Legislature(2003 - 2004)
04/24/2003 01:31 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 102-CHARITABLE GAMING REVENUE/TAXES
CHAIR BUNDE announced SB 102 to be up for consideration and that
a committee substitute (CS) had been prepared and that the
Governor has made suggestions. The CS would impose a 5 percent
tax on earnings from pulltabs and disallow any taxes at the
municipal level, basically duplicating what is happening in
Juneau now. The Governor's version would substitute 8 percent
for the 5 percent and reduce the amount of payout.
SENATOR SEEKINS said during the process of obtaining input in
Fairbanks, he talked to a reputable accountant who does a lot of
accounting for operators in the Interior. The accountant had a
document that showed the real corpus of money that is being
spent in the gambling industry to be around $60 million rather
than $240 million. He explained that much of what happens is
that someone will come in with $100, play $100, win a little
bit; they'll take their winnings and put it back in. He
explained, "In the end, you really see a large number in the
amount of money that is gambled, but it is really the same $60
million that is just turning over again and again in the
process."
He said that brings up the question again of what they are
really trying to tax and what the effect will be if they impose
a tax every time someone gambles the winnings from their first
$100. He also became aware of other disconcerting information.
Revenue and gross gambling receipts are reported from some
locations that are actually, in many cases, 100 miles away from
that particular location. That benefits municipal governments.
He said if the committee is trying to benefit charities, perhaps
it should put some geographic restriction in the bill that says
a Fairbanks operator must operate somewhere in the Fairbanks
Northstar Borough, not in Juneau or Ketchikan.
SENATOR SEEKINS said a letter from a firm in Fairbanks, named
Richards, Johnson and Granberry, CPAs, dated April 21 made him
deliberate on this particular bill more. He said he now favors
returning to the original intent of helping charities.
CHAIR BUNDE said he told the Governor he would offer his
amendment [Amendment 1] in committee to change the 5 percent to
8 percent and change the payout from 72 percent to a 68 percent
maximum.
SENATOR SEEKINS said he would offer Amendment 1 for the purpose
of discussion, but he wasn't sure he was in favor of it.
CHAIR BUNDE objected for purpose of taking a vote.
SENATOR SEEKINS explained that he is reluctant to support
Amendment 1 because he still has unanswered questions.
CHAIR BUNDE said this would be an amendment to the original
bill.
SENATOR FRENCH objected.
The roll was called. SENATORS STEVENS voted yea; SENATORS
FRENCH, DAVIS, SEEKINS and BUNDE voted nay. SENATOR SEEKINS
commented that he was not yet ready to make a decision one way
or the other.
TAPE 03-24, SIDE B
CHAIR BUNDE announced that Amendment 1 failed.
SENATOR SEEKINS moved to adopt CSSB 102(L&C), Version I, as the
working document.
CHAIR BUNDE informed the committee that the CS calls for 25
percent of the ideal net tax, about a 5 percent increase,
requires a surety bond from distributors to make sure the tax is
collected and prevents cities and municipalities from levying a
sales tax on the pulltabs.
MR. LARRY PERSILY, Deputy Commissioner, Department of Revenue,
agreed that is an accurate synopsis.
SENATOR SEEKINS said his concern is what they will actually be
taxing. The bill could bring in more money by taxing every
transaction, but, as he understands it, there is a card that
goes along with every game that says how much the game would
return in dollars from the first pulltab to the end.
MR. PERSILY said that is correct.
SENATOR SEEKINS continued by saying that would be called the
ideal net.
MR. PERSILY agreed and said the ideal net is a term the
department uses, but for lay people it would be the net or what
is left after prizes, regardless of taxes and expenses.
SENATOR SEEKINS asked what they should tax - each play or the
amount of money that would be the net.
CHAIR BUNDE said he understands that an operator goes to the
distributor, buys a box of pulltabs, the tax is paid then -
upfront, based on the net. Then the distributor plays the
pulltabs out and gets his return.
