Legislature(2009 - 2010)BARNES 124
02/16/2010 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska Manufacturing Extension Partnership | |
| HB208 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 281 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 208 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 208-CRUISE SHIP TAX
8:57:57 AM
CO-CHAIR MUNOZ announced that the final order of business would
be HOUSE BILL NO. 208, "An Act relating to taxes for certain
activities on large passenger ships; and providing for an
effective date."
8:58:03 AM
REPRESENTATIVE HARRY CRAWFORD, Alaska State Legislature,
speaking as the prime sponsor of HB 208, explained that he
doesn't want to open the door for for-profit gambling in the
state. He expressed concern that the cruise ship taxation
initiative that started taxing the cruise ship industry on its
gambling within state waters opens the door to for-profit
gambling. The aforementioned, as illustrated in court
decisions, has happened in the Lower 48. The desire to not open
the door to for-profit gambling in Alaska is why Alaska banned
Monte Carlo nights in the state in the 1990s. He then referred
to a June 30, 1997, Anchorage Daily News article in the
committee packet entitled "Tribal gambling in Alaska? Not yet,
but it's one step closer". From the following article, he read
[original punctuation provided]:
As in other areas, Congress sets the rules for
gambling in Indian country. Under the Indian Gaming
Regulatory Act of 1988, Native Americans can operate
casino-type gambling only in states where such
activity is legal.
In 1994, the Southeast Alaska village of Klawock
proposed a casino on a fragment of village land held
in trust by the federal government. In response, the
Legislature passed a law revoking the authority for
nonprofit groups to hold Monte Carlo nights with
roulette, cards and other casino games. That closed
the door to Klawock.
The Venetie ruling makes it possible for any tribe
that can establish Indian country to qualify for a
casino operation, but only if the Legislature votes to
make such gambling legal in Alaska. The Legislature
did not eliminate lotteries when it banned the other
games, however. The state and Klawock are still
negotiating over a tribal lottery, said assistant
attorney general Vince Usera.
REPRESENTATIVE CRAWFORD opined that since the aforementioned
article, the cruise ship initiative was passed. The initiative
taxes the cruise ship industry on its gambling profits, which
could be viewed as an implicit acceptance of Class 3 gambling
inside the state. Therefore, he introduced HB 208.
9:02:36 AM
REPRESENTATIVE HARRIS asked if HB 208 would prohibit Native
villages from having casinos on tribal properties.
REPRESENTATIVE CRAWFORD clarified that HB 208 isn't an absolute
prohibition; rather it's just not opening the door [to gambling
in Alaska]. He explained that the U.S. only allows tribal
gaming in states where the same type of gaming is available to
other entities. Alaska hasn't done the aforementioned.
However, Alaska has passed the cruise ship initiative that taxed
the Class 3 gambling onboard the cruise ships. The
aforementioned, he reiterated, could open the door to casino-
type gambling in Alaska. He noted that Alaska is one of only
two states that don't allow for-profit gambling.
9:04:04 AM
REPRESENTATIVE HARRIS surmised then that HB 208 would eliminate
the ability of Alaska Native tribes/corporations to participate
in a business opportunity such as gaming.
REPRESENTATIVE CRAWFORD replied yes.
9:04:31 AM
REPRESENTATIVE MILLETT asked if the sponsor is trying to
establish a mechanism to stop Indian gaming.
REPRESENTATIVE CRAWFORD related that the casino businesses use
Indian gaming operations as a door to gambling. The
aforementioned happened in Louisiana.
9:05:50 AM
KEN ALPERS, Staff, Representative Harry Crawford, Alaska State
Legislature, speaking on behalf of the sponsor, Representative
Crawford, explained that the legislature banned Monte Carlo
nights and associated activities in 1995 primarily to disallow
Indian gaming. The provision in the cruise ship initiative that
taxes gaming opens a loophole the legislature consciously closed
15 years ago. This legislation merely tries to ensure that
loophole remains closed.
9:06:28 AM
REPRESENTATIVE MILLETT commented that the cruise ship initiative
included many things to which many people weren't aware. She
then asked if the sponsor could walk her through the current
process of a tribe opening a casino in Alaska.
