Legislature(1997 - 1998)
03/22/1997 10:05 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 84 - PULL-TABS LIMITED TO 501(C)(3) OR (19) The next order of business to come before the House State Affairs Standing Committee was HB 84, "An Act limiting the authority to conduct pull-tab charitable gaming to qualified organizations that are exempt from taxation under 26 U.S.C. 501(c)(3) or (19); and providing for an effective date." Number 0793 ARNOLD BROWER, JR., President, Native Village of Barrow, was the first person to testify via the telephone in Barrow. He explained from time to time the Native Village of Barrow requested a permit from the state for pull-tabs. It was required to disband the permit, however, because it could not exceed a $1 million payout. The Native Village of Barrow had worked with the Charitable Gaming Division to increase the payout. In addition, there were groups, such as, dance groups that had to create their own things to get a permit. Therefore, he saw the bill as restrictive. The tribal governments that operated under a 638 Contract had been gutted and the appropriations had been cut so badly that it only paid for staff and oversight. He asked for a higher payout rate to provide better service. Number 1046 CHAIR JAMES stated that some of the concerns of Mr. Brower, Jr. were not affected by HB 84. The only entity that would be affected by the bill currently was Barrow Search and Rescue, Inc. However, if the bill was to pass any other entity in Barrow would not be able to have a permit to sell pull-tabs. Number 1092 MR. BROWER, JR. replied he was not speaking for the Barrow Search and Rescue, Inc. He was speaking for the Native Village of Barrow. CHAIR JAMES replied she understood and suggested that Mr. Brower, Jr. contact Mr. Dennis Poshard from the Charitable Gaming Division to discuss his concerns further. Number 1135 REPRESENTATIVE TERRY MARTIN, Alaska State Legislature, stated there were six permits in Barrow that pooled together. If they could prove to the committee what they did was charitable then they should be added to the bill. The concern of Mr. Brower, Jr. was of gross receipts and net receipts. His second bill addressed gross receipts. He wondered if the payoff mentioned was to increase gambling or to raise money for charitable purposes, however. CHAIR JAMES replied Mr. Brower, Jr. needed to talk to Mr. Poshard or to testify again when the other bill was before the committee. She did not want to muddy the water today. She was also not interested in adding any people to the bill; it would be too complicated. Number 1215 MR. BROWER, JR. stated he appreciated the comments of Representative Martin and he would be in contact with Mr. Poshard. Number 1255 ALFREDA LORD was the next person to testify via the telephone in Barrow. She just wanted to track the bill so that no other changes were made to affect the 501(c)(3)'s. CHAIR JAMES asked Ms. Lord if she had a 501(c)(3) that she wanted to protect? MS. LORD replied, "Yes." She reiterated that she wanted to make sure that if there were any changes in the wording, such as, "and/or", it would not throw the whole thing out. Number 1370 DENNIS POSHARD, Director, Charitable Gaming Division, Department of Revenue, was the next person to testify in Juneau. He distributed to the committee members three lists titled: "Pull-Tab Permittees that were 501(c)(3) or (19)", "Pull-Tab Permittees that were not 501(c)(3) or (19)", and "501(c)(19) and (3) Organizations Without Pull-Tab Permits". They were not easy to compile because they were prepared by hand. There was no compatibility between the data base from the IRS and the data base from the division. The list of "Pull-tab Permittees that are 501(c)(3) or (19)" was five pages of organizations that currently had pull-tab permits and would qualify because of their status with the IRS. The list of "Pull-tab permittees that are not 501(c)(3) or (19)" was 11 pages of organizations that currently had pull-tab permits that were not listed with the IRS as 501(c)(3) or (19). Their current IRS status was also included. The list of "501(c)(19) and (3) Organizations Without Pull-Tab Permits" was substantial compared to the other two lists. The financial data was not included. CHAIR JAMES replied the lists were very helpful. She wondered how many exactly would be excluded if the bill was to pass. Number 1524 MR. POSHARD further stated that he had talked to Mr. Brower, Jr. already regarding his concerns. He explained that the Native Village of Barrow did not have a permit and conducted illegal gambling activities by bringing in pull-tabs from out of the state and from non-licensed distributors. The division had encouraged him to get a permit. But, he did not want to do it because he would be limited to awarding $1 million in prizes annually. The Native Village of Barrow typically reached that limit within four to five months so a permit would significantly reduce the amount of money it made. He was able to get around this because it claimed sovereignty and no one had challenged the claim. The Department of Public Safety had chosen not to place illegal gambling as a priority. He reiterated Mr. Brower, Jr. was concerned about the limit on the amount of activity raised. He would gladly come under state jurisdiction if the limit was raised. Number 1655 REPRESENTATIVE VEZEY thanked Mr. Poshard for providing the lists and pointing out the size of the businesses involved. "Sometimes we think of these as nickel and dime operations." Number 1671 REPRESENTATIVE BERKOWITZ referred to AS Sec. 05.15.150, "Limitation on use of proceeds", and asked Mr. Poshard how the section would be impacted by the bill? Number 1687 MR. POSHARD replied the bill did not make any statutory change to the section. It affected it, however, in that 501(c)(3) and (19) organizations were limited by the IRS as to how they spent their funds and that the IRS could narrow the section and then the state would have to enforce it. Number 1737 REPRESENTATIVE BERKOWITZ asked Mr. Poshard if 501(c)(3) organizations were the only ones authorized for pull-tabs? MR. POSHARD replied, "No." A 501(c) status had nothing to do with who was or who was not qualified for a permit - currently. Alaska Statute Sec. 05.15.690 defined a qualifying organization; it did not have to be incorporated, however. REPRESENTATIVE BERKOWITZ asked