MR. PERSILY clarified that the Governor's proposal would be a
tax on the total ideal gross of that box. If that box contained
1,000 pull-tabs at $1 each, the Governor's tax would be on the
$1,000 as if every pull-tab was sold. Currently, the tax is
computed on the net after prizes. Version I, which has been
adopted, would continue taxing the net (total sales minus
prizes).
SENATOR FRENCH asked if his understanding is correct that that
is why it is called the ideal net - they are not measuring what
is actually happening in the field; they are saying that in a
box that is going to pay out 28 percent, the state is going to
tax 5 percent of that 28 percent.
MR. PERSILY said that is correct and, by going to ideal net,
they are assuming that everything will be sold.
SENATOR SEEKINS said they are in effect taxing the profit on the
game.
MR. PERSILY clarified that they are taxing the net before the
expenses.
CHAIR BUNDE said that he has heard various opinions on how that
would actually affect the operators and that inefficient
operators may go out of business. He asked the committee if they
want to go forward with the CS or address the broader issue of
charitable gaming and have the Legislature get more involved in
the issue.
SENATOR SEEKINS added to the question - or what radius of
operation a non-profit should be able to operate.
MR. PERSILY said current Alaska statute does not require that a
charitable organization, for the purposes of a charitable gaming
permit, be an IRS certified 501(C)(3) non-profit. It just has to
meet the definition in Alaska statute of having a civic
educational purpose - a rather broad definition. It doesn't just
apply to charities in the traditional sense; it includes
business associations and small city governments.
CHAIR BUNDE said he has discussed with Mr. Persily before that
becoming a certified non-profit is not that difficult.
MR. PERSILY agreed that he didn't think it would be that
difficult to qualify, but he was sure some groups would not
qualify under the IRS rules and they wouldn't be happy about
being excluded from charitable gaming.
SENATOR SEEKINS said he was beginning to understand after
talking to many people involved in charitable gaming that the
pie actually stays constant and, because there is a very liberal
definition of who can be involved, it's getting cut into smaller
and smaller pieces. Actually those people who have the money to
come in upfront and arrange for locations, operators, etc., are
at a distinct advantage over some other charitable organization
that may be struggling to get upfront money to fund some of the
operations. It would be reasonable to say if you're going to be
looking to the gamblers of the state to provide your income, it
should be the gamblers close to your home and try not to make
the definition so liberal that the pieces get smaller and
smaller.
CHAIR BUNDE added that current regulation doesn't allow an
operator to pool games for different charities. They all have to
be accounted for separately. He asked Mr. Persily to comment.
MR. PERSILY said:
As Senator Seekins explained, there are MBPs, which
are multiple beneficiary permittees, which are
essentially a co-op where charities get together and
run their own gaming location rather than contracting
with a commercial operator. There are four different
ways that pulltabs can be played. Either the charity
plays it themselves, self-directed as we call it, when
they band together as a co-op, when they contract with
an operator or they contract with a vendor, which
essentially is putting on the table in a bar. About
half of the charitable gaming in Alaska is run through
the charities themselves as self-directed. The other
half is split between co-ops, operators and vendors.
So, you've got four very distinct ways of playing the
games - each with their own set of issues, set of
expenses, rules that govern them. It's a very complex
issue and, certainly, we're here to help you in any
way we can figure out the answers.
CHAIR BUNDE said he would appreciate some feedback from the
administration on the notion of both the territorial imperative
of pulltab operations, whether they should be operated within 50
miles of whoever owns them - or some such geographic criteria,
and any feedback on the definition of a charitable organization.
MR. PERSILY added:
There [are] more charities with a need for the money
than there are good locations or good operations to
play them at. The charities are in a position where
they don't have much bargaining power, because if the
operator or vendor or the co-op, if that charity won't
go in on those terms, there's at least one more
waiting to take their place. You do have an imbalance
with supply and demand, but certainly we can get back
to the committee with answers on those two questions:
how we feel about a limitation to more of a
traditional 501(C)(3) definition and should there be a
change in the current statute, which says you can play
your permit anywhere. There are some charities in
Juneau whose permits are played on the Kenai
Peninsula. St. George plays theirs on Fireweed, an
operator in Anchorage. There are some in Anchorage
that play on the Kenai.