REPRESENTATIVE CRAWFORD answered that there is no such process
because heretofore it hasn't been allowed.
9:07:09 AM
REPRESENTATIVE MILLETT inquired as to the federal process for a
tribe to work with the state to open a casino.
MR. ALPERS explained that under the Indian Gaming Act of 1988,
states are allowed to enter into agreements and compacts with
tribes to regulate Class 3 gaming. The federal law requires
that the state has to allow the activity to take place. The
[law says] "If the state permits such gaming for any purpose by
any person, organization, or entity." The first step, he
further explained, is for the state to enter into a compact.
The state hasn't done so because the state doesn't permit any
such gaming for any purpose, organization, or entity.
9:07:56 AM
REPRESENTATIVE MILLETT requested an explanation of the exact
loophole that HB 208 addresses.
MR. ALPERS explained that that the courts could construe that by
taxing this gaming activity, the state is indirectly permitting
it.
REPRESENTATIVE MILLETT surmised then that the legislation is in
response to fear of court action.
9:09:38 AM
REPRESENTATIVE CRAWFORD directed the committee's attention to a
document entitled "Why We Need HB 208; A Brief Legal History,"
from which he paraphrased from the following paragraph:
In response to the Cabazon case, Congress passed the
Indian Gaming Regulatory Act of 1998 (IGRA). This
established the three "classes" of gaming that we use
today. It also explicitly recognized the role of
tribal gaming for local economic development and self
sufficiency. The Act created a National Indian Gaming
Commission, which directly regulated Class 2 gaming
(bingo), and required state-tribal compacts to
regulate Class 3 gaming (slots, casinos, etc). Since
this act, tribal gambling revenue increased from $100
million in 1998 to $17.7 billion in 2006.
REPRESENTATIVE CRAWFORD informed the committee that prior to
IGRA few states allowed large casinos, but now casinos in the
Lower 48 have proliferated. Alaska has expressly denied
expansion into gaming, which he said he wants to continue to do.
9:11:04 AM
REPRESENTATIVE MILLETT asked which states with Class 3 gaming
have formed compacts and which haven't, but have been forced to
allow gaming due to court action. She further asked that the
delineation between those states that have willingly entered
into compacts and which have been forced into a compact be
specified.
REPRESENTATIVE CRAWFORD said he couldn't provide the actual
number of states or specific states. However, he said he could
provide some examples of states that have been forced to open up
to for-profit gambling.
9:12:03 AM
REPRESENTATIVE CRAWFORD, in response to Co-Chair Herron, said
that he didn't know how the vessels regulate the tax collected
for the onboard gaming. However, he surmised that it is self-
reported.
MR. ALPERS explained that the initiative statute specifies
adjusted gross earnings: revenue less payouts and expenses and
so forth. He said that to the extent there is a regulatory
process, he said he wasn't aware of the details.
9:13:07 AM
CO-CHAIR HERRON related his understanding that for other
bingo/pull tabs a municipality has the ability to negotiate the
local tax on gaming. However, the local operator has no ability
to negotiate with the state. Therefore, he surmised that the 33
percent tax was arbitrary and voted on by the people rather than
negotiated between the operators and the legislature or the
governor.
REPRESENTATIVE CRAWFORD confirmed that the 33 percent tax was in
the cruise ship initiative.
9:14:07 AM
CO-CHAIR HERRON said that the sponsor, in reference to the
loophole the legislation is trying to close, has used examples
of land-based loopholes in other states, but this is a water-
based loophole. He asked if this water-based loophole has been
used in other states.
REPRESENTATIVE CRAWFORD informed the committee that in Louisiana
river boats were used for gambling. Those river boats with
gambling couldn't be parked, but once those river boats were
anchored in state waters gambling onshore began.
9:15:19 AM
CO-CHAIR HERRON asked if the water-based example in Alaska
exists elsewhere. He pointed out that the cruise ships in
Alaska move in and out of international waters.
REPRESENTATIVE CRAWFORD acknowledged that the situation in
Alaska may be a different animal than [the Louisiana situation].
However, he reminded the committee that [taxing the gambling
onboard cruise ships] will result in the state relying on some
judge to determine whether the state allows gambling or not. He
reiterated his belief that the initiative offers a loophole
through which gambling in Alaska could take a foothold.
