, signed by Chief Justice Mark Gibbons and five other justices, said "no taxable event occurred when the Nugget provided complimentary meals to its patrons and employees."

The ruling also said the state constitution exempts most "food for human consumption" from both sales and use taxes.

"Whether this exemption is the best approach is not for us to decide," the justices wrote. "We are bound to follow the constitution's plain language even though a different result might be desirable in some circumstances."

Justice Michael Douglas dissented, arguing that the state Legislature intended the tax exemption to apply to the purchase of food for preparation and consumption at home, not meals provided free of charge or otherwise by a restaurant.

"Thus Nevada law unequivocally requires a tax to be paid on meals that are provided free of charge to patrons and employees," Douglas wrote.

From Legal Newsline: Reach reporter Chris Rizo at chrisrizo@legalnewsline.com.