CHAIR BUNDE said there are over 100 charities with permits to
play, but they don't have anyone to place their permit with at
this point.
CHAIR BUNDE turned the gavel over to SENATOR SEEKINS, Vice
Chairman.
MR. GREGORY PETERSON, Allied Charities of Alaska, said the small
village of St. George in the middle of nowhere relies on
charitable gaming money to keep it going. The larger
municipalities, in many cases, pay for the fire department,
ambulance service and police department. He urged members to
take a real close look at what they are doing.
MR. DALE ROBERTSON, American Games, said they are licensed to
manufacture charitable gaming to the State of Alaska. In regard
to the pulltab prize cap, their concern is that payout limits
depress the number of plays, reduce gross receipts, hence
decrease profits for charities and tax revenues. History has
proved this to be true. He said that Nebraska has a low net at
80 percent and revenues have been stagnant. Minnesota has a high
gross receipts income, around 82 percent. Charities that have
reduced their payouts, say, from 86 percent to 80 percent to
cover the increased tax have had their gross receipts drop
considerably. He questioned what 72 percent or 68 percent would
do in the State of Alaska. He concluded, "Less play, less tax
revenue."
He said manufacturers don't create very many games at all at the
68 percent or 72 percent prize payout. They don't create product
just for Alaska, but for all markets and those payouts are not
made because they do not sell very well. Taxing the ideal gross
would be satisfactory from his perspective.
MR. ROGER FRANK, President, North American Fund Raising Ticket
Manufacturers Association, said that Mr. Robertson's company is
a member of their organization. He was formerly the state
regulator in Minnesota where they do $1.4 billion a year in
pulltabs. He was the director for five years and during that
time he was also a member of the North America Gaming Regulators
Association. He supported what Mr. Robertson said about the
impacts of increasing the taxes. There is a limited amount of
money out there and if you increase the taxes, you will deflate
the gross receipts. That has been illustrated in Minnesota,
Oklahoma, Nebraska and North Dakota. He offered, "Gamblers are
gamblers, but they are also shoppers and while a lot of people
think they make foolish mistakes gambling, they don't make a lot
of foolish mistakes."
He said the basic kinds of taxing he sees nationwide are
generally 10 percent of the net or 2 percent of the gross. He
suggested if they are looking at alternatives, they might
consider a very small tax on each bingo space. That would allow
the industry to contribute to solving the problems Alaska has as
well as moving the industry forward. He said he also has some
insight into the $60 million and the definition of a charity if
they want that.
SENATOR FRENCH said he would be happy to hear his views on that.
MR. FRANK said:
The issue of the $60 million is what is left over
after the prizes are paid. That's the only real money
that exists in charitable gambling. While there may be
high grosses, $1.4 billion in Minnesota, the nets
aren't that high, because our payouts are 83 percent.
That gets people to continue to buy and consequently
we do well selling pulltabs in the state of Minnesota.
So, taxing on the gross is taxing of money that you
have never earned and I don't think that's the kind of
thing that you would expect if you were running a
business - to be taxed on money you don't have. That's
the objection to the tax on the gross, unless it's a
very small tax on the gross.
MR. FRANK suggested that they look at the statute to see if it
says the profits from charitable gambling can be spent any way
the organization wants. He suggested it could be spent for
educational purposes, in support of recreational purposes,
senior citizens or veterans.
MR. JACK POWERS, licensed Anchorage operator, said that all
gaming bills should be tabled and the legislature, along with
the Governor should put a task force together over the next six
months. People need to know the mechanics of how charitable
gaming works. He asked, "How can you pass legislation if you do
not understand it?"
CHAIR BUNDE added that there are 25 licensed operators in the
state, 11 multi-beneficiary permits, 260 licensed vendors; and
1,088 pulltab permits are currently being used out of
approximately 1,500 that have been issued in 2001.
MR. POWERS added that a number of the 25 operators are probably
small time operators with one location. He noted, "There is a
lot more activity with the MBPs than with large operators."
