Legislature(2003 - 2004)
05/17/2003 10:38 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 102(L&C) am(efd fld) "An Act increasing the amount of revenue received by the state from charitable gaming activities, and relating to taxes on pull-tabs." LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE provided information on the legislation. He explained that the Senate version would increase the state tax on the sale of pull-tabs through a change in their calculation. The current state tax on pull-tabs is 3 percent of the net, which is actual gross minus prices. The legislation would increase the state tax on pull-tabs (not bingo or raffle) to 15 percent of idea net, which is the assumption that all of the pull tabs in the game or box are sold. If a game had 1,000 pull-tabs at a dollar each, the ideal gross is $1,000. If 80 percent were paid out in prices, the ideal net would be $200. The legislation would change the state tax to 15 percent of this amount. He added that Section 5, page 2, would prohibit a municipality that has a sales tax from collecting sales tax on charitable gaming. There is no effective date, which would reduce the FY 04 revenue amount [since it would not go into effect by July 1. He estimated that the tax change would take effect in the middle of the year. KENT HARTBERG, ANCHORAGE, testified via teleconference in opposition to the bill. He noted that he was a licensed operator and was formerly employed with the Department of Gaming. He discussed the financial difficulties presented by the bill. He emphasized that there will be games that do not realize the ideal net. He also noted that licensed operators are the only ones to have their licenses revoked for failing to meet state minimums. He encouraged the legislature to closely examine the bill for all of its impacts. DAVID LAMPERT, FAIRBANKS, testified via teleconference in opposition to the bill. He stated that he is a fundraiser for 17 organizations, and maintained that the bill would put them out of business if it were enacted. He would be forced to layoff 22 employees. He explained that the organizations could not meet the requirements of the legislation. The effective date would be a problem, since many organizations had already based their budgets on the current tax structure. The tax would have to be prepaid. He maintained that there had been no testimony in favor of the bill from the Department of Revenue. He stressed the negative impact of this bill on non-profits. GREGORY PETERSON, ALLIED CHARITIES OF ALASKA testified via teleconference in opposition to the bill. He stated that the legislation would raise the level of taxes paid by charities by 500 percent, impacting 800 - 1,000 jobs across the state of Alaska, ending programs. He stressed that although the new version of the bill was better than the original, it would still have negative impacts on the needy. He urged the legislators to stop the bill. TAWNY WRIGHT, PULL-TAB CLERK, NORTH POLE, testified via teleconference in opposition to the bill. She maintained that the bill would have a negative impact on charities, and stressed that the increase from three to fifteen percent in tax was too steep. She noted that her family of four was supported by her job in the pull-tab industry, because it provided flexibility. She maintained that the bill would negatively impact many of the lower income individuals. DAVID SANDON, MVP, JUNEAU testified in support of the Committee Substitute. He noted that he works for two Montessori programs that provide early childhood education and Juneau Dance Unlimited. He spoke in favor of the exemption from municipal taxation. He maintained that the Senate Labor and Commerce interim subcommittee should be allowed to review the issue during the interim and suggested the following be reviewed: 1. Use an adequate percentage of the additional revenue the state will be receiving to step up enforcement of gaming regulation. 2. License all management (not just operators) involved in gaming and revoke those licenses if the permits they manage do not return the state mandated minimums. 3. Prevent "ghost charities" those charities that only exist on paper from being allowed gaming permits by strengthening the requirements for qualification. 4. Increase the state mandated returns to the nonprofits. 