9:16:31 AM
CO-CHAIR HERRON said that he needs more information, and
inquired as to what the loophole is.
MR. ALPERS related that the foundation lawsuit arose when the
Mashantucket Pequot Tribe of Connecticut with a small
reservation sued the State of Connecticut, which didn't have any
interest in being in the casino business. Because the State of
Connecticut allowed church Monte Carlo nights, the tribe was
able to convert its small bingo hall into what's now one of the
largest casinos in the world. Although it's impossible to say
what a judge would do, the loophole is that the state allowed
[Monte Carlo night gambling] so it had to be allowed for the
tribal entity. Therefore, the sponsor believes that by
acknowledging and collecting taxes on gaming, the state is
allowing gaming.
REPRESENTATIVE CRAWFORD then related a case in which the
Coushatta Indians in Louisiana had no traditional lands.
However, they bought several acres in an urban area and referred
to those lands as Indian lands. The Coushatta Indians went to
court and now a casino is on the lands they designated as Indian
lands, although there was no traditional use on those lands.
Therefore, Representative Crawford opined that if the loophole
in Alaska isn't closed, it will be successfully used to bring
casino gambling in Alaska. He referred to it as a back door
attempt to allow gambling. Whether the state allows for-profit
gambling is something that should require a vote of the people.
9:19:57 AM
REPRESENTATIVE MILLETT asked if the sponsor is suggesting that a
tribe could sue Alaska and force the state into a compact.
REPRESENTATIVE CRAWFORD responded yes. In further response, he
opined that the courts could require the governor or the
legislature to sign a contract. The aforementioned is the
reason why when Klawock wanted to construct a casino the
legislature banned Monte Carlo nights in the state in order to
eliminate the basis of a lawsuit.
9:21:03 AM
REPRESENTATIVE MILLETT said that she has a copy of the
Connecticut State Compact that allows gaming and can't find
where it says a court action caused gaming to be allowed in
Connecticut.
REPRESENTATIVE CRAWFORD interjected that it's the Indian Gaming
Regulatory Act of 1988 that actually caused [gaming to be
allowed in Connecticut].
REPRESENTATIVE MILLETT pointed out that IGRA is voluntary and
only requires that a state compact be signed. She then asked if
all the state compacts are in reaction to a lawsuit or do states
enter into the compacts voluntarily. She related her
understanding that states enter into the compacts voluntarily.
She further asked if the courts can force a state into a
compact.
REPRESENTATIVE CRAWFORD replied yes, a court can force the state
into a compact allowing gambling.
REPRESENTATIVE MILLETT requested examples in which the courts
have required the governor and the legislature to do something.
REPRESENTATIVE CRAWFORD offered to provide specific examples
later.
MR. ALPERS related his understanding that the Connecticut
Compact was the result of a lawsuit. The State of Connecticut
didn't want to enter into such a compact, but was forced to by
the courts. The aforementioned doesn't necessarily need to
specify such in the compact as it only makes the rules for
gaming. The legal history leading to the compact is separate
from the compact itself.
REPRESENTATIVE CRAWFORD interjected that in the case with the
Coushatta Indians, the state [of Louisiana] didn't want to
[allow gaming], but it was forced to do so by the court.
9:23:22 AM
CO-CHAIR HERRON referred to the sponsor's document entitled "Why
We Need HB 208; A Brief Legal History," which says "that a
state-tribal contract must allow a particular sort of gambling
if the state 'permits such gaming for any purpose by any person,
organization, or entity.'" Since Alaska prohibits Monte Carlo
nights [and IGRA] includes the aforementioned language, Co-Chair
Herron inquired as to what he is missing.
REPRESENTATIVE CRAWFORD specified that the cruise ships allow
slot machines, roulette wheels, and other gambling games, which
is the loophole he wants to close. This legislation isn't
addressing the onshore Monte Carlo nights as those were
addressed in the 1990s.
9:24:56 AM
CO-CHAIR HERRON pointed out that Alaska doesn't permit the
cruise ship gambling, the state merely taxes it.
REPRESENTATIVE CRAWFORD reiterated that the problem is that by
taxing and acknowledging the gambling, it's implicitly
permitting it.