MR. DAVE LAMBERT said he operates a fundraising business for 17
charities in Fairbanks and, with a 5 percent tax, he would have
been in the negative by $18,500 last spring. That would put him
out of business. Of all the operators in Fairbanks, he didn't
know of any that had pulltabs sales as their primary business as
it isn't that lucrative anymore.
MR. ROGER MCCOY, United Services, said he is the only licensed
operator in Juneau and he provided them with a copy of one of
his quarterly reports and commented on how the 5 percent tax in
SB 102 would affect it. For the first quarter of 2003, the
permittees would have received their 30 percent of the adjusted
gross and he would have paid all the expenses to operate his
three stores (two in Fairbanks), but he would have lost $50,000.
He couldn't do that for very long. He clarified that an operator
can have 50 permittees in a store at the same time, but he has
to identify them.
He noted that Senator Seekins expressed concern about permittees
who want to use their permits in other cities. Mr. McCoy
explained that he runs a Tanana permit in Fairbanks, because
pulltabs are not sold anywhere in Tanana and it is their only
source of income. He said another thing is that the players who
play pulltabs could care less who the permittee is and, "All
they want to do is win."
CHAIR BUNDE asked if he thought the vendors should be taxed as
well.
MR. MCCOY said that most taxes are passed on to the consumer.
CHAIR BUNDE asked what tax he pays as an operator in Fairbanks.
MR. MCCOY replied 3 percent of the ideal net. In Juneau, he pays
3 percent on the ideal net, plus 5 percent on the gross sales.
CHAIR BUNDE asked if that would equate to 5 percent of the ideal
net.
MR. MCCOY replied, "If you take away the 5 percent sales tax and
add the 5 percent state tax, it's a wash."
MR. JIM PEOT, General Manager, Whaler Casino, said the proposed
SB 102 would turn them into a tax collection agency. Right now,
the tax is about 15 percent of their gross business, but with SB
102, it would be about 50 percent. Also, if they go to a 28
percent or greater profit game, 75 percent of their inventory
does not meet that criteria and they have about 400 games in
their inventory. Additionally, they would be liable for all the
contracts they signed.
3:02 p.m.
CHAIR BUNDE noted that that was a provision in the Governor's
proposal and they adopted a CS that doesn't contain that.
MR. WAYNE STEVENS, Executive Director, Kodiak Chamber of
Commerce, said they run a self-directed gaming operation in
Kodiak and don't allow operators there. They are a membership
driven organization focused on economic development. Elimination
of their ability to do pulltabs would basically eliminate their
operation. He stated:
There is a presumption here in all of this discussion
that simply readjusting all of the formulas for
payouts for expenses, for net profit to charity and
taxes to the state, that the gaming employer remains
constant. I think we've heard testimony today that
says that is an incorrect assumption.
TAPE 03-25, SIDE A
MR. STEVENS said they are a 501(C)(6) non-profit corporation and
would not qualify to be a 501(C)(3) by the IRS designations. He
told members, "There are some serious concerns here and we would
urge you to perhaps set aside some of discussion until we can
get a working group together and address all issues for all
parties...."
MR. GEORGE WRIGHT, Operator 84, said he had been an operator for
110 days. He said that a 25 percent tax with the 3 percent
equals a 28 percent tax. Then there's a 1 percent filing fee at
the end of the year for a total of 29 percent. The adjusted
gross income, less the prize payouts, is the only money left for
the operator. He sat on the 1997 and 2002 task forces and the
industry is, "...trying to get away from the perception of
everybody who says 'evil operators' and we're doing pretty well
at that."
He said regarding people gaming in other areas for the
territorial purposes, for 12 years he did pulltabs in Anchorage,
Fairbanks, Kenai and Juneau and he has charities from all those
locations. He pointed out:
Something the industry can live with is the increase
from the 3 percent to the 5 percent and an increase
from 1 percent at the end of the year to 3 percent
when you file your reports. That will give you your 5
percent increase; that will make your $12 million per
year and all the industries will survive.... I do love
the cities not being able to tax as they tax in
Juneau. It's really cool on how they did it, too,
where they changed the law so there's nothing to
appeal, but they take those $800,000 in its prime
time, which is now down to $500,000 annually and they
decided they're going to give 50 percent of it away to
charities of their choice. So, if you don't sell
pulltabs and you're not gaming, you can have a charity
and apply it to a city through a grant, you'll get 50
percent of what all the other charities raised. So,
it's kind of one-sided. So, I agree with no sales tax
on the municipality.
