Legislature(2003 - 2004)
04/29/2003 01:37 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.