Legislature(2003 - 2004)

04/14/2004 03:28 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB 102-CHARITABLE GAMING REVENUE/TAXES                                                                                        
                                                                                                                                
CHAIR ANDERSON announced  that the final order  of business would                                                               
be  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."                                                                                                                          
                                                                                                                                
Number 1475                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD moved to adopt HCS CSSB 102, Version 23-                                                                
GS1131\U, Luckhaupt, 4/5/04, as the working document.  There                                                                    
being no objection, Version U was before the committee.                                                                         
                                                                                                                                
Number 1492                                                                                                                     
                                                                                                                                
LARRY MEYERS, Deputy Director, Tax Division, Department of                                                                      
Revenue, provided the following testimony:                                                                                      
                                                                                                                                
     The  current   bill  proposes   to  increase   the  tax                                                                    
     collected on  pull-tabs from 3  percent to  15 percent.                                                                    
     Pull-tabs  account  for  77 percent  of  all  legalized                                                                    
     gambling currently  done in  the state.   In  2002, the                                                                    
     state collected  $2.1 million in  taxes on  $60 million                                                                    
     of  ideal net,  which is  gross sales  less the  prizes                                                                    
     paid  out.   After expenses,  $25 million  net proceeds                                                                    
     were available  for distribution for qualified  uses in                                                                    
     the state.   Charitable gaming  in Alaska is  a heavily                                                                    
     regulated industry.  In order  to stay in compliance in                                                                    
     pull-tabs, expenses  cannot exceed 70 percent  of gross                                                                    
     sales less prizes  or, as it is known  in the industry,                                                                    
     adjusted gross.   The proposed  tax increase is  one of                                                                    
     those  expenses.    In  order to  stay  within  the  70                                                                    
     percent expense  limit and  distribute the  same amount                                                                    
     of net proceeds to  qualified organizations, one of two                                                                    
     things or a combination  must happen under the proposed                                                                    
     tax increase.  One, the  prize payout must ... decrease                                                                    
     from  the current  average level  of 78  percent.   Or,                                                                    
     two, expenses must be reduced.                                                                                             
                                                                                                                                
     The  bill before  you attempts  to  help the  qualified                                                                    
     organizations  who  are  currently paying  local  sales                                                                    
     taxes by  prohibiting any sales tax.   Currently, there                                                                    
     are 16 cities  paying a sales tax  on pull-tabs ranging                                                                    
     from  2.5 percent  to  5 percent.    Most notably,  are                                                                    
     Juneau at  5 percent,  Palmer at 3  percent, Nome  at 4                                                                    
     percent, Wasilla and Seward at  2.5 percent.  All told,                                                                    
     approximately  18 percent  of  gross pull-tab  receipts                                                                    
     are subject to a sales tax.                                                                                                
                                                                                                                                
                                                                                                                                
MR. MEYERS, in response to Chair  Anderson, said that he has seen                                                               
the  newest  version   of  the  legislation.     With  regard  to                                                               
concurring with  the grandfathering [provision], Mr.  Meyers said                                                               
that he just reviewed the legislation  and would pass that on [to                                                               
the governor].                                                                                                                  
                                                                                                                                
Number 1603                                                                                                                     
                                                                                                                                
CHAIR  ANDERSON related  that under  Version U,  the state  would                                                               
impose a  15 percent  tax on  the ideal  net proceeds  from pull-                                                               
tabs.   However, the state  tax wouldn't apply to  pull-tabs sold                                                               
in  a municipality  currently  levying a  use  tax on  pull-tabs.                                                               
Chair  Anderson  explained  that  the committee  must  weigh  the                                                               
impact  of  the   proposed  tax  as  well  as   [its  impact]  in                                                               
conjunction  with other  pull-tab  taxation and  the position  of                                                               
charities who  don't want to  be taxed.   Version U is  a partial                                                               
compromise  in that  it  helps  municipalities by  grandfathering                                                               
them  in.    Version  U would  allow  only  those  municipalities                                                               
currently levying taxes [on pull-tabs]  to tax on a gross receipt                                                               
basis  or an  ideal net  basis.   Therefore, pull-tab  operations                                                               
would be taxed  by either the state or one  or more grandfathered                                                               
municipalities.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  if  Mr.  Meyers  has  done  an                                                               
analysis regarding what a 15 percent tax would do to the pull-                                                                  
tab industry.                                                                                                                   
                                                                                                                                
Number 1699                                                                                                                     
                                                                                                                                
MR. MEYERS  answered that a  15 percent  tax in a  community that                                                               
already  has a  sales tax  would be  detrimental to  the pull-tab                                                               
industry.  With Juneau's 5 percent  sales tax a $1,000 game would                                                               
amount  to $50  in sales  tax and  the current  tax of  3 percent                                                               
would amount  to $6.60 on  an average game, which  totals $56.60.                                                               
However, a business  in Anchorage paying the same  game under the                                                               
current  3  percent  tax  only  pays the  $6.60.    Therefore,  a                                                               
community such  as Juneau is  at about  a $50 disadvantage.   Mr.                                                               
Meyers said  that under  the 15 percent  proposal there  would be                                                               
some operations that  couldn't make it, although  he expected the                                                               
majority would be able to comply.                                                                                               
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  if any  analysis has  been done                                                               
with regard to the loss of revenue to the nonprofits.                                                                           
                                                                                                                                
MR. MEYERS related  that the goal with this [tax  increase] is to                                                               
ensure  that the  charitable and  nonprofit organizations  aren't                                                               
the entities  that absorb the  increased tax.   The hope  is that                                                               
the same amount of money would  continue to be distributed to the                                                               
community.  Therefore, the [pull-tab  industry] must get a better                                                               
handle  on the  expenses or  the prize  payout would  have to  be                                                               
reduced.    Currently,  the  average state  payout  is  about  78                                                               
percent.  The calculations show  that if the prize payout dropped                                                               
from  78 to  76  percent  with the  same  amount  of gaming,  the                                                               
charities wouldn't lose any money.                                                                                              
                                                                                                                                
Number 1803                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  if   fiscal  note  Number  3  is                                                               
applicable to Version U.                                                                                                        
                                                                                                                                
MR. MEYERS  said that  the fiscal  note will  be impacted  by the                                                               
"grandfathering" that occurs  in Version U.  Under  Version U, at                                                               
least 18  percent of  the current  projected revenue  wouldn't be                                                               
available.                                                                                                                      
                                                                                                                                
REPRESENTATIVE   ROKEBERG  turned   attention  to   the  document                                                               
entitled, "SB 102  COMPROMISE PULL TAB TAXATION  PROPOSAL."  Upon                                                               
discussion with the  chair, it was indicated  that the compromise                                                               
pull-tab taxation proposal isn't part of Version U.                                                                             
                                                                                                                                
