SB 69-EXEMPT CHARITABLE GAMING FROM PERMIT/FEES  1:53:44 PM CHAIR REINBOLD reconvened the meeting and announced that the next order of business would be SENATE BILL NO. 69, "An Act establishing an exception from permit and fee requirements for certain charitable gaming activities; relating to fees for applicants for a charitable gaming permit; amending the definition of 'permittee'; and providing for an effective date." 1:54:00 PM BRUCE TANGEMAN, Commissioner Designee, Department of Revenue, Anchorage, stated that the Department of Revenue issues charitable gaming permits and licenses and collects fees and taxes. Municipalities and qualified organizations that hold a permit are authorized to conduct gaming activities. The annual permit is based on a tiered fee structure. The department would charge a $20 fee for an applicant with gross receipts of less than $20,000, a $50 fee for an applicant with gross receipts greater than $20,000 but less than $100,000, and a $100 fee for an applicant with gross receipts greater than $100,000. He said that SB 69 would eliminate the permit and fee requirement for small charitable organizations with annual gross receipts of less than $20,000. The bill would reduce costs and workload for small charitable organizations to conduct these activities. This reduction of regulation on small charitable organizations is part of the governor's pledge to reduce regulations, he said. COMMISSIONER DESIGNEE TANGEMAN said this would result in the lack of regulation for small charitable organizations, but the department requires an annual certification of these organizations that would serve as a quality check. Only those that qualify for regulatory relief would benefit. He reported that in 2017, of the 1,071 reports that were filed by permitholders, 403 or approximately 38 percent reported gross receipts of less than $20,000. He reported that of the $61,400 in permit fees, $8,000 was from those organizations with less than $20,000 in gross receipts. He summarized that SB 69 would provide an exemption from annual permits and fees for qualified organizations with less than $20,000 in annual gross receipts. Exempt organizations must file an annual certification, under penalty of perjury, to certify that the organization qualifies for the exemption. The bill would take effect January 2020, so it would not have any effect in calendar year 2019. 1:57:26 PM COLLEEN GLOVER, Director, Tax Division, Department of Revenue, Anchorage, reviewed the sectional analysis for SB 69. She read Sections 1-4. Section 1: Amends AS 05.15 to add a new section, AS 05.15.055, to allow a municipality or qualified organization to conduct charitable gaming activity without a permit and without paying a fee, if the annual gross receipts from charitable gaming activity are less than $20,000. Provides that a municipality or qualified organization conducting limited charitable gaming does not need to file a report or apply for registration but must file an annual certification of compliance. (Page 1, beginning on line 5) Section 2: Amends AS 05.15.115(a) to use the words "a permittee" rather than "a municipality or qualified organization holding a permit to conduct an activity under this chapter." (Page 2, beginning on line 3) Section 3: Amends AS 05.15.185 to use the words "a permittee" rather than "a municipality or qualified organization holding a permit to conduct an activity under this chapter." (Page 2, lines 9-18) Section 4: Amends the definition of "permittee" in AS 05.15.690(35) to include a municipality or qualified organization conducting limited charitable gaming activity without a permit and without paying a fee. (Page 2, lines 19-23) 1:59:12 PM MS. GLOVER read Sections 5-8: Section 5: This section repeals AS 05.15.020(c)(1) and 05.15.020(c)(2). (Page 2, line 24) Section 6: Allows the Department of Revenue to adopt transition regulations. (Page 2, lines 25-30) Section 7: Provides an immediate effective date for Section 6. (Page 2, line 31) Section 8: Provides for an effective date of January 1, 2020, for Sections 1-5. (Page 3, line 1) 1:59:44 PM MS. GLOVER said that the bill would replace the terms "municipality or qualified organization holding a permit" with the term "permittee" since smaller organizations would not hold a permit. It also would define "permittee." 2:00:17 PM SENATOR GRAY-JACKSON asked whether the fees were the same for every organization. MS. GLOVER answered that the fees were tiered based on the amount of gross receipts. SENATOR GRAY-JACKSON asked whether some organizations bring in less than $20,000. COMMISSIONER DESIGNEE TANGEMAN answered that the total fees for all permittees was $61,400 and $8,000 of that was derived from those organizations with gross receipts of less than $20,000. 2:01:37 PM SENATOR GRAY-JACKSON asked for confirmation that the total was $8,000. COMMISSIONER DESIGNEE TANGEMAN answered yes. 2:01:47 PM SENATOR BIRCH remarked that hockey teams from all over the state are likely rejoicing that they do not have to dive into the regulatory morass for modest fundraising for their kids. He expressed gratitude for the bill. 2:02:09 PM SENATOR BISHOP asked whether the organizations would be totally unregulated. COMMISSIONER DESIGNEE TANGEMAN answered that they would provide a year-end report to prove they qualify for the exemption. SENATOR BISHOP said he wanted to avoid fraud. 2:02:50 PM SENATOR COSTELLO said she appreciates the comment about the hockey organizations. She referred to an email that voiced concern that it might be confusing to the public as to who would need a permit. She asked how that would be addressed. COMMISSIONER DESIGNEE TANGEMAN deferred to Ms. Glover. MS. GLOVER answered that the division was currently discussing this. She said that it would be part of the regulation packet. She assured members that the department wants people to be informed. 2:03:57 PM SENATOR COSTELLO related another concern about criminal activity such as altering pull tabs to resemble winning tickets. She asked whether the department considered that the bill might potentially increase illegal activity or if the department could provide assurances that this will not happen. MS. GLOVER answered that this bill does not affect pull tab regulations. This bill only affects charitable organizations that need a permit. SENATOR COSTELLO requested the answer in writing for clarity. MS. GLOVER agreed to provide a written answer to the committee. 2:06:12 PM CHAIR REINBOLD opened public testimony on SB 69. 