Legislature(2003 - 2004)

04/29/2003 01:37 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 BUNDE announced SB 102 to  be up for consideration. He told                                                               
members he wanted  to put something together that  would work and                                                               
move it from  committee today so that it has  some possibility of                                                               
being discussed  at another  level. He noted  that some  folks in                                                               
the pulltab industry in Fairbanks have  found a way to cancel any                                                               
communication with  his office by  sending out epistles  like the                                                               
one he had before him.                                                                                                          
                                                                                                                                
CHAIR BUNDE  said there was concern  that a surety bond  might be                                                               
difficult to get at any level  in this industry so he wanted that                                                               
deleted.                                                                                                                        
                                                                                                                                
He said  the other issue  was the amount  of tax and  Mr. Persily                                                               
had provided them with a  comparison of the different returns. He                                                               
said they  had already turned  down the  8 percent of  gross that                                                               
would have generated $24 million  in taxes. The current committee                                                               
substitute  (CS)  suggests  5  percent   of  gross,  which  would                                                               
generate  $15 million  in taxes.  Industry doesn't  like it,  but                                                               
feels  it  could  live  with  3 percent  of  gross,  which  would                                                               
generate $9 million in taxes.                                                                                                   
                                                                                                                                
SENATOR SEEKINS  asked Mr. Persily  if he believes  any operators                                                               
in the state could  be out of compliance in the  way they pay out                                                               
to either their charities or their taxes and to what extent.                                                                    
                                                                                                                                
MR. PERSILY replied if charities  are out of compliance when they                                                               
renew  their licenses,  they are  given the  opportunity to  come                                                               
into  compliance. If  they don't,  their permits  are yanked.  He                                                               
wasn't aware  of any charities  that are currently  operating out                                                               
of  compliance,  but  he  did  know  of  some  who  were  out  of                                                               
compliance that are no longer gaming.                                                                                           
                                                                                                                                
SENATOR  SEEKINS  asked  what  number   he  figured  the  various                                                               
percentages of the gross against.                                                                                               
                                                                                                                                
MR. PERSILY  replied those numbers  were based on  the assumption                                                               
that  the total  gross  receipts  to gaming  do  not change.  The                                                               
people in gaming  would have to change their prizes  or deal with                                                               
expenses in order to come up with extra money for taxes.                                                                        
                                                                                                                                
SENATOR  SEEKINS  asked if  he  could  think  of any  reason  the                                                               
committee should  base the tax on  the ideal net rather  than the                                                               
gross.                                                                                                                          
                                                                                                                                
MR.  PERSILY replied  that from  the charities'  perspective, the                                                               
ideal  net is  more  realistic  as that  is  what  is left  after                                                               
prizes. The Governor's  proposal is based on gross,  so the state                                                               
would take a percentage of  the total amount of gaming regardless                                                               
of  how much  charities  choose  to pay  out  in  prizes. From  a                                                               
charity's perspective,  he assumed a tax  on net would be  a more                                                               
reasonable basis.                                                                                                               
                                                                                                                                
CHAIR  BUNDE said  according to  figures from  the Department  of                                                               
Revenue, a 3 percent tax on gross  would be equal to a 15 percent                                                               
tax on the ideal net; 4 percent  would be 18 percent of the ideal                                                               
net;  and 5  percent would  be 20  percent of  the ideal  net. He                                                               
thought  that 5  percent would  be closer  to 25  percent of  the                                                               
ideal net and asked why he was confused.                                                                                        
                                                                                                                                
MR.  PERSILY  replied  that  the   department  doesn't  know  how                                                               
changing  the tax  rate would  affect prizes  or expenses  and he                                                               
felt  these  figures are  close  enough  for the  discussion.  He                                                               
clarified  that  currently,  the  department takes  in  about  $2                                                               
million per year in charitable  gaming proceeds and these numbers                                                               
are not in addition to that, but a total.                                                                                       
                                                                                                                                
CHAIR BUNDE pointed  out that the CS refers to  25 percent of the                                                               
ideal net.  He suggested  that they  have three  options -  to go                                                               
with the CS that  has the 25 percent of the  ideal net, to change                                                               
the amount of  the ideal net, or  they can allow the  bill to die                                                               
in committee. However, this was the  last day he wanted to invest                                                               
time in it.                                                                                                                     
                                                                                                                                
SENATOR  SEEKINS said  he was  wondering if  there was  a formula                                                               
somewhere in the net that would make the equation work.                                                                         
                                                                                                                                
