More doubts about charitable gambling, even as stadium bill released

King Wilson, executive director of Allied Charities of Minnesota, has long been certain about his uncertainty about electronic pull-tabs.

“I’ve said that I’m not sure they’re economically viable” unless the state changes the way charities are taxed, he said.

An announcement by the governor’s office of a proposal for a modest cut in taxes on charitable gaming revenue this afternoon didn’t change his opinion. “We don’t believe that it will work,” Wilson says.

Money from the expansion of charitable gambling to include electronic pull-tabs and online bingo is what the state is counting on to finance the Vikings’ new stadium.

Also, this afternoon, the Vikings stadium bill that will be formally unveiled next week was released. Here’s the text.

But the charities’ trade group says that the estimates of the new flow of cash may not be anywhere near the Department of Revenue’s projections.

Last year, in a fiscal note, the department estimated that the new forms of gambling would increase business at bars, VFWs and American Legion posts so much that the state would collect an extra $72 million in taxes each year, more than enough to repay the bonds.

The new projection puts the state’s take at a more modest $62.5 million, with an equal amount going to the charities.

The reason for the lower projection: Proposed legislation would repeal a 1.7 percent upfront tax on distributors who rent the machines (or sell paper pull-tabs) to charities.

The measure would also shave tax rates. The lowest would drop from 1.7 percent to 1.465 percent. Taxes also would decrease on charities taking in more than $900,000 a year, dropping from 6.8 percent to 5.86 percent.

Such changes won’t mollify the charities who protest that because the taxes apply to gross revenues before expenses and prizes are deducted, the rates are extortionate, sometimes as high as 50 percent.

The new proposal doesn’t change that. And, charities that were considering a switch to electronic bingo because taxes on that game are 8.5 percent of net receipts, that is, gross revenues minus expenses, will be further frustrated.

Under the new proposal, electronic bingo games will be taxed the same way as pull-tabs.

High taxes, Wilson says, are squeezing charities. And the higher expense of installing electronic games will depress profits further. As a result, charities will have to lower prize amounts.

The maximum charities can pay under state law is 85 percent of revenues. Wilson suggests that if prize amounts decrease to 80 percent, “there will be a dramatic drop-off in business.”

That’s one reason why he disputes Department of Revenue estimates, which itemize current revenues for every charity in the state and project what each would take in if it installed electronic gaming. In some cases, he suggests that the estimates are wildly high.

Take Apple Valley American Legion Post 1776. It has only one site, its clubhouse, and previous legislative proposals have limited each site to a maximum of 12 pull-tab and bingo machines.  Revenue from pull-tabs has been estimated to produce $225 a day, bingo $90.

“If you multiply each of those by 12 machines and 365 days a year, you get $1.4 million,” says Wilson. The Department of Revenue, however, says that Apple Valley’s revenues will rise by nearly $6 million.

“I want this to work,” says Wilson. But he adds, “I’m not sure enough money will be there.”

Correction

The story originally misstated the tax rate for charities that take in more than $900,000. The sentence should read: Taxes also would decrease on charities taking in more than $900,000 a year, dropping from 6.8 percent to 5.86 percent.