Legislature(2003 - 2004)

05/17/2003 10:38 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                   
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                                                                               
   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                                                                   
     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                                                                   
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                                                                   
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.                                                                           

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