TAPE 03-27, SIDE A                                                                                                            
                                                                                                                              
SENATOR SEEKINS  asked how  much of  the net  charities currently                                                               
take.                                                                                                                           
                                                                                                                                
Someone replied 30 percent.                                                                                                     
                                                                                                                                
SENATOR SEEKINS said  the Governor was trying to  get 35 percent,                                                               
which would  leave 65 percent of  the ideal net for  the operator                                                               
and expenses  or for the charity  if they were running  their own                                                               
operation. He wondered if that is  how they should consider it if                                                               
they are  going to try  to roll  the Governor's numbers  into the                                                               
equation.                                                                                                                       
                                                                                                                                
MR. PERSILY  responded that the Governor's  bill proposed setting                                                               
in statute  a limit on the  prize payout, because they  are now a                                                               
little  more than  $60  million. However,  if  the charities  are                                                               
going to pay  a higher tax bill,  they are going to  have to take                                                               
it out of their own pockets or  out of the pockets of the players                                                               
by reducing  the prize payout.  Without limiting the size  of the                                                               
payout, it  would be hard  to guesstimate what would  happen with                                                               
the volume of gaming.                                                                                                           
                                                                                                                                
CHAIR  BUNDE  reminded  them  that  the  committee  rejected  the                                                               
Governor's  latest proposal  of 8  percent of  the gross,  plus a                                                               
limit of  68 percent on  prize payout. He noted  information from                                                               
Mary Magnuson that indicates that  the volume of gaming went down                                                               
in other states when they were too restrictive.                                                                                 
                                                                                                                                
SENATOR FRENCH asked  Mr. Persily to comment on section  5 of the                                                               
CS, which removes  a borough's ability to collect a  sales tax on                                                               
pulltabs. He asked if he knew  how much Juneau, or any other city                                                               
that  levies a  sales tax  on pulltabs,  is taking  in right  now                                                               
through the tax.                                                                                                                
                                                                                                                                
MR.  PERSILY  replied  that  Juneau  is  the  largest  city  that                                                               
assesses  a  sales  tax  on   pulltabs  and  he  believes  it  is                                                               
collecting about $400,000 to $500,000 per year.                                                                                 
                                                                                                                                
CHAIR BUNDE  said that is  what the city  is owed, but  he didn't                                                               
think Juneau had collected all of that.                                                                                         
                                                                                                                                
SENATOR  FRENCH  said he  didn't  know  about other  cities  like                                                               
Sitka,  Ketchikan, Wrangell  and Kenai  where they  have a  sales                                                               
tax, as well.                                                                                                                   
                                                                                                                                
CHAIR BUNDE replied that his  understanding is that Juneau is the                                                               
only major city where the sales tax applies to pulltabs.                                                                        
                                                                                                                                
MR. PERSILY  added that was  his understanding as well,  and that                                                               
Juneau charges  it on the gross,  so that when a  player comes in                                                               
and has $5, but wins and  keeps playing pulltabs, he may play $20                                                               
worth of pulltabs  for the $5 investment. Under  the Juneau sales                                                               
tax  code, Juneau  wants  5 percent  of the  $20,  a much  higher                                                               
percent of the actual cash that  was played at the table. This is                                                               
certainly the problem from the charity's perspective.                                                                           
                                                                                                                                
SENATOR  FRENCH   said  that  he   was  just   given  information                                                               
indicating  that Palmer  does 3  percent of  the gross,  Kotzebue                                                               
does 6  percent of the  gross, North Pole  does 3 percent  of the                                                               
gross and Wasilla does 2.5 percent of the ideal net.                                                                            
                                                                                                                                
CHAIR BUNDE said  one of his arguments is  that Juneau's industry                                                               
continues even though charities are  paying the state tax and the                                                               
local  sales tax,  which  would, in  his mind,  come  close to  5                                                               
percent of  the gross. He  has heard  some feedback that  if this                                                               
legislation was 15  percent of the ideal net or  3 percent of the                                                               
gross, it would  raise the revenue to about $9  million and might                                                               
have some negative impact on  marginal operations, but it appears                                                               
that many people in the industry  could survive the shake out and                                                               
become more efficient.                                                                                                          
                                                                                                                                
SENATOR FRENCH  said he  feels like he  has barely  scratched the                                                               
surface of this issue and that  Senator Seekins has learned a lot                                                               
about  it. He  offered  to serve  with any  other  members on  an                                                               
interim committee to figure out how to make some needed reforms.                                                                
                                                                                                                                