9:25:24 AM
REPRESENTATIVE HARRIS asked if the initiative was written in a
manner to allow gaming in the state.
REPRESENTATIVE CRAWFORD replied no.
REPRESENTATIVE HARRIS inquired then as to why the initiative
includes taxing gaming.
REPRESENTATIVE CRAWFORD said that he didn't want to assume the
motive of the initiative sponsors, but opined that they felt
that the cruise ship industry was taking advantage of the state
and not contributing to the extent they should be. He further
opined that the initiative sponsors felt that there were a
number of areas within the cruise industry that the state should
tax.
9:26:57 AM
REPRESENTATIVE HARRIS asked if the law was in place that
prohibited for-profit gambling when the cruise ship initiative
passed.
REPRESENTATIVE CRAWFORD answered that the law banning Monte
Carlo nights was in place when the cruise ship initiative was
passed. In further response to Representative Harris,
Representative Crawford said he didn't believe the cruise ship
initiative specifically says that it would tax for-profit
gambling on cruise ships in Alaska waters, but rather
characterized it as an inadvertent loophole.
9:28:20 AM
REPRESENTATIVE HARRIS surmised then that Representative Crawford
was conceding that the cruise ship initiative included at least
one unintended consequence.
REPRESENTATIVE CRAWFORD replied yes, that's a possibility.
9:28:59 AM
REPRESENTATIVE MILLETT requested that Representative Crawford
provide to her the specifics of the loophole as she is still
having difficulty understanding what the loophole is.
REPRESENTATIVE CRAWFORD agreed to do so. He then reiterated his
belief that it's not in Alaska's best interest to have for-
profit gambling in the state.
9:30:23 AM
CO-CHAIR MUNOZ requested additional information regarding the
Connecticut example be provided to the committee.
9:30:32 AM
REPRESENTATIVE HARRIS related his understanding that in Alaska
there are many opportunities for people to participate legally
in not-for-profit gambling so long as there's no profit to the
sponsor of the games.
REPRESENTATIVE CRAWFORD agreed that such exists, and said that
he isn't trying to outlaw that as those are situations in which
a consenting adult participates in gambling.
REPRESENTATIVE HARRIS surmised then that Alaska has said it
won't allow organized for-profit gambling, but hasn't prohibited
gambling in situations in which folks get together for a poker
game that they don't advertise and for which the sponsor of the
game doesn't take a cut.
REPRESENTATIVE CRAWFORD responded that he isn't advocating
anything in law to prohibit non-organized gambling for which the
sponsor doesn't take a cut.
MR. ALPERS clarified the differences between Class 2 and Class 3
gaming, as follows. All of the regulated nonprofit gaming in
Alaska falls under Class 2 gaming, such as bingo, pull tabs,
etcetera. No Class 3 gaming, such as video games, table games,
or slot machines, is allowed in the state except on cruise
ships. He said that he wasn't sure of the specific status of
poker, and thus wouldn't address it. He pointed out that there
are no black jack tables or slot machines in the allowed
nonprofit gaming in the state.
REPRESENTATIVE CRAWFORD interjected that roulette wheels and
video poker machines are outlawed in Alaska.
9:34:51 AM
CO-CHAIR MUNOZ asked if the implementation of the tax has
impacted the location of the gambling activity and the amount of
gambling activity that occurs in state waters.
REPRESENTATIVE CRAWFORD deferred to the cruise ship industry.
MR. ALPERS informed the committee that the cruise ship casinos
aren't open while in port, but are able to open once the vessel
breaks from the port. He reminded the committee that the $6.8
million last year, including the $50 head tax, is deposited into
the subaccount to the general fund (GF). He specified that the
funds fund cruise-related impact projects.
9:36:12 AM
CO-CHAIR MUNOZ thanked the sponsor for bringing this issue
before the committee as it's an important issue.