Number 1905                                                                                                                     
                                                                                                                                
DAVID SANDEN,  Manager, Hidden Treasures,  MBP, remarked  that if                                                               
the  committee decides  to go  with Version  U, it  will have  to                                                               
ensure  that  one  can't  launder   games.    He  explained  that                                                               
currently one doesn't  have to report by  location, and therefore                                                               
games can be  purchased in Anchorage and sold in  Fairbanks.  The                                                               
proposal is for  one tax.  "We think the  15 percent threshold is                                                               
fine," he  related.  Mr.  Sanden informed the committee  that the                                                               
current ideal  net in  the state  is $70,504,867  and with  the 1                                                               
percent and other  state fees the state  currently receives about                                                               
$2,585,507.   Under the governor's  request for an  additional $2                                                               
million, the  tax would have  to increase  for 3 percent  to 5.84                                                               
percent.  Representative Williams  suggested a sliding tax, which                                                               
averaged 14 percent.   However, Mr. Sanden expressed  the need to                                                               
have one tax at 15 percent  that would apply universally to every                                                               
community, then split the tax  50:50 with each municipality.  The                                                               
aforementioned proposal  would provide the state  with $5,287,865                                                               
in comparison  with the current  take of $2,585,507.   Mr. Sanden                                                               
highlighted the  municipal share  of taxation his  proposal would                                                               
bring  by  region, which  can  be  found  on  the bottom  of  the                                                               
document  entitled,   "SB  102   COMPROMISE  PULL   TAB  TAXATION                                                               
PROPOSAL."   Under  Mr. Sanden's  proposal the  state would  be a                                                               
winner because it  would receive double what  it's receiving now.                                                               
The  local municipalities  currently not  taxing gaming  are also                                                               
winners.   The  permit holders  would  be a  winner because  this                                                               
proposal creates a  uniform taxation system.   However, a partial                                                               
loser  would   be  municipalities  that  are   currently  taxing.                                                               
Although municipalities  that are  currently taxing would  [see a                                                               
reduction in their revenue flow],  it would create sustainability                                                               
for  the pull-tab  industry in  those communities.   The  largest                                                               
losers   are  the   operators,   gaming   managers,  and   gaming                                                               
administrators  because  most  of  the  excess  in  the  pull-tab                                                               
industry is the administration.                                                                                                 
                                                                                                                                
MR.  SANDEN highlighted  that  his proposal  is  how gambling  is                                                               
taxed nationwide  in that the  states and the  federal government                                                               
seize a  portion of the ideal  net, which is then  distributed as                                                               
those entities see fit.  In  this case, Mr. Sanden is proposing a                                                               
50:50  distribution.   Mr. Sanden  mentioned  that currently  the                                                               
state  isn't   taking  care  of  addicted   gamblers,  the  local                                                               
municipalities  bear that  burden.   Therefore,  Mr. Sanden  said                                                               
that  he believes  every  municipality  should receive  something                                                               
from gambling.                                                                                                                  
                                                                                                                                
CHAIR ANDERSON thanked Mr. Sanden  for his hard work this session                                                               
and last  and for  coming forward  in a  proactive manner  with a                                                               
solution.                                                                                                                       
                                                                                                                                
Number 2066                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG related his  understanding that a charity                                                               
in Juneau,  for instance,  can place  it's "licenses  or ability"                                                               
with premises  in another municipality  and generate  revenues in                                                               
that  other municipality  which are  returned to  the charity  in                                                               
Juneau.                                                                                                                         
                                                                                                                                
MR.  SANDEN confirmed  that the  aforementioned  is possible  and                                                               
does happen.   However, Hidden Treasures, MBP,  which consists of                                                               
three nonprofits, only  games in Juneau, Alaska.   Currently, the                                                               
state doesn't regulate where one can  or cannot game.  Mr. Sanden                                                               
related  that   his  organization   doesn't  feel  it   would  be                                                               
appropriate to game  in another city and bring  the proceeds back                                                               
to Juneau.   In further response to  Representative Rokeberg, Mr.                                                               
Sanden explained  that if  an organization  performs gaming  in a                                                               
town outside  of Juneau, Juneau  couldn't tax the  gaming because                                                               
it  can only  tax gaming  in the  municipality where  it actually                                                               
occurs.  Therefore,  if one games in Anchorage, it  would be tax-                                                               
free.                                                                                                                           
                                                                                                                                
Number 2136                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO surmised  that  the  municipal taxation  by                                                               
region  is  proportional  to  the   population.    Therefore,  he                                                               
questioned  what  would happen  if  a  region such  as  Fairbanks                                                               
outlawed  gaming.   In  such a  scenario,  would Fairbanks  still                                                               
receive its 15 percent, he asked.                                                                                               
                                                                                                                                
MR. SANDEN replied  no, and clarified that his  numbers are based                                                               
on the  Department of  Revenue's numbers.   He  further clarified                                                               
that  these numbers  are based  on  a Senate  Labor and  Commerce                                                               
Standing Committee  interim report.   That report  specified that                                                               
the ideal  net is $70 million  and the state, with  its 3 percent                                                               
tax,  is receiving  $2.1  million  as well  as  a  1 percent  net                                                               
proceeds fee that amounts to  $341,000, and permit licenses bring                                                               
in $128,800.   He explained  that he obtained the  state's census                                                               
data and  broke it  out by  region and  made the  assumption that                                                               
each  region  gambles per  capita  equivalently.   Therefore,  if                                                               
Fairbanks  outlawed gambling,  it wouldn't  generate any  revenue                                                               
and thus  wouldn't receive any  revenue.  Mr.  Sanden highlighted                                                               
that under  his proposal,  one has to  report where  it's getting                                                               
its  games, and  therefore when  the state  collects its  tax, it                                                               
will  know  how   many  games  are  sold  to  each   area.    The                                                               
aforementioned  allows  for the  proportional  split  of the  tax                                                               
revenue.  He  noted that for unorganized boroughs,  for which the                                                               
state already "foots  the bill for," the state  would receive the                                                               
entire proceeds.                                                                                                                
                                                                                                                                
Number 2225                                                                                                                     
                                                                                                                                
BOB  LOESCHER,  President,  Juneau   Tlingit  &  Haida  Community                                                               
Council; Advisor, Alaska Native  Brother Grand Camp, informed the                                                               
committee that he  is representing some of the  clubs operated by                                                               
the  Tlingit &  Haida  Community Council  and  the Alaska  Native                                                               
Brotherhood.   Mr. Loescher related  that charitable gaming  is a                                                               
state  concern  with  statutes  and  regulations,  and  therefore                                                               
should be managed  by the state.  He said  that the organizations                                                               
he  represents   aren't  in  support  of   municipalities  taxing                                                               
charitable  gaming.   He  acknowledged  that  Version U  includes                                                               
language  specifying that  communities with  a tax  on charitable                                                               
gaming   would  be   grandfathered   in,  which   he  viewed   as                                                               
problematic.  If  the aforementioned is done in  Juneau, it would                                                               
amount  to a  43 percent  tax on  charitable gaming,  which would                                                               
result in  the organization he is  representing immediately going                                                               
out  of  business.    A   compromise  could  possibly  allow  the                                                               
grandfathering in of  these communities with the  caveat that the                                                               
tax couldn't be greater than that prescribed in the statute.                                                                    
                                                                                                                                