2:06:45 PM SARAH OATES, President and CEO, Alaska Cabaret, Hotel, Restaurant and Retail Association (CHARR), Anchorage, stated her opposition to SB 69. She expressed concern that it would create a massive loophole with no means of enforcement. Although CHARR would not currently qualify for an exemption, nothing would prevent them from creating new corporations that individually would gross less than $20,000 per year. She said that the department would not know whether an organization exceeded $20,000 since it would only file a simple affidavit. If a violation did occur, there would not be any means to impose a civil penalty, suspend, or revoke a permit. She asked whether an entity would have to retroactively file a report if they exceeded the threshold or how the department would know about new entities who anticipated they would gross less than $20,000 per year. She offered her belief that the $50 cost and supposed regulatory burden was minimal at best. She urged members to oppose the bill. 2:08:59 PM STEVEN BORCHERDING, Manager, Gold Cache Bingo, Wasilla, stated he has bingo operations in Wasilla and Anchorage. He reviewed his background to show that he had considerable experience in the industry and as a distributor. He said he has also served on task force and regulatory committees. He stated his opposition to SB 69. He said that the bingo and pull tab industries are highly regulated ones. They require substantial oversight similar to alcohol, tobacco, and marijuana, he said. SB 69 would remove this oversight for the smaller groups that likely need it because they probably lack the knowledge and experience in the industry. He expressed concern that this lack of knowledge would lead to problems. In fact, it has already led to problems with smaller groups, he said. The permit process ensures a certain level of oversight and a basic knowledge of statutes and regulations, he said. Members in charge and gaming managers must take a test to receive a permit. MR. BORCHERDING said that the permit and regulatory process currently requires businesses to provide proof of insurance, payroll submissions, tax documentation, manager contracts, and various other requirements. The state oversees these operations through the permitting process and applicants prove legitimacy, in part, by providing a physical address where gaming operations will occur. The state can revoke permits, but without a permit, these businesses would have no reason to comply. For example, the bill does not have any reporting requirements, even though previous testimony indicated an annual report would be required. He said that he has taught several courses at AFN {Alaska Federation of Natives] conventions on gaming. Just because an operation is a small one does not mean that it should not be regulated in this highly regulated industry. He urged members not to pass the bill. 2:13:22 PM CHAIR REINBOLD asked him to submit written testimony to senate.labor.and.commerce@akleg.gov. 2:14:03 PM SENATOR BIRCH asked what percentage of net revenues from bingo are given to charities. He recalled that it was substantial. MR. BORCHERDING answered that it was over $20 million. This year Gold Cache Bingo donated about $2.2 million to charities. He offered his belief that the gross revenue for charitable gaming was about $300 million. CHAIR REINBOLD asked Commissioner Designee Tangeman to respond to Mr. Borcherding's testimony. 2:15:29 PM COMMISSIONER DESIGNEE TANGEMAN deferred to Ms. Glover. 2:15:44 PM MS. GLOVER responded that the bill would require an annual certification for small charitable organizations that would be exempt from the permit application process and fees. They would not be required to submit an annual report of revenues, but they must certify their gross revenues, she said. She explained this permit process would apply to charitable organizations with less than $20,000 in gross receipts that often contract with operators, such as a bingo parlor or pull tab operators. Bingo and pull tab entities would not be affected by this bill. Regulations for pull tab operators, manufacturers, or distributors would not change. MS. GLOVER said the division was still considering how to handle retroactive permits for entities who exceeded the $20,000 gross receipts limit but had not applied for a permit. The department planned to address the issue of identifying small organizations by regulation, likely by requiring an initial certification at the beginning of the year rather than the end of the year. 2:18:41 PM SENATOR BISHOP asked whether the 38 percent of organizations in the category of small organizations would fall under the realm of raffle tickets. MS. GLOVER said she did not have that information. 2:19:23 PM KATRINA MITCHELL, Gaming Group Manager, Tax Division, Department of Revenue, Juneau, said she thought that the primary organizations with $20,000 or less in gross receipts would conduct raffles. She said that organizations involved in bingo or pull tabs would easily and quickly surpass the $20,000 threshold. 2:20:01 PM SENATOR BIRCH recalled earlier testimony with concern that an unscrupulous operator might try to keep the operation's gross receipts under $20,000. He asked her to address the concern. MS. GLOVER replied that the question related to operators, but they will not be impacted by this bill. This bill would only affect small charitable organizations or municipalities. She said she did not see any risk. 2:21:18 PM SENATOR COSTELLO asked for the difference between a permit and a certification, whether a permit must be displayed publicly, whether operators are regulated, and if operators are required to pay corporate income tax to the state. MS. GLOVER answered that when an organization applies for a permit, the division would approve or disapprove the permit. The required annual certification includes a report, under penalty of perjury, on the gross annual receipts. She deferred the next three questions to Ms. Mitchell. MS. MITCHELL confirmed that the gaming permit must be publicly displayed where the activity occurs. The operators are regulated. They must obtain a license, post a bond depending on the number of permittees they game for, and file quarterly and annual reports with the division. In response to whether operators must pay state corporate income tax, she explained that an applicant must be a natural person in order to obtain an operator's license. She did not think that operators would be required to pay state corporate taxes unless they have a subsidiary. 2:24:33 PM SENATOR COSTELLO asked what purpose is the statute requiring the applicant to be "a natural person" as opposed to a business or corporation. MS. MITCHELL answered that she was unsure of the reason. CHAIR REINBOLD stated that she would hold SB 69 in committee.