SENATOR  STEVENS said  he appreciated  Senator French's  comments                                                               
and said  he wasn't  ready to  make any  decisions. He  asked the                                                               
Chair if he considered working on SB 102 in the interim.                                                                        
                                                                                                                                
CHAIR  BUNDE replied  that  he didn't  ever want  to  work on  it                                                               
again, being the charitable gaming guru  that he is, but he would                                                               
bring it up again if that was the wish of the committee.                                                                        
                                                                                                                                
SENATOR  SEEKINS said  it  seem  this issue  boils  down to  four                                                               
things.  The  first is  the  tax  issue  and  the fact  that  the                                                               
Governor wants  to get a  larger portion of gambling  revenue for                                                               
the state  in a manner  that doesn't harm the  beneficiaries. The                                                               
question is  what pot of  money they  are looking at.  He thought                                                               
the committee  needs to  look at  the ideal  net and  then decide                                                               
what percentages goes to whom.                                                                                                  
                                                                                                                                
He  said the  second issue  seems  to be  the size  of the  prize                                                               
payout and how to change  that without reducing the incentive for                                                               
people  to  gamble.  He thought  the  committee  could  establish                                                               
target ranges. The  third and fourth issues relate  to the sphere                                                               
of operation.  He questioned whether  it is  right to be  able to                                                               
raise  money  for  a  Little League  baseball  team  by  allowing                                                               
someone hundreds of miles away to  have a gambling operation in a                                                               
community not  connected to  the license holder  in any  way. The                                                               
fourth issue is who can participate.  There is a certain size pie                                                               
and as more groups qualify, they  flood the pie and everyone gets                                                               
a smaller piece - the  competition gets fiercer, which could lead                                                               
to abuses.                                                                                                                      
                                                                                                                                
SENATOR SEEKINS  reasoned if the  Governor wants more  money this                                                               
year,  the committee  should focus  on the  first two  issues. If                                                               
they  want to  look farther,  and  he thought  they should,  they                                                               
would have to look at the other questions.                                                                                      
                                                                                                                                
CHAIR BUNDE  noted a youth  sports organization in  Fairbanks has                                                               
benefited  from charitable  gaming and  it has  been able  to set                                                               
aside a nest egg of $2 million.                                                                                                 
                                                                                                                                
SENATOR  SEEKINS  said  Senator  Wilken sits  on  that  Board  of                                                               
Directors and  it's very well known  that group has done  a great                                                               
job. He related  they helped get wheelchair ramps  for his wife's                                                               
disabled handicapped  riding program so  that the kids  could get                                                               
up beside the horse.                                                                                                            
                                                                                                                                
CHAIR BUNDE asked Mr. Persily  how much money the state currently                                                               
brings in from pulltabs.                                                                                                        
                                                                                                                                
MR. PERSILY  replied that it  was slightly more than  $60 million                                                               
in calendar year 2001 and the state's take was a couple million.                                                                
                                                                                                                                
CHAIR BUNDE  asked how much  the Governor's original  proposal to                                                               
make the  tax 25 percent  of the  ideal net would  have increased                                                               
the taxable income.                                                                                                             
                                                                                                                                
MR. PERSILY  replied that it  would change the state's  take from                                                               
$2 million to $14.5 million.                                                                                                    
                                                                                                                                
CHAIR  BUNDE pointed  out if  the legislature  does nothing,  the                                                               
administration  will ask  for reductions  elsewhere  to fill  the                                                               
$10.5  million hole  to limit  the CBR  draw. If  the legislature                                                               
does nothing, it will need to  look for another $10.5 million. He                                                               
asked if Senators  Seekins, French and Stevens wanted  to look at                                                               
potential short-range solutions this  year or form a subcommittee                                                               
over the interim and come back with recommendations.                                                                            
                                                                                                                                
SENATOR SEEKINS said if the state  is going to allow gambling and                                                               
the intent is to do something  for charities, they have to make a                                                               
comprehensive review  of this  whole matter. He  said he  is more                                                               
than  willing to  work on  the matter  over the  summer with  the                                                               
understanding  that  the  subcommittee  would  be  undertaking  a                                                               
comprehensive review.                                                                                                           
                                                                                                                                
SENATOR  STEVENS also  thought the  issue needed  a comprehensive                                                               
review.                                                                                                                         
                                                                                                                                
SENATOR FRENCH said he would participate as well.                                                                               
                                                                                                                                
CHAIR BUNDE  appointed them to  a subcommittee and said  he hoped                                                               
to have a report from them by January at the latest.                                                                            

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