Number 2312                                                                                                                     
                                                                                                                                
MR.  LOESCHER turned  to the  15  percent adjusted  net tax,  and                                                               
explained that  it's collected at  the time the box  of pull-tabs                                                               
is  purchased from  the distributor.   However,  the law  applies                                                               
differently    to    operators,    coops,    and    self-directed                                                               
organizations.   Self-directed organizations have to  pay the tax                                                               
upfront, which,  coupled with the  tax collected at the  time the                                                               
pull-tabs are purchased, amounts to a lot of upfront money.                                                                     
                                                                                                                                
TAPE 04-41, SIDE B                                                                                                            
                                                                                                                                
MR. LOESCHER  opined that if  charitable gaming is taxed,  the 15                                                               
percent is  a bit too high.   He suggested that  11 percent would                                                               
be a  better range,  although the sliding  scale proposed  by the                                                               
[House] Finance Committee is even more favorable.                                                                               
                                                                                                                                
MR. LOESCHER,  in response to Representative  Rokeberg, explained                                                               
that the  City &  Borough of Juneau  has a 5  percent tax  on the                                                               
gross [receipts].  If that's  converted to an equivalent adjusted                                                               
ideal  net, that  5 percent  is equivalent  to about  28 percent.                                                               
Therefore, the 15  percent plus the 28  percent equivalent totals                                                               
43 percent.                                                                                                                     
                                                                                                                                
Number 2309                                                                                                                     
                                                                                                                                
GEORGE  WRIGHT,  Pull-Tab  Operator, Operator  84,  informed  the                                                               
committee that he games in  Fairbanks, Anchorage, and Juneau.  He                                                               
stated that  he disagrees with  the 15  percent tax based  on the                                                               
same arguments as Mr. Loescher.   It's a large burden for some of                                                               
the charities to  raise 15 percent of the ideal  net upfront.  He                                                               
predicted that this proposed tax  will "kill off" many charities.                                                               
He, like  Mr. Loescher, related  that he liked the  sliding scale                                                               
proposal of  Representative Williams.  The  adjusted gross should                                                               
be the  only thing  that is  taxed, he said.   Mr.  Wright opined                                                               
that  the municipality  shouldn't be  able  to tax  if the  state                                                               
does.   Mr. Wright said  that he  didn't agree with  Mr. Sanden's                                                               
proposal, which he viewed as too complicated.                                                                                   
                                                                                                                                
MR.  WRIGHT  informed  the  committee   that  the  pull-tabs  are                                                               
purchased  from  a registered  distributor  and  those games  are                                                               
registered  to the  charities.   Where those  games are  sold and                                                               
played is reported when the  distributor files his or her report.                                                               
Therefore, he  didn't believe  there was a  problem in  regard to                                                               
knowing what games  are being sold in what location.   The tax in                                                               
Version U will hurt many charities.   He noted that he works with                                                               
charities throughout the state.  "The  irony of this is gaming in                                                               
locations like the  other body was talking about.   It's Okay for                                                               
a villager to  come in for AFN [Alaska Federation  of Natives] in                                                               
Anchorage and  spend their money, but  it's not Okay for  them to                                                               
come into  Anchorage and raise money  for their kids to  stay off                                                               
of drugs  and play basketball, or  hockey, or baseball.   I don't                                                               
understand  that," he  said.   Mr. Wright  noted that  the Alaska                                                               
Native  Brotherhood has  opposed the  tax [on  charitable gaming]                                                               
for  some time.    Although [the  Alaska  Native Brotherhood]  is                                                               
surviving the  current tax, the  additional 15 percent  burden on                                                               
the adjusted  gross is incorrectly  calculated because  it should                                                               
be  paid  at  the  end  of the  year  when  filing  for  permits.                                                               
Therefore, there could  be a 3-4 percent tax  when purchasing the                                                               
games and the 11 percent could be paid at the end of the year.                                                                  
                                                                                                                                
Number 2197                                                                                                                     
                                                                                                                                
REPRESENTATIVE   ROKEBERG  questioned   the  difference   between                                                               
backloading the tax payment versus frontloading it.                                                                             
                                                                                                                                
MR. WRIGHT specified  that the difference is  that by backloading                                                               
the tax, one has the ability  to actually sell the games and earn                                                               
the money.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROKEBERG  related  his understanding  that  these                                                               
pull-tab organizations have a revenue stream.                                                                                   
                                                                                                                                
MR. WRIGHT  answered that  in his  12 years  of gaming  he hasn't                                                               
received any startup money from a  charity.  He further said that                                                               
he didn't know of any charities that provide startup money.                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG inquired as to  the cost of a typical box                                                               
of pull-tabs.                                                                                                                   
                                                                                                                                
MR. WRIGHT informed  the committee that a  popular pull-tab game,                                                               
such as Blue  Stars CrissCross, has about 2,500  tickets and will                                                               
cost  $78.    The  profit  on such  could  be  between  $150-$300                                                               
depending upon  the version.   Therefore, 15 percent of  the $300                                                               
profit plus  the price of  the game  results in upfront  costs of                                                               
$110.   The aforementioned is  a fairly large  burden, especially                                                               
when  one is  purchasing 40  such games  to fill  a shop.   Small                                                               
organizations with  only a couple  of bins of pull-tabs  only run                                                               
3-4 boxes  of games and  it takes a long  time to sell  out those                                                               
games.   Furthermore, one must  take into account  dealer errors,                                                               
employee theft, and poor cash handling.                                                                                         
                                                                                                                                
Number 2101                                                                                                                     
                                                                                                                                
MAC MEINERS, Juneau  Gun Club; Juneau Ski  Club; United Fishermen                                                               
of   Alaska,  informed   the  committee   that   he  has   vendor                                                               
relationships for  his clubs.   He  suggested that  the committee                                                               
think  of [pull-tab  organizations] as  small businesses  and the                                                               
charities involved  in these small  businesses do so in  order to                                                               
generate revenue.   When  excessive amounts  of taxes  are placed                                                               
[on  charitable  organizations],  they come  to  the  legislature                                                               
requesting funds.   "So, instead of taxing us  out of proportion,                                                               
why don't we  let it flourish and  why don't we all  get a little                                                               
piece of the  action," he suggested.  He indicated  that he would                                                               
like to pay [taxes] to only  one [entity].  Mr. Meiners said that                                                               
he has  gamed throughout  the state,  mainly outside  of [Juneau]                                                               
because he makes  more money elsewhere.  He noted  that the money                                                               
he paid in taxes to Juneau  outweighs the money he makes in other                                                               
towns.   In fact,  he suggested  that he is  probably one  of the                                                               
largest taxpayers  in town.   He related  that he doesn't  make a                                                               
large amount of money [helping these charities].                                                                                
                                                                                                                                
MR. MEINERS, in  response to Chair Anderson, said  that in regard                                                               
to Mr. Sanden's  plan he could see the  equitable split, although                                                               
he couldn't see  so much of the  ideal net go.  If  the state and                                                               
municipalities are going to split  [the tax], then he suggested a                                                               
lower ideal net.                                                                                                                
                                                                                                                                
