Written by: Matt Bunk
The North Dakota Legislature this year continued a trend of lowering taxes for charitable gaming operations by passing a law that will allow charities to keep an additional $3.4 million of the yearly gambling revenue that once went to the state.
While other states are scrambling to come up with ways to increase the amount of tax revenue they collect from gambling, North Dakota lawmakers decided to take a different approach and give a large chunk of it back. And it’s not the first time.
Gov. Jack Dalrymple signed Senate Bill 2042 on May 17, marking the third time the state has cut taxes on gaming during the past three legislative sessions. The series of tax cuts means the state will collect less than one-third of the yearly tax revenue that it received a decade ago.
The new law will allow more than 330 nonprofit organizations in the state that run gaming facilities to keep a larger share of the proceeds from games such as blackjack and pull tabs. It was part of a wide set of tax cuts passed this year by the Republican-led Legislature, though this one also had support from Democratic leaders.
“If the state has the revenue to put toward tax relief, I was OK with extending that relief to charities that actually help people,” Senate Minority Leader Ryan Taylor said. “I was against tax cuts for corporations and the oil industry in North Dakota. But this was different because it had to do with charities – except that gaming concerns some folks, and rightfully so – and it will actually help nonprofits that provide assistance to disadvantaged kids and people with disabilities.”
More than $250 million is gambled each year in North Dakota’s charitable gaming establishments, not including tribal casinos. Subtracting the payouts to winners, more than $52 million was left last year for charities and the government.
The state’s take from taxes on the charitable gaming operations in bars and bingo halls across the state totaled nearly $7.9 million during the calendar year 2010, according to the North Dakota Attorney General’s Office, which regulates the gaming industry. With all things being equal, the state expects to receive about 57 percent of that amount – or roughly $4.5 million – next year after the most recent tax reduction takes effect.
An earlier version of the bill would have cut gaming taxes even deeper, but it was killed by a close floor vote in the House. It was revived with relaxed cuts after charities lobbied for reconsideration, and the amended version passed as the legislative session was winding to a close – for charities, it was sort of like filling an inside straight with the river card.
Still, some lawmakers said they were concerned the Legislature may be going overboard with tax cuts for gaming operations.
House Majority Leader Al Carlson, a Republican from Fargo, testified against the tax cuts during a legislative hearing in April, saying the state spends a lot of money to regulate the gaming industry and to pay for things such as gambling-addiction treatment.
“The whole purpose of charitable gaming was to … give charities another way to raise some money, but it was also to generate a little bit of tax revenue for the state,” Carlson told the Associated Press. “There are costs that go with gaming.”
Those who run charitable gaming operations said the state has collected an increasing amount of revenue from the state lottery, which more than makes up for the tax cuts on charitable gaming. North Dakota collected a net profit of $7.3 million from the state lottery last year, up from $6.7 million in 2009.
Tracy Potter, director of the Fort Abraham Lincoln Foundation, said the amount of money taxed out of charitable gaming was “multiple times” more than the state needed to regulate gaming. He said more than $5 million was wagered last year on games run by his organization, though the net profit was less than $220,000 after paying $122,000 in taxes.
“Who doesn’t want charities to have more money?” Potter asked rhetorically.
Cutting taxes on charitable gaming has been one of the perennial priorities for the Legislature, and lawmakers’ willingness to reduce those taxes has taken a significant bite out of the state’s tax receipts during the past 10 years. In 2000, for instance, the state received tax revenue of nearly $13.2 million from charitable gaming. In 2005, the state collected more than $11.7 million from gaming operations.
North Dakota’s gaming revenue dipped below $7.9 million last year even though the amount gambled in the state has remained steady. Figures compiled annually by the North Dakota Attorney General’s Office show the amount of money spent on charitable gaming in the state has decreased by about one percent compared to a decade ago.
Instead, the diminished tax collections resulted from legislation that altered wager limits and tax rates. In 2001, the Legislature raised the wager limit on blackjack to $25 from $5, which led to more gaming activity for blackjack but decreased the amount of money being wagered on pull tabs and bingo, both of which had higher tax rates than blackjack.
During the 2007 legislative session, a 5 percent state sales tax on bingo was eliminated and replaced with a 3 percent excise tax. Two years later, the Legislature reduced the excise tax on pull tabs to 3 percent from 4.5 percent.
“At one time North Dakota had some of the highest pull-tab sales sites in the nation. During calendar year 1993, gross wagers in our state were over $300 million,” noted Keith Lauer, who works in the state Attorney General’s Office. “However, with tribal gaming entering our state in the mid-1990’s we have seen our charitable gaming wagers reduced.”
North Dakota has gaming compacts with five Native American tribes, which operate 13 casinos in the state. The tax and revenue figures from tribal casinos are calculated separately from the charitable gaming operations and were unavailable from the state Attorney General’s Office.
“In accordance with the Tribal/State Gaming Compacts, we cannot release the audited financial data received from the tribes,” Lauer noted.
-Matt Bunk is publisher of the Great Plains Examiner.
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