One of Nevada’s largest casino companies is likely to slice off a significant portion of its tax bill after reaching a deal to have hundreds of University of Nevada, Reno students use the Circus Circus Sky Tower for temporary student housing.

As part of UNR’s $21.6 million deal with Circus Circus for interim student housing after explosions mangled two residential dorms, the university and casino will avoid paying the normal 13.5 percent hotel room tax that would otherwise be collected from individuals staying in those rooms.

The tax issue was discussed prior to the announcement of the arrangement between the casino and the university; according to a public records request submitted by The Nevada Independent, the Reno Sparks Convention and Visitors Authority confirmed to the school prior to the finalization of the rental agreement that it would not have to pay the lodging tax if the rooms were used for student housing.

“As the University will have ‘control’ of the portion of the Sky Tower which it leases, and because such portion of the Sky Tower will be used exclusively to house students, faculty and other University employees, such use is not included within the definition of ‘transient lodging’ and thus is not scheduled to the payment of the transient lodging tax or associated surcharge,” RSCVA Director of Finance Robert Chisel wrote in a July 26 letter to university administrator and Republican state Senator Heidi Gansert.

Gansert, through a university spokesperson, said the room tax issue was “not a consideration” for the university when looking for replacement student housing. A spokesperson for Eldorado Resorts, owner of Circus Circus, did not respond to a request for comment.

The arrangement between the state’s flagship university and Eldorado Resorts, which became the nation’s largest casino operator after a merger with Caesars Entertainment earlier this summer, came after a major explosion in early July at one of the university’s primary residential dorms, Argenta Hall. The explosion, which was later deemed to have been caused by boiler room issues, injured eight people.

Within weeks, university staff began talks with Circus Circus to house the estimated 1,300 students who would otherwise reside in Argenta and Nye Halls. The final contract, which was signed and approved by university and Nevada System of Higher Education leaders on July 31, redubs the building as “Wolf Pack Tower” and includes nicer amenities than the typical dorm room offerings, including once-a-month maid service.

“The University looked at other properties throughout Reno-Sparks. None can replicate what the West Tower can provide – 1,300 beds, complete University control of the entire building, and proximity to our campus,” the school states on its website for the new “Wolf Pack Tower.”

According to the contract, the $21.6 million to rent the tower will be paid in monthly installments, which the university has said will be partially covered through insurance claims. Students began moving into the building last month.

In addition to the rental payments from the university, Eldorado Resorts will see another benefit — at least a year of not having to pay the 13.5 percent room tax on the 907 rooms inside the tower.

It’s possible that taking the Circus Circus rooms off the hotel rental market could result in a seven-figure impact; assuming static occupancy rates and the average cost of a downtown Reno hotel room, the total amount of taxes diverted could be greater than $2 million.

But accurately projecting future tax impacts of the decision to take the 907-room tower effectively off the market is difficult. The RSCVA said it doesn’t collect statistics on individual properties, and statistics from the tourism agency indicate that the supply of rooms in downtown Reno isn’t exactly exhausted — the percentage of cash and comped room occupancy in the 2018-2019 fiscal year is just 52.4 percent, and 11 percent lower than in the previous fiscal year.

Elliott Parker, a professor and chair of UNR’s economics department, said in an email that he didn’t have specific information on how removal of the rooms would affect tax collections, but that given the current abundance of rooms in the downtown area and potential shifts in pricing, removing the typically cheaper rooms from the market could actually increase overall hotel room tax collection.

“In such circumstances, removing a building of rooms from the supply would just shift customers to other properties (or the other building in Circus Circus), and push room cash rates up,” he said in an email. “So tax collections could feasibly even rise, assuming overall visitation does not decline in response to smaller availability in one hotel.”