CHAIR ANDERSON asked if Mr.  Meiners agreed that if the provision                                                               
specifying  that  the  tax wouldn't  be  collected  on  pull-tabs                                                               
distributed and  sold or used  in a municipality that  is already                                                               
levying a sales  or use tax on them is  necessary, it should have                                                               
a cap.  With a cap,  Chair Anderson surmised that the state would                                                               
receive a lesser amount while the cities would remain the same.                                                                 
                                                                                                                                
MR. MEINERS  said that  he didn't  view giving  the state  or the                                                               
municipality more  would really work.   If the  pull-tab industry                                                               
is to  flourish and generate  revenue, it  must be played  in the                                                               
middle.  He explained that  pull-tabs flourish on honesty and the                                                               
good  feeling about  where the  money is  going.   He highlighted                                                               
that  how  the  taxation  and   distribution  occurs  is  in  the                                                               
legislature's hands.  However, for  this to result in the folding                                                               
[of pull-tab establishments] and the  [loss to the] charities [is                                                               
of concern].                                                                                                                    
                                                                                                                                
Number 1903                                                                                                                     
                                                                                                                                
CLARK GRUENING,  Lobbyist, City &  Borough of Juneau,  noted that                                                               
although  he didn't  draft Version  U, he  was involved  with it.                                                               
The  two  communities  that  worked  on  the  amendments  to  the                                                               
legislation, now Version  U, were Nome and Juneau.   Mr. Gruening                                                               
emphasized that the 15 percent ideal  net tax was included in the                                                               
legislation as it  came over from the Senate,  it isn't something                                                               
the  cities requested.   The  concept of  this legislation  is to                                                               
protect the  taxes the  12 municipalities  already levy  on pull-                                                               
tabs.   He  noted  that  the committee  packet  should include  a                                                               
document  prepared   by  the   Alaska  Municipal   League,  which                                                               
specifies who  taxes pull-tabs.   Version U eliminates  the state                                                               
tax within  those municipalities that already  tax the pull-tabs.                                                               
Therefore, there  wouldn't be  any additional tax  on top  of the                                                               
proposed state tax.                                                                                                             
                                                                                                                                
MR. GRUENING  noted that there is  a small error.   He also noted                                                               
that the Nome rate of taxation is  5 percent of gross.  Version U                                                               
limits   that   taxation,   and   therefore   "those   that   are                                                               
grandfathered in  can't tax beyond  that amount."   Additionally,                                                               
the state tax  wouldn't be on top of it.   Mr. Gruening mentioned                                                               
that Mr. Sanden has done a lot  of work on this matter.  Although                                                               
the City & Borough of Juneau  hasn't closed the door on reviewing                                                               
its  rate, given  the fact  that most  state aide  has been  lost                                                               
municipalities  need  all  the  revenue  that  can  be  obtained.                                                               
"There  should be  a  way that  both the  state  can gather  some                                                               
additional revenue and the municipalities  that presently tax can                                                               
preserve that rate of taxation they have," he remarked.                                                                         
                                                                                                                                
Number 1754                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  if  Version  U  means  that  the                                                               
municipalities assessing a  tax on pull-tabs will  be relieved of                                                               
any additional state tax burden.                                                                                                
                                                                                                                                
MR. GRUENING related  that he has been told that  the actual rate                                                               
is about  21 percent of  the ideal net, which  generates $600,000                                                               
for  Juneau.   Surprisingly,  it's  fairly  high for  many  rural                                                               
communities as well.                                                                                                            
                                                                                                                                
REPRESENTATIVE ROKEBERG turned to  the grandfather provision, and                                                               
surmised that the current state tax is being paid [in Juneau].                                                                  
                                                                                                                                
MR. GRUENING  replied yes.  He  directed attention to page  2 and                                                               
the  deleted  language  on  lines  1-3.    The  distributors  are                                                               
currently collecting  3 percent of  an amount equal to  3 percent                                                               
of  gross receipts  less  the prizes  awarded,  which amounts  to                                                               
about $2 million.   However, CSSB 102(L&C)am(efd  fld) included a                                                               
tax  on  the  ideal  net,  which results  in  an  additional  $10                                                               
million.  The cities already  collecting would be subtracted from                                                               
that  $10  million, and  therefore  it  would [under  Version  U]                                                               
amount to  $7-8 million  additional revenues to  the state.   Mr.                                                               
Gruenberg  said  that [the  City  &  Borough  of Juneau]  has  no                                                               
position  on whether  that's  a  fair rate  of  taxation for  the                                                               
state.                                                                                                                          
                                                                                                                                
Number 1652                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  returned to  Mr. Loescher's notion  of a                                                               
cap in  order to protect the  charitable share.  He  asked if the                                                               
City  &  Borough  of  Juneau  would  have  any  thought  on  that                                                               
particular notion.                                                                                                              
                                                                                                                                
MR. GRUENING suggested  that the City & Borough  of Juneau's view                                                               
would be that  it's a local decision.   If the state  is going to                                                               
greatly increase its  taxation in this area, then  it should take                                                               
into  account the  overall impact.   [Version  U] eliminates  the                                                               
aforementioned effect  in those municipalities [that  are already                                                               
taxing pull-tabs].   Whether  it's too much  for another  area of                                                               
the state is for the legislature to decide.                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  pointed out that  Juneau has a tax  of 5                                                               
percent of  the gross,  which seems to  be the  only municipality                                                               
with that specific number.                                                                                                      
                                                                                                                                
MR. GRUENING informed the committee that Nome now has the same.                                                                 
                                                                                                                                
REPRESENTATIVE  ROKEBERG pointed  out  that  Version U  specifies                                                               
that  rate of  taxes of  gross receipts  can't exceed  5 percent.                                                               
Therefore, he questioned  whether all those below  5 percent will                                                               
be able to raise their tax rates.                                                                                               
                                                                                                                                
MR. GRUENING replied yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE  ROKEBERG  commented, "So,  we  give  them a  free                                                               
ride, a  pass, and then encourage  them to raise their  taxes.  I                                                               
don't get."                                                                                                                     
                                                                                                                                
MR. GRUENING  clarified that he  isn't advocating that  the state                                                               
increase  its present  tax  from  3 percent  of  the gross  after                                                               
prizes  to 15  percent of  ideal net.   Given  the list  of those                                                               
municipalities  that would  be grandfathered  in, "it's  probably                                                               
going to be ...  not much more than you see on  that total on the                                                               
list, which totals about $1.8 million."                                                                                         
                                                                                                                                
Number 1516                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN  commented on  the tremendous  differences in                                                               
revenue rates  and asked if  there have been any  calculations of                                                               
the amount of revenue raised per capita.                                                                                        
                                                                                                                                
CHAIR ANDERSON said  that the committee could try  to obtain that                                                               
information.                                                                                                                    
                                                                                                                                