5. Consider a revenue sharing scheme with the local municipalities based on where. the finds are generated. Mr. Sandon maintained that there is room for increased taxation in the industry as a whole if it is viewed from a statewide perspective. He continued to read from prepared remarks: "We are currently paying 28% of our ideal net in taxes, 25% to our municipality and 3% to the state. Without the local sales tax prohibition in this legislation we would be under a 40% tax burden. You do the math under a 40% tax burden we will simply be literally taxed into bankruptcy. We would like to note here that in our original testimony through both the Senate and House Labor and Commerce Committees we brought forth a revenue sharing strategy between the state and ~ii local municipalities based on where the proceeds were raised. This is your opportunity to set some precedence statewide concerning the taxation of gaming as we move towards our future. We urge you to support this legislation in its current form. I am certain you are hearing many voices of concern regarding this legislation. We would like to address some questions you might have of us as follows: Q: Why don't you pass the sales tax along to the customer? A: This was tried with disastrous results, as the pace and process of pull-tab gaming was frustrated and as a result gross revenues dropped 60%. We had no choice but to absorb the tax. Imagine if you will every time someone exchanges a playback the oil that runs all gaming (the small winning tickets $ 1, $2, $5, $10 winners) they had to reach for small change in their pocket or receive small change. These transactions currently take place in seconds. This logistical scenario of passing along a tax to the consumer is frankly impossible. Believe me if we could pass the sales tax along we would have been doing so since its inception. The City and Borough of Juneau has long since realized this as well; however, they have also been stubbornly aware of the room for taxation in this industry. We can pay a justifiable tax but we cannot pay a combined local and state tax burden of 40%. There can only be one hand in the taxation of this revenue stream. That hand in this case should be the state. The state can then decide whether and on what proportion these tax proceeds should be spent between local and state interests. Please note, that the City and Borough of Juneau does not seem willing to back down on its rhetoric either. Please do not put us at their mercy for they might by default simply choose to tax local gaming out of existence with out a vote of the local electorate. Q: Are your expenses higher than other types of business? A: No in fact I challenge you to find another business in the State that that returns 30.5% profit while absorbing our current 28% tax burden. (25% sales tax 3% state ideal net tax) Q: How can we create an equitable tax structure on gaming statewide, while making sure we have proper regulation and no profiteering? Thus insuring the permit holders receive the maximum possible return. GEORGE WRIGHT, OPERATOR 84, JUNEAU ANB, testified in opposition to the bill. He stated that they have 100 employees, working with 52 non-profits. He stressed that the tax is heavy, especially in combination with local sales tax, but that they could live with the current version. He emphasized concern with the effective date and noted more time was needed for implementation. Charities' years go from January 1, to December 31. He asserted that SB 102 would negatively impact charities. He suggested that any work group should include individuals from the industry. He stated that charities in Juneau would be finished without a local prohibition [on municipal taxation] or an effective date. He suggested a later effective date. ROGER SHANNON, KENAI, testified via teleconference. He discussed the potential negative impacts of the gaming industry. SB 102 was HELD in Committee for further consideration. CS FOR SENATE BILL NO. 102(L&C) am(efd fld) "An Act increasing the amount of revenue received by the state from charitable gaming activities, and relating to taxes on pull-tabs." Vice-Chair Meyer noted that the Senate added an amendment to prohibit municipal taxation: A city that levies and collects sales and use taxes under (a) of this section may not levy and collect a sales or use tax on pull-tabs used in charitable gaming. He questioned if it would be possible to allow communities that currently collect the tax (Juneau, Nome and Bethel) to continue to do so, while prohibiting new communities (Anchorage) from collections. LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, provided information on the legislation. In response to the question by Vice-Chair Meyer, he observed that similar exemptions have been allowed under the taxation of alcohol. Vice-Chair Meyer speculated that the amendment was not intended to negatively impact municipalities. Mr. Persily indicated that legislative legal could be consulted about how the provision could be change. Vice-Chair Meyer speculated that the maker of the senate amendment had intended to exclude Anchorage, but did not intend to adversely affect the communities collecting the tax. Mr. Persily discussed the fiscal notes accompanying SB 102. He assumed that the bill would be signed in June and take affect in the fall, which would reduce the state's revenue. The Governor's legislation would have also limited the prize payback. He stressed that all of the fiscal notes are based on the assumption that there would be no change in gaming activity in Alaska. CSSB 102 HELD in Committee for further consideration.