Mr. Poshard if an organization did not go through its 501(c) paperwork it would be precluded from running a charitable game. MR. POSHARD replied, "Correct." REPRESENTATIVE BERKOWITZ asked Mr. Poshard if the bill required that the federal government dictate who would be allowed to do charitable gaming in Alaska? MR. POSHARD replied essentially that was correct because nobody could make a 501(c)(3) or (19) designation except the IRS. Number 1846 REPRESENTATIVE ELTON explained a Juneau Montessori and a Fairbanks Montessori schools were on different lists. He asked Mr. Poshard if the Juneau Montessori, for example, would have to apply for a 501(c)(3) status if the bill passed? MR. POSHARD replied it could apply and receive a 501(c)(3) status. He declared a conflict of interest in answering the question, however, because his daughter attended the Juneau Montessori school. REPRESENTATIVE ELTON declared a conflict of interest because he was a members of the House Democratic Campaign Committee that had a pull-tab permit which would be disallowed if the bill passed. REPRESENTATIVE BERKOWITZ declared a conflict because he had received funds from the House Democratic Campaign Committee. REPRESENTATIVE ELTON replied that he had not receive any funds but he did help determine who received them. CHAIR JAMES stated that she did know if she had a conflict of interest. Number 1973 REPRESENTATIVE IVAN IVAN declared a huge conflict of interest because most of his communities that he represented were on the lists. The bill would impact a lot of good work that was being done in his communities. The city of Akiak operated with a permit and it was three years behind in its accounting. He did not support the bill. Number 2073 REPRESENTATIVE ELTON stated the testimony indicated that charitable organizations should be allowed access to a gaming permit and non- charitable organizations should not be allowed access to a gaming permit. There were 11 pages of organizations that would not be allowed, and 5 pages of organizations that would be allowed. He suggested changing AS Sec. 05.15.150 to ensure that charities would get the money. That would allow for 16 pages of organizations that could benefit charities. It appeared that the bill almost hurt charities by limiting the number of groups. If the goal was to help charities, "Don't say who could sell, just say who could get." Number 2190 CHAIR JAMES replied the bill tried to define what was a charity - a 501(c)(3) and (19). Generally, an organization wanted to be a 501(c)(3) because of the tax deduction. She disagreed that 501(c)(3)'s and (19)'s were the only charities, however. Number 2319 REPRESENTATIVE ELTON replied that they would be able to sell pull- tabs but then give the money to a politician, for example. CHAIR JAMES replied a 501(c)(3) could not be involved in political activities or affect legislation. Number 2361 REPRESENTATIVE BERKOWITZ explained that a charitable organization was already defined in statute as "an organization, not for pecuniary profit, that is operated for the relief of poverty, distress, or other condition of public concern in the state;" CHAIR JAMES replied Representative Martin wanted a different definition. Number 2401 MR. POSHARD replied a charitable organization was defined in statute. But also look at who the division was allowed to issue permits to under "qualified organizations" in the same section - educational, religious and political organizations. TAPE 97-32, SIDE A Number 0001 MR. POSHARD stated there was confusion amongst the charities because of the unrelated business income tax provision in Alaska. The money could be used for administrative expenses or for their own organizations, while other states required that the money be donated to a 501(c)(3) in order not be taxed. In other words, every penny that was made was donated to a non-profit 501(c)(3) organization. In Alaska, any pull-tab money was taxable under the unrelated business income tax. Number 0126 REPRESENTATIVE MARTIN stated there was no doubt that many, many organizations were bringing in more money than a true charitable organization. He cited the Home Builders Association. "Man that group is slick as can be in raising money - the Anchorage Home Builders Association, the Fairbanks Home Builders, the Kenai Home Builders, and the statewide home builders association - they've all got permits and a lot of money coming in. And I think relatively little is for charity." Charity begins at home. Number 0192 CHAIR JAMES replied that was where charity was supposed to begin. REPRESENTATIVE MARTIN replied if you want that concept then fine. The organizations were doing very well. Maybe, we should change the bill so that all of the money went to a designated true charity. Number 0286 REPRESENTATIVE BERKOWITZ stated that he would hate to give the IRS any more power than it already had. He was concerned about allowing it to define the designations because "once they get in your business they never get out." Number 0324 REPRESENTATIVE MARTIN replied the IRS now realized how much money Alaska was making on pull-tabs. Therefore, it was going back to the organizations and analyzing their accounts. The state had misled these organization into thinking that they would get away with it. Number 0356 CHAIR JAMES replied the state had not misled the organizations. CHAIR JAMES asked the committee members if anybody was interested in making a motion to move the bill forward. REPRESENTATIVE VEZEY replied he would make a motion but he did not want to waste the time of the committee members. Number 0380 REPRESENTATIVE ELTON replied the committee could put this to rest by moving the bill and recommending a "no" vote. Number 0398 REPRESENTATIVE VEZEY moved that HB 84 move from the committee with individual recommendations and the attached fiscal note(s). REPRESENTATIVE IVAN objected. A roll call vote was taken. Representatives James, Dyson and Vezey voted in favor of the motion. Representatives Berkowitz, Elton and Ivan voted against the motion. House Bill 84 failed to move from the House State Affairs Standing Committee. Number 0483 CHAIR JAMES introduced from the audience, Michelle Jenkins from North Pole. She was a visiting Page in the House and the Senate. REPRESENTATIVE ELTON stated that Ms. Jenkins was the most pleasant person on the floor of the House of Representatives this week.