Number 1436                                                                                                                     
                                                                                                                                
GERALD  DORSHER, Legislative  Officer, Veterans  of Foreign  Wars                                                               
(VFW),  Department of  Alaska, began  by informing  the committee                                                               
that  the VFW  and Ladies  Auxiliaries  are listed  as having  34                                                               
pull-tab  permits.   Last  year,  $270,966  was returned  to  the                                                               
communities.   Furthermore,  31,000 hours  of community  services                                                               
came from  the VFW  and its  families.   This year,  $329,484 has                                                               
already been  returned to  the communities  from pull-tabs.   The                                                               
additional tax  embodied in  SB 102 would  be detrimental  to the                                                               
process.  Mr. Dorsher recalled  earlier testimony that the City &                                                               
Borough  of Juneau  gives money  from  its 5  percent to  various                                                               
organizations,  however  it's   a  very  complicated  application                                                               
process.  On the other  hand, [the VFW and similar organizations]                                                               
see a need  and proceed with a donation.   He urged the committee                                                               
to vote down HCS CSSB 102, Version U.                                                                                           
                                                                                                                                
Number 1308                                                                                                                     
                                                                                                                                
MR. LOESCHER noted that he may  have been in error with regard to                                                               
the 5  percent conversion,  which may  actually be  21.5 percent.                                                               
If it is 21.5 percent and to that  is added the 3 percent and the                                                               
1  percent of  the state,  it amounts  to between  26-28 percent.                                                               
Still, when the 15  percent is added it's a lot  for a charity to                                                               
pay.   Mr. Loescher  expressed the  need to  keep in  mind equity                                                               
when making broad  public policy.  Therefore,  he reiterated that                                                               
charitable  gaming is  a matter  of state  concern and  should be                                                               
managed  and   regulated  by   the  state.     If  the   city  is                                                               
grandfathered  at 21  percent, it's  still higher  than what  the                                                               
state  might  have in  whatever  comes  out of  the  legislature.                                                               
Furthermore, the rates will vary  across the state.  The question                                                               
is  in regard  to  equity  and applicability  of  tax  law.   Mr.                                                               
Loescher related that he would  lean toward the notion that there                                                               
should be  fair taxation on all  charities across the state.   If                                                               
the   committee  decides   to  go   in  the   direction  of   the                                                               
grandfathering   provision,   the    municipalities   should   be                                                               
grandfathered  but should  not be  allowed  to tax  in an  amount                                                               
greater than  the state taxes  statewide.  Therefore, the  City &                                                               
Borough of  Juneau would  have to  reduce its  tax to  15 percent                                                               
under Version U.                                                                                                                
                                                                                                                                
CHAIR ANDERSON turned the gavel over to Vice Chair Gatto.                                                                       
                                                                                                                                
Number 1145                                                                                                                     
                                                                                                                                
ALLYN YANISH,  C&A Distributors,  highlighted that  this proposed                                                               
tax is  a 500  percent increase on  the charities.   Furthermore,                                                               
nonprofits  using   a  vendor  relationship  will   experience  a                                                               
decrease in net pull-tab income  ranging from 75-80 percent.  Mr.                                                               
Yanish  also  highlighted  that  he  didn't  know  of  any  other                                                               
industry  in the  state that  has  a taxed  dollar amount  that's                                                               
greater than the actual price of  the product itself.  Mr. Yanish                                                               
turned  to   the  Department  of   Revenue  statement   that  the                                                               
difference can be made up with  a lower payout game.  He provided                                                               
the following example:                                                                                                          
                                                                                                                                
     One of  the games popular  ... in Southeast -  based on                                                                    
     an  industry  standard in  Alaska  is  about a  ...  85                                                                    
     percent  payout   ....    The  current   price  from  a                                                                    
     distributor would be about $43  for the ... deal of the                                                                    
     game.   ...  the net  profit of  the game  is $320  and                                                                    
     currently the  tax that that  charity spends  is $9.60.                                                                    
     The  total price  to the  nonprofit ...  would be  $52.                                                                    
     But, then if  you take the 70:30 split  between the bar                                                                    
     or the vendor,  which 70 percent goes  to the nonprofit                                                                    
     group 30  percent goes  to the bar,  right now  the net                                                                    
     pull-tab  income for  the  nonprofit  would be  $171.22                                                                    
     basically.  That's  the price of the  game, the profit,                                                                    
     and the  split.  Under  the ...  change on SB  102, the                                                                    
     same price  on the  game, 15 percent  tax on  that game                                                                    
     would be $48.  So, right  there is $5 more, just on the                                                                    
     tax, than what the game is  worth ....  The total price                                                                    
     to  the  nonprofit  would  be $91.18  for  about  a  78                                                                    
     percent decrease  in revenue.  The  net pull-tab income                                                                    
     for the  nonprofit, then  at the  15 percent,  is $132.                                                                    
     Then to  tax at the  lower payout -  I got a  game here                                                                    
     that I did  numbers on - it has a  28 percent profit or                                                                    
     about a 72  percent payout and you would  have about an                                                                    
     80 percent decrease in net revenue to the nonprofit.                                                                       
                                                                                                                                
Number 0984                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  turned to Mr. Yanish's  calculation of                                                               
the decrease  in revenue to the  nonprofits of between 75  and 80                                                               
percent.   He related his  understanding that  the administration                                                               
expects that loss  to be absorbed by the  administration of these                                                               
games.  He asked if Mr. Yanish could comment.                                                                                   
                                                                                                                                
MR. YANISH  informed the committee  that under the 15  percent on                                                               
the ideal  net proposal, he ran  an 85 percent payout  game and a                                                               
72 percent  payout game.   According  to his  calculations, there                                                               
will be  a higher decrease  on the  lower payout.   Players won't                                                               
play  because they  won't  be winning,  and  therefore the  games                                                               
won't be sold fast enough.   He expressed the need to allow those                                                               
in the industry and those who  know the industry to come together                                                               
to develop an equitable solution.                                                                                               
                                                                                                                                
Number 0872                                                                                                                     
                                                                                                                                
LAYNE  ST.  JOHN,  Yukon  Quest   International  Sled  Dog  Race,                                                               
recommended that the  legislation be killed.   However, if that's                                                               
not to be,  then he suggested a more  reasonable increase because                                                               
a 500 percent increase will  be detrimental to every nonprofit in                                                               
the community.   Mr. St. John  turned to the issue  of equity and                                                               
pointed out  that under  [Version U] it  seems that  Juneau would                                                               
have no  money removed from  its community while  Fairbanks would                                                               
experience  a  loss  of  nearly $1  million.    Therefore,  those                                                               
permittees in those areas with a  sales tax would actually take a                                                               
reduction   "in  what   they're  paying"   while  the   remaining                                                               
permittees would  have to cover  it with  the increase.   Mr. St.                                                               
John  said   that  this  legislation  takes   directly  from  the                                                               
nonprofit's  coffers.    Furthermore, the  people  receiving  the                                                               
services from the nonprofits lose.                                                                                              
                                                                                                                                
Number 0759                                                                                                                     
                                                                                                                                
DAVID LAMBERT, Pull-Tab Operator,  informed the committee that he                                                               
represents about 20 nonprofits.   Mr. Lambert specified that this                                                               
legislation would  put him out  of business  and in excess  of 20                                                               
nonprofits would [receive  no funds].  There isn't room  for a 12                                                               
percent profit in  this business, he said.  Based  on last year's                                                               
figures, the  proposal in SB  102 would have placed  his business                                                               
$168,000 in the hole.   "What works in Juneau doesn't necessarily                                                               
work  here," he  remarked.   Mr. Lambert  echoed earlier  remarks                                                               
that people knowledgeable about gaming  should be working on this                                                               
issue.    He  indicated  support   of  the  notion  of  a  gaming                                                               
commission, although he wasn't supportive  of Mr. Sanden being on                                                               
it.                                                                                                                             
                                                                                                                                