9:36:41 AM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue, informed the committee that the Department of Revenue
(DOR) doesn't believe that taxing this activity makes this type
of gambling legal in the state. She related DOR has conferred
with DOL as well. Ms. Bales confirmed that Class 3 gambling is
illegal in Alaska. The only type of gambling allowed in the
state is gambling that's for charitable purposes. However,
federal law prohibits Alaska from making it illegal for cruise
ships [to allow gaming]. She pointed out that there is a
definition of the type of vessel that can conduct gambling in
Alaska waters. Basically, the only vessels that are allowed to
conduct gaming in Alaska's waters are those with a voyage that
includes a stop in Canada and or another state other than Alaska
and stops at two different ports in Alaska during its voyage.
Still, such a vessel is not allowed to conduct within three
nautical miles of any port within Alaska. The aforementioned is
specified in the federal law. Ms. Bales clarified, "The only
reason that these cruise ships are allowed to conduct gaming
activities is because the federal law prohibits the State of
Alaska from making that illegal in Alaska waters." However,
gambling in Alaska and in Alaska state waters is illegal, save
the aforementioned prohibition under federal law.
MS. BALES then pointed out that there are various illegal
activities conducted in the state and nation. For example, it's
illegal to be a drug dealer in the U.S., but the income made
from that activity is taxable under federal income tax law. The
activity isn't made legal by virtue of it being taxed.
9:39:42 AM
REPRESENTATIVE HARRIS inquired as how far out do Alaska's waters
reach for taxation purposes.
MS. BALES answered Alaska waters are those waters three miles
from shore. In further response to Representative Harris, Ms.
Bales confirmed that the legislation refers to three nautical
miles from the port, which could extend any direction.
9:40:19 AM
MS. BALES, in response to Representative Gardner, clarified that
under the federal law the state is allowed to prohibit gaming
three miles from a port. Therefore, [the vessel] could still be
within the three miles in Alaska waters but three miles from a
port. She further clarified that so long as the vessel is three
miles away from a port along the coast, the vessel can conduct
gambling activities.
9:41:49 AM
JOE GELDHOF, Legal Counsel, Responsible Cruising in Alaska,
began by noting that he was one of the primary authors of the
cruise ship initiative. He explained that the portion of the
cruise ship initiative related to taxing [gambling] can be
traced back to the 1980s. At that time, the Office of the
Attorney General in loose cooperation with the U.S. Department
of Justice began reviewing gambling operations in Alaska
territorial waters. Although there was never any formal
enforcement, when the Federal Bureau of Investigation (FBI)
became interested in the emerging cruise ship market that
included gambling it was apparent that there were more questions
than answers. He opined that the cruise industry understood the
heightened interest in the gambling activities within
territorial waters, and used the appropriate influence to
achieve the law referenced by Ms. Bales. The aforementioned law
basically prohibited Alaska from stopping [gambling activities].
The aforementioned was an unusual prohibition that raised
concerns with lawyers regarding whether the federal government
could prohibit the state from acting. He noted that the basic
doctrine is within the Tenth Amendment. During the
aforementioned discussion, former legislator Hugh Malone pointed
out that the cruise industry had created a loophole that says
the state can't prohibit [gambling on the cruise ships]. Mr.
Malone suggested that rather than continuing with litigation,
the state should tax the activity. Mr. Geldhof recalled the
discussion at the time was that [gambling on cruise ships] would
be taxed and the activity wouldn't be sanctioned.
MR. GELDHOF then turned to the 33.3 percent taxation on cruise
ship gaming was taken from existing statute for charitable
gaming. He noted that it wasn't anticipated that the 33.3
percent "takes the oxygen out of any profit." According to the
initiative, the taxation of cruise ship gambling has returned
about $6.8 million a year. Although the cruise industry may not
like the law, it does like the opportunity for its passengers to
gamble. Mr. Geldhof characterized the law as a peculiar
response to a unique set of circumstances. Furthermore, the law
highlights that geography still matters and takes the state's
fair share according to the charitable gaming statute. Mr.
Geldhof explained that the taxes collected on gambling goes into
the large passenger account, but those funds are unrestricted
and can be spent without regard to the federal law that
specifies the funds have to be spent on safety and efficiency of
the passengers and the vessel. Mr. Geldhof opined that the
concern should arise when one wants the cruise ship deal and
requests a compact.
9:48:45 AM
REPRESENTATIVE HARRIS thanked Mr. Geldhof, who he characterized
as a voice of reason, for being present today. He asked Mr.
