Proposed gaming change would raise $12.5 million in taxes

Posted: Sunday, March 16, 2003

Proposed amendments to state charitable gaming statutes governing pull-tabs would raise an estimated $12.5 million in new tax revenue by cutting the number of winning ducats available to players.

To do that, the amendments would reduce the total amount available for payouts to no more than 72 percent of the "ideal gross," the amount that would be realized if every pull-tab in a series were sold at face value. According to Alaska Department of Revenue figures, pull-tabs currently pay out an average of about 78 percent of gross.

Other provisions would alter the percentage of take available to charities that contract with gaming operators or with vendors, such as bars and liquor stores, who sell pull-tabs on behalf of charities.

As envisioned, the proposed changes would leave more revenue available to the charities that actually pay pull-tab taxes, by giving players slightly less chance of winning a payout. Essentially, it amounts to a tax on players, not the charitable gaming permit holders, said Larry Persily, deputy commissioner of the Department of Revenue.

But gaming permit-holders and others involved in gaming testifying Friday before the Senate Labor and Commerce Committee said the changes could backfire. Some players would quit buying pull-tabs altogether once their chances of winning were reduced, thus lowering overall revenues. Others said increasing the state's take could drive some operators out of the business altogether.

Senate Bill 102, a measure proposed by Gov. Frank Murkowski, would boost the tax on pull-tabs from the current 3 percent of "ideal net," the amount left after prizes are paid out, to 5 percent of "ideal gross," a new term meaning the amount equal to the total amount of receipts that would be received if every individual pull-tab ticket in a series were sold at face value

It would raise $12.5 million a year, as opposed to the current tax revenue of about $2 million, Persily said.

As originally filed, however, Murkowski's bill would have required the charities to pay the additional tax out of their pockets. The amendments offered to the committee Friday would produce the same $12.5 million in revenue to the state by limiting the amount that could be paid out in prizes.

"Less prize money means more money left over for the charities to cover the higher tax bill, producing about the same net to the charities as they currently receive," Persily said.

He disagreed that significant numbers of players would stop buying pull-tabs if the total prize money available dropped from 78 percent to 72 percent, as proposed. If all pull-tab games are required to limit the prize money, no one charity would be at a disadvantage, he said.

Reached in Kenai, Mike Baxter, operations manager for the Peninsula Oilers Baseball Club, which raises money through bingo and pull-tabs, said Alaska gaming originally came into being to allow charities to raise funds themselves rather than going hat in hand to the state each year. But now, the state wants to up the taxes on those operations.

"I don't believe it was ever intended that the hard work of the people from the charities would go to fund the state. I feel that is the wrong tack to take," he said.

Lowering the payout to 72 percent could severely reduce the number of players, costing not only the charities, but also the state, he said.

Testifying before the committee in Juneau, Carey Green of Anchorage predicted pull-tab sales would decrease by 70 percent, the number of charities also would drop and pull-tab store would close, leading to hundreds of layoffs.

"And thousands of kids and charities will lose their funding," he said.

Green said the measures the state was proposing would prove counter-productive to their intention.

Bob Loescher, chair of the Tlingit-Haida Community Coun-cil, said losing gaming income would put their community programs in jeopardy.

"All the tax will do is cause us not to have an activity," he said.

"The state doesn't understand charitable gaming," said George Wright, who was a longtime manager of a charity cooperative and now qualifies under state gaming law as an operator. He said if the state wants to raise more money from gaming, it should sit down with members of the industry and work something out, rather than tacking together a poor piece of legislation.

"If this was a loan application, it would be denied," said Dave Massey, representing Juneau-Douglas High School softball and baseball, who spent 26 years working for the state's Department of Commerce and Economic Development, now the Department of Community and Economic Development.

"It doesn't fly, mathematically."

The committee has not yet acted on the bill and more hearings are expected.

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