Number 0631                                                                                                                     
                                                                                                                                
TJ ROGERS,  Downtown Bingo, informed the  committee that Downtown                                                               
Bingo  is a  MBP  representing three  nonprofit  permittees.   He                                                               
pointed out  that all of  his permittees,  as he imagined  is the                                                               
case for  all in the state,  fall under one of  the categories of                                                               
501(c) tax laws that are tax  exempt.  However, he noted that the                                                               
federal government  does tax  [the pull-tab  industry] minimally.                                                               
Up to  this point, Mr. Rogers  said he thought the  state was "in                                                               
line" with  the aforementioned and  taxed the industry at  a rate                                                               
[commiserate] with  its oversight  responsibilities.   The entire                                                               
notion of tax-exempt  nonprofits is due to  the community service                                                               
they  provide,   which  relieves   the  state  and   the  federal                                                               
government  of that  burden.   However,  [this legislation]  will                                                               
take  the  money  right  from the  nonprofits  and  reduce  their                                                               
ability  to   provide  the   services  they   currently  provide.                                                               
Furthermore, he didn't believe the  state would "pick up the tab"                                                               
for  those lost  services.    Mr. Rogers  opined  that the  state                                                               
should only collect what is necessary  to cover the costs for its                                                               
responsibilities  and  not  try  to fill  the  coffers  of  state                                                               
government.                                                                                                                     
                                                                                                                                
Number 0485                                                                                                                     
                                                                                                                                
FRED  RICHARDSON, Western  District  Commander, American  Legion,                                                               
informed  the  committee  that he  represents  some  24  American                                                               
Legion posts  and some  7,000 members.   Although  Mr. Richardson                                                               
recognized that the  state is in a budget  crunch, increasing the                                                               
gaming  tax to  15 percent  isn't the  way to  [address it].   He                                                               
explained that most  of the American Legion posts  spread out the                                                               
gaming.  He  related that his post sponsors  high school baseball                                                               
programs for  coaches, Veterans  in Distress,  a local  Boy Scout                                                               
troop, 4-H  programs, junior  shooting programs,  et cetera.   "I                                                               
don't think any of the money  you wanted to take out and increase                                                               
gaming taxes  will be  used for  these community  projects, which                                                               
means  we  should  have  to  cut  back  or  drop  some  of  these                                                               
worthwhile programs," he  remarked.  In conclusion,  he urged the                                                               
committee not  to pass SB  102 because  it will hurt  many people                                                               
and many needed community programs.                                                                                             
                                                                                                                                
Number 0321                                                                                                                     
                                                                                                                                
WILL KING, YMCA - Alaska,  Armed Services, informed the committee                                                               
that  YMCA   of  Alaska  is  a   501(c)(3)  nonprofit  charitable                                                               
organization, which  provides programs and services  for military                                                               
members   and  their   families  throughout   the  state.     The                                                               
organization has a gaming permit  and is currently self-directed.                                                               
Currently,  the organization  uses four  vendors in  Anchorage to                                                               
use pull-tabs as  a source of revenue for the  organization.  Mr.                                                               
King  expressed concern  with  SB 102  because  it increases  the                                                               
pull-tab tax  by 500  percent.  The  additional expense  would be                                                               
borne by the  pull-tab permittee or charity,  and furthermore the                                                               
net proceeds would significantly decrease.   Mr. King related the                                                               
standpoint  of  his  organization  as follows.    Based  on  2003                                                               
charitable  gaming  revenues, a  15  percent  pull-tab tax  would                                                               
amount to  a $22,000  decrease in  his organizations'  ability to                                                               
provide  programs   and  services.     He  noted  that   for  his                                                               
organization, charitable  gaming represents  about 10  percent of                                                               
the  annual operating  budget.   There are  other charities  that                                                               
rely more heavily on gaming revenues, he highlighted.                                                                           
                                                                                                                                
MR. KING expressed concern that  only the pull-tab permittees are                                                               
being  taxed.   Although  he  didn't mind  being  a  part of  the                                                               
solution for the  state budget problems, he  suggested that other                                                               
areas of the industry  should be looked at as well.   There is no                                                               
language in  this legislation or  any other  proposed legislation                                                               
that would  increase fees  on pull-tab  manufacturers, operators,                                                               
bingo raffles,  or other lottery  activities.  "This  bill simply                                                               
applies  to taxing  permittees who  vend  pull-tabs and  directly                                                               
takes  money  out  of  the pocket  of  the  nonprofit  charitable                                                               
organizations  gaming  was designed  to  help,"  he pointed  out.                                                               
Therefore, he proposed returning  "charitable" back to charitable                                                               
gaming statutes  by not penalizing  an entity with a  500 percent                                                               
increase in taxes.  Mr.  King echoed earlier testimony that under                                                               
this legislation, the  tax on the pull-tabs would  amount to more                                                               
than the cost of the pull-tab games.                                                                                            
                                                                                                                                
[Vice   Chair  Gatto   returned  the   gavel  to   Representative                                                               
Anderson.]                                                                                                                      
                                                                                                                                
Number 0023                                                                                                                     
                                                                                                                                
MR. KING  pointed out that  the original legislation  proposed by                                                               
the  governor in  SB 102  and HB  169 proposed  a 5  percent tax,                                                               
which has now grown to 15 percent.                                                                                              
                                                                                                                                
TAPE 04-2, SIDE A                                                                                                             
                                                                                                                                
MR.  KING  suggested  that  perhaps  gaming  fee  permits,  which                                                               
currently range  from $20-$100, could  be increased.   Similarly,                                                               
perhaps vendor  permits, currently $50,  could be increased.   He                                                               
also  suggested that  there could  be  an increase  in permit  or                                                               
license fees for the manufacturers, distributors, and operators.                                                                
                                                                                                                                
Number 0119                                                                                                                     
                                                                                                                                
ED MOEGLEIN, Alaska  Non-profit Charitable Organization, informed                                                               
the committee  that the aforementioned  organization is  a member                                                               
of  a local  charitable organizations  of the  VFW, the  American                                                               
Legion,   and  Vets   Elks  and   Eagles.     The  aforementioned                                                               
organizations have  united to protect the  organizations' ability                                                               
to raise  revenue for the  organizations, members,  programs, and                                                               
services.  He  opined that collecting revenue for  the state from                                                               
charitable   gaming  would   be  more   harmful  to   all  Alaska                                                               
communities  than could  any funds  to help  the state's  revenue                                                               
shortfalls.   Mr. Moeglein  highlighted that  the members  of the                                                               
community  service organizations  volunteer  their  own time  and                                                               
money to  support their communities, local  charities, and people                                                               
who need  support that isn't provided  by any other agency.   Mr.                                                               
Moeglein   requested   the   committee's  support   against   any                                                               
legislation that would take away  any volunteer effort or revenue                                                               
from any [charitable organization].   In conclusion, Mr. Moeglein                                                               
requested  that  the  committee  defeat  SB  102  and  all  other                                                               
legislation that would be harmful to all volunteer efforts.                                                                     
                                                                                                                                