Geldhof if it would be fair to say that he opposes HB 208 as
it's a dramatic departure from the intent of the sponsors of the
initiative.
MR. GELDHOF stated that in the larger concept of the cruise ship
initiative, the gambling tax was a small piece of cleanup
legislation to address something that had been around since the
1980s. The initiative seemed to bring some resolution to the
gambling issue, and he opined that the drafters of the
initiative "got it more right than wrong."
9:50:34 AM
REPRESENTATIVE MILLETT inquired as to why the gambling tax was
included in the cruise vessel passenger tax initiative. She
further inquired as to what the authors of the initiative were
trying to gain by including the gambling tax in the initiative.
MR. GELDHOF restated the history of the issue with gambling in
state waters in which the cruise industry ultimately trumped the
state's law that gambling in Alaska is not legal with a federal
statute that prevented Alaska from saying that gambling in state
waters is illegal. In response to the aforementioned and rather
than going through litigation, it was determined to be necessary
to tax what the state still believes to be illegal activity.
The levy rate was set at 33.3 percent, the charitable gaming
provision. The thought, he opined, was that if gaming is going
on in Alaska [waters] and the state can't prevent it, then the
state should receive the same percentage as it would from
charitable gaming.
9:52:52 AM
REPRESENTATIVE MILLETT asked if Mr. Geldhof believes this
taxation of cruise ship gambling is grounds to open up to Class
3 gaming in Alaska.
MR. GELDHOF said that upon reviewing the federal and the state
law, there's no easy deal to get because at best one would have
to operate a large passenger vessel in foreign carriage that has
a port outside. Mr. Geldhof opined that in Alaska there's no
opportunity to do what is done in Louisiana or Indiana with
near-shore gambling. Furthermore, Mr. Geldhof pointed out that
the gambling revenue for the cruise industry is incidental and a
full-blown seasonal business can't be built on such revenue.
9:55:18 AM
REPRESENTATIVE GARDNER recalled Mr. Geldhof saying that if a
lawsuit is brought on the grounds that the sponsor fears, the
state could address it by removing the gambling tax. She asked
if it would be too late at that point.
MR. GELDHOF answered that he didn't believe so. At the point,
someone comes forward to leverage the state and the governor
desires a compact, that's when a working group would likely come
together and one of the options would likely be to remove the
tax.
9:57:45 AM
MR. GELDHOF, in response to Representative Crawford,
acknowledged that there is a scenario in which someone wants the
gambling deal and a compact is signed. He further acknowledged
that in the course of the compact, the party could agree to the
terms. However, the likelihood of the aforementioned seems to
be very remote. He opined that his experience is that whatever
the scenario, it will require deliberation and will move slowly.
10:00:11 AM
CO-CHAIR MUNOZ announced that HB 208 would be held over.
10:00:38 AM
CO-CHAIR HERRON surmised that basically Alaska's law, due to the
initiative, is a fairly high hurdle, particularly for someone
who is in business to make a profit. Therefore, he questioned
whether the tax is appropriate to keep on the books.
MR. GELDHOF opined that the real issue for the legislature is
obtaining funds from taxing gambling while not allowing gambling
besides in a very peculiar fashion. "The real challenge here,"
he opined, "is spending the $6.8 [million] or whatever the yield
is for the benefit of our state in a thoughtful way."
[HB 208 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 208 Sponsor Statement & Sectional on Repealers.doc |
HCRA 4/7/2009 8:00:00 AM HCRA 2/16/2010 8:00:00 AM |
HB 208 |
| HB 208 - Cruise initiative language 2006.docx |
HCRA 2/16/2010 8:00:00 AM |
HB 208 |
| HB 208 cruise initiative changes.doc |
HCRA 2/16/2010 8:00:00 AM |
HB 208 |
| HB 208 cruise gaming legal history.doc |
HCRA 2/16/2010 8:00:00 AM |
HB 208 |
| HB 208 - Kizzia article ADN june 1997.docx |
HCRA 2/16/2010 8:00:00 AM |
HB 208 |
| HB208-DOR-TAX-02-18-10 Cruise Ship Gambling Tax.pdf |
HCRA 2/16/2010 8:00:00 AM |
HB 208 |