MR. WRIGHT said they do need a task force so the state can
become a partner. There is virtually no law enforcement in the
gaming business. There are two investigators without police
powers that harass businesses, but they don't go out and catch
the people who are embezzling and stealing. Recently, there was
a federal charge against two storeowners who were trading
information. Inside information is the number one killer in the
industry. He said, "Without police participation and the police
willing to use public dollars to prosecute these thieves, you're
always going to have a tainted, nasty, mean, old gambling
situation."
One of the charities that he has been working with a long time,
for example, is the Ninilchik Senior Citizens Meals on Wheels
Program, pulltabs fund about 90 percent of the program. They
provide 126 meals a day, seven days a week for senior citizens.
MS. CAMILLE FERGUSON, Sitka Tribe of Alaska, said they operate a
small gaming operation, but it impacts their community in a big
way. She said:
If we do go out of operation, we will not be able to
buy groceries, rent, electricity, oil, medical and
funeral expenses for those who need emergency
assistance. The tribe will not be able to offer
cultural activities to our Native communities and our
local school groups hit us up every year with
applications for sports activities because there's not
enough funding within our schools....
MS. FERGUSON said they would also be laying off six employees
who work within their small gaming operation.
MS. ERIN JACKSON-HILL, Powers Public Relations, said they have
four operations. [Tape was indiscernible.] She opposed SB 102.
She said a lot of employees would lose their jobs and the state
would not come close to its projected revenues.
MR. DAN THOMPSON, C & A Distributors, said that they have a lot
of problems with the bill, although the CS is better. It
recognizes that the gross is not a real number and the ideal net
is the basis that should be used. The tax is way too high and 25
percent equals an 833 percent increase. It would increase the
overhead of the permittees drastically. Also, a $250,000 bond
for distributors is unnecessary because many charities are going
to go out of business. A lot of operators and vendors have
testified but operators only make up 20 percent of the pulltab
gaming industry. Vendors make up 13 percent. Sixty-seven percent
of gaming and pulltabs is run self-directed by permittees or in
groups of multi-beneficiary permits.
MR. GLEN ALT, manager of MCA Charities, thanked the committee
for having some dialogue on this issue. He said his organization
made lease commitments based on the last task force meetings.
With a new law that would tax him more, he wouldn't be able to
survive and the cost of his lease is going up. He also supported
establishing a new task force to look into new regulations.
MR. GRAHAM STOREY, Nome Chamber of Commerce, said this bill
would put the Nome Chamber of Commerce out of business. They
receive approximately $90,000 annually from the pulltabs. He
liked the idea of having a task force to really figure out the
effect that this bill and other gaming bills will have on the
charities. He said:
To put this as simply as I can and, Senator Seekins,
I'm not picking on you, you raise the price on a car,
car sales go down - you lower the price on the cars,
car sales go up. Right now, the state is raising the
prices.
CHAIR BUNDE said that testimony could be sent to the committee
and it would be included in their considerations.
SENATOR STEVENS asked Mr. Storey how he was using the funds he
receives.
MR. STOREY replied that they are a 501(C)(6) charity and use
their funds to build the business community, support the Junior
Achievement Program in the local schools and pay the salaries of
the Chamber staff. He added that their uses had been audited and
were correct uses.
MR. AL MCKINLEY, Alaska Native Brotherhood (ANB), opposed SB
102. He said the ANB is a 501(C)(3)10 organization. Their funds
are used entirely for education now, but they are trying to
expand their use to emergencies, like a death in the family. As
the bill is written, the ANB would be double taxed, but if the
city and state taxes were taken out of the net at one time, they
could support it.
CHAIR BUNDE pointed out that the committee substitute would cut
out the local tax. He said he would block out a work session for
the committee on SB 102 to see if there was any way to make it
work. He adjourned the meeting at 3:35 p.m.
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