Number 0287                                                                                                                     
                                                                                                                                
GEORGE BRIGGS,  Executive Director, Chamber of  Commerce, City of                                                               
Dillingham, opined that SB 102  doesn't do any gaming association                                                               
any good.   Mr. Briggs  noted that the  City of Dillingham  has a                                                               
sales  tax  of 6  percent.    Therefore,  he assumed  that  under                                                               
[Version U] the City of  Dillingham would be grandfathered in and                                                               
decrease its  [rate of tax on  gross receipts] to 5  percent.  In                                                               
the aforementioned scenario, he  questioned how that would impact                                                               
the 3 percent on  ideal net.  He asked if the  3 percent on ideal                                                               
net would be paid as well as the 5 or 6 percent sales tax.                                                                      
                                                                                                                                
CHAIR ANDERSON answered that he didn't believe so.                                                                              
                                                                                                                                
MR. BRIGGS  related that even  so, he isn't  in favor of  SB 102.                                                               
However,  if there's  going to  be a  tax, somewhere  between 3-6                                                               
percent of ideal net would be a good compromise.                                                                                
                                                                                                                                
Number 0430                                                                                                                     
                                                                                                                                
CELENA BROWN, Gaming Manager, Senior  Center, City of Dillingham,                                                               
read a  letter from Lauralee  Mitchell, Director,  Senior Center,                                                               
City of Dillingham, as follows:                                                                                                 
                                                                                                                                
     The  City of  Dillingham Senior  Center is  a nonprofit                                                                    
     organization.      Seniors   in   Dillingham   and   32                                                                    
     surrounding villages  and Bristol Bay benefit  from our                                                                    
     services and programs.   The NTS grant  that drives our                                                                    
     program  was cut  more than  $200,000 for  FY 04.   Our                                                                    
     pull-tab operation  has helped  us supplement  a larger                                                                    
     percentage of  the most needed  of services  in Bristol                                                                    
     Bay.  Others  have been dropped.   Our association with                                                                    
     the City  of Dillingham has  many benefits in  the form                                                                    
     of lower  prices in   gas,  heating fuel,  propane, and                                                                    
     freight.   The city extends  in-kind services to  us in                                                                    
     the  form   of  building  maintenance,   snow  removal,                                                                    
     vehicle   maintenance,  ...   personal  services,   and                                                                    
     volunteers.   The  City of  Dillingham takes  an active                                                                    
     role in our program as  well as programs in the school.                                                                    
     And we would  like to see them to continue  to grow for                                                                    
     our seniors  and the future  of our children.   The tax                                                                    
     that  the  city  charges  on pull-tabs  goes  into  our                                                                    
     general   fund,  which   is   distributed  to   various                                                                    
     departments  to  run our  city,  one  of which  is  our                                                                    
     school district ...  [with] a budget of  $6.6 million a                                                                    
     year and which the city  provides $1.1 million from our                                                                    
     general fund.                                                                                                              
                                                                                                                                
MS. BROWN [speaking  for herself] opined that  she didn't believe                                                               
the committee  understood the impact this  legislation would have                                                               
on  the smaller  communities.   Without [charitable  gaming] many                                                               
seniors will have to go to the state and request money.                                                                         
                                                                                                                                
Number 0563                                                                                                                     
                                                                                                                                
JOHN LANDERFELT,  Laborers Local 341, began  by relating Laborers                                                               
Local  341's opposition  to SB  102.   He explained  that SB  102                                                               
would result in undue harm  to an industry that provides Laborers                                                               
Local 341  with funds that  it distributes  to a large  number of                                                               
charities.  The charities include  youth sport teams, educational                                                               
charities, scholarships, and medical charities.                                                                                 
                                                                                                                                
Number 0626                                                                                                                     
                                                                                                                                
LYNN  REESE,   Lynn's  Pull-Tabs,   Operator  77,   informed  the                                                               
committee that  she contracts  with the  American Red  Cross, the                                                               
American Lung Association, the  Alzheimer Association, Blood bank                                                               
of Alaska,  and Community Schools.   "Quite simply, SB  102 shuts                                                               
my  doors  and  throws  me  and the  aforementioned  out  on  the                                                               
street," she said.  She opined that  if SB 102 shuts her down, it                                                               
will  also cause  other small  operators and  programs to  close.                                                               
She noted  her agreement with  the economics of  this legislation                                                               
on the industry as presented by Mr. Yanish and Mr. Lambert.                                                                     
                                                                                                                                
MS.  REESE highlighted  that  currently bingo  paper,  a form  of                                                               
charitable gaming,  isn't being  taxed.   She suggested  that the                                                               
state  could collect,  in  conservative  terms, approximately  $2                                                               
million.  Unlike  pull-tabs, a tax on bingo paper  cold be passed                                                               
on to  the consumer  for a  nominal cost.   These taxes  could be                                                               
collected at  the distributor  level.  Ms.  Reese said  she would                                                               
happily  prepare a  written  proposal based  on  the 2002  Annual                                                               
Gaming Report.  Ms. Reese urged  the committee not to pass SB 102                                                               
without  looking  for  alternative resources  within  the  gaming                                                               
community.                                                                                                                      
                                                                                                                                
Number 0719                                                                                                                     
                                                                                                                                
JIM  PEOT, General  Manager, Whaler  Casino Supply,  informed the                                                               
committee that  he has been  involved with charitable  gaming for                                                               
over two years.  Mr. Peot said  that he is opposed to the current                                                               
form  of the  legislation, HCS  CSSB 102,  Version U.   Mr.  Peot                                                               
paraphrased  from a  September  28, 2003,  letter  he drafted  to                                                               
Senators Wilken as follows:                                                                                                     
                                                                                                                                
     This letter  is initiated in opposition  to the current                                                                    
     form of  ... SB  102 ..., which  raises the  gaming tax                                                                    
     from 3 to 15 percent of  the ideal net profits.  Whaler                                                                    
     Casino Supply  is a distributor of  pull-tabs and other                                                                    
     gaming supplies  throughout the state.   Currently, our                                                                    
     business  collects and  pays  the  state department  of                                                                    
     gaming  ... up  to  $50,000 per  month  of gaming  tax.                                                                    
     This  equates  roughly  to  14 to  20  percent  of  our                                                                    
     monthly  company   gross  sales.    If   the  tax  were                                                                    
     increased 15 percent - that's  a 500 percent increase -                                                                    
     we'd  be   collecting  and  paying  to   the  state  an                                                                    
     estimated 50  percent, and that's going  to be anywhere                                                                    
     from  $100-$200,000  per  month of  our  monthly  gross                                                                    
     sales to the state.   This proposed increase in the tax                                                                    
     will place the  burden and liable of  tax collection on                                                                    
     the distributors.  If this  proposed bill passes in its                                                                    
     current form, we can change  our current business model                                                                    
     from being  a premier supplier of  pull-tabs and gaming                                                                    
     supplies  to primarily  being  tax  collectors for  the                                                                    
     state.  And that's  why providing gaming supplies would                                                                    
     be  our   secondary  business.     I  do   not  believe                                                                    
     distributors  should primarily  be in  the business  of                                                                    
     [tax]   collectors  for   the   state  while   assuming                                                                    
     considerable financial risk.   It should be the state's                                                                    
     responsibility to collect these monies ....                                                                                
                                                                                                                                
MR. PEOT paraphrased a later paragraph in the aforementioned                                                                    
letter as follows:                                                                                                              
                                                                                                                                
     I  strongly believe  that such  a drastic  tax increase                                                                    
     will  have  a profound  effect  on  the state's  gaming                                                                    
     industry.   Raising  the gaming  tax  500 percent  will                                                                    
     most likely  result in the  collapse of  many charities                                                                    
     that  participate in  gaming as  a  source of  revenue,                                                                    
     collapse of many operators, and  insolvency for many of                                                                    
     us distributors.   ... it's  unfair, there needs  to be                                                                    
     some   ...   protection   measures   to   protect   the                                                                    
     distributors for  slow payers  or no  payers.   That is                                                                    
     quite a  tall order  for the  state to  pass on  to the                                                                    
     distributors, is to  raise that tax up  to 500 percent.                                                                    
     If we  were to miss a  few payments, we really  have no                                                                    
     recourse.   Any of  the charities  are not  bonded, the                                                                    
     operators are the  only ones that are  bonded and their                                                                    
     bond  is   not  even  applicable  if   they  pay  their                                                                    
     distributor.  And  what we have found in  many cases is                                                                    
     that some of  these charities refuse to  pay the state,                                                                    
     the  state will  suspend  their license.   But  there's                                                                    
     really  no recourse  for  the  distributors because  we                                                                    
     can't  really go  after anything  because what  are you                                                                    
     going after.  You're going  after an entity that has no                                                                    
     assets and  really has no tangible  things connected to                                                                    
     it.   ...  if we  were to  pass this  bill, and  I just                                                                    
     think that we should re-look  ... at the amount of tax.                                                                    
     Do a study to see if  that's the right thing and put in                                                                    
     some   "protectionary"   measures    to   protect   the                                                                    
     distributors.       Now   also   speaking    from   the                                                                    
     distributor's point  of view,  I'd say that  we're kind                                                                    
     of at  the hub of  the industry.   We see  stuff coming                                                                    
     from  the  manufacturers and  we  really  have our  ...                                                                    
     finger  on  the pulse  because  we  ... deal  with  all                                                                    
     different  shapes,  sizes  ...  of  all  the  different                                                                    
     charities.    And  from the  people  I've  spoke  with,                                                                    
     including Ms.  Reese ...,  she's pretty  indicative ...                                                                    
     of a typical person.  Now  the big players, I would say                                                                    
     they will be able to absorb  this new cost, but many of                                                                    
     these  people that  have high  costs --  they're really                                                                    
     going to take a hit.   And if the state is proposing to                                                                    
     raise this  ... tax,  going from $2  million up  to $10                                                                    
     million, that $8 million is  ... basically you're going                                                                    
     to be  taxing the charities,  that's who's going  to be                                                                    
     paying for it.                                                                                                             
                                                                                                                                
                                                                                                                                
CHAIR ANDERSON  commented that he didn't  enjoy taxing pull-tabs.                                                               
He  further commented  that  the state  needs  an overall  fiscal                                                               
plan, but  he said he  didn't believe this is  the way to  do it.                                                               
Moreover,  this [legislation]  won't solve  [the state's  fiscal]                                                               
problem.  However,  he expressed the desire  for continued debate                                                               
and  dialogue  on  this  matter.   Chair  Anderson  informed  the                                                               
committee that  there was a request  to send SB 102  to the House                                                               
Labor  and Commerce  Standing  Committee in  order  to have  more                                                               
testimony and  review the impact  this legislation would  have on                                                               
municipalities.   He  said he  felt that  the aforementioned  has                                                               
been accomplished  with the  work [the  committee has  done] with                                                               
the  municipal  league  and  the   cities  that  have  testified.                                                               
Although he  felt that  the cities  have come  to somewhat  of an                                                               
agreement with  [Version U], he  opined that the  charities still                                                               
have  a  point   with  regard  to  the  level   of  taxation  and                                                               
unfairness.   Therefore, he  expressed the  need to  continue the                                                               
dialogue  in  the House  Finance  Committee.   He  mentioned  his                                                               
desire  for  the  House  Finance   Committee  to  work  with  the                                                               
charities  to  amend the  legislation  to  a  reduced rate.    He                                                               
concluded by announcing his desire  for the committee to move the                                                               
legislation on [to the House Finance Committee].                                                                                
                                                                                                                                
Number 1070                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN said  that he wants to  support the charities                                                               
and not kill  them with this tax.   He expressed the  need to act                                                               
with great  caution.  Representative Lynn  expressed concern with                                                               
this  attempt  to  remedy  the   state's  fiscal  situation  with                                                               
"patchwork"  taxes.   He stressed  the need  to have  a long-term                                                               
fiscal plan that may include a tax and a reduction in spending.                                                                 
                                                                                                                                
REPRESENTATIVE LYNN informed the  committee that every evening he                                                               
tries to  contact five or  so constituents  and ask if  they have                                                               
any   questions,  complaints,   or   concerns.     Although   the                                                               
constituents address  a host of issues,  the conversation usually                                                               
boils down to  the need to address the  state's fiscal situation.                                                               
Representative Lynn opined that  the legislature is debating this                                                               
small tax  bites to small  segments of Alaska, while  evading the                                                               
larger issue.   "I'm very  uncomfortable with the way  this thing                                                               
is going," he said.                                                                                                             
                                                                                                                                
Number 1224                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  stated that  he is opposed  to legalized                                                               
gambling, which he believes takes  the money from many and places                                                               
in the hands of  a few.  He further stated that  he is opposed to                                                               
the state depending  on gambling money.   Recalling the testimony                                                               
regarding how  this legislation will  hurt the charities  and the                                                               
operators,  Representative  Crawford   suggested  that  the  only                                                               
entity this  legislation helps is the  coffers of the state.   He                                                               
stressed that he didn't want the  state to obtain more money from                                                               
gambling.  Furthermore, he said  he didn't like grandfathering in                                                               
municipalities because of  the inequity it cases.   Therefore, he                                                               
felt that the state would be better served with the status quo.                                                                 
                                                                                                                                
Number 1323                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  moved that the committee  table HCS CSSB
102, Version U.  He requested a roll call vote.                                                                                 
                                                                                                                                
CHAIR  ANDERSON objected  and directed  attention to  his earlier                                                               
statements  that  this  is the  governor's  legislation  and  the                                                               
dialogue should continue in order to develop an equitable plan.                                                                 
                                                                                                                                
A  roll   call  vote  was   taken.     Representatives  Crawford,                                                               
Guttenberg, Gatto, Dahlstrom, and Lynn  voted in favor of tabling                                                               
HCS CSSB 102,  Version U.  Representative  Anderson voted against                                                               
it.  Therefore, HCS CSSB 102, Version  U, was tabled by a vote of                                                               
5-1.                                                                                                                            

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