Charitable gaming industry is down on its luck -- wants lower state taxes
A year after a statewide smoking ban went into effect, charitable gambling operations in Minnesota aren't feeling so lucky.
"The wonderful world of gambling unfortunately is not so wonderful right now," said King Wilson, executive director of the Allied Charities of Minnesota.
"We've lost 30 percent of our charitable gambling organizations, and the ones that remain are basically down 20-25 percent."
Wilson said the industry once had as many as 1,800 groups operating in the state, but that has fallen to barely 1,300 today, and several more are terminating their licenses every month.
He talked to about a dozen representatives of charitable gaming operations in Detroit Lakes Monday.
"It's been a tsunami of bad news," said Wilson. Gaming receipts so far in 2008 are down about 8 percent over last year, due to a variety of factors -- including a smoking ban in bars and restaurants, higher gasoline prices and a weaker economy.
Last year, charities paid nearly as much to the state in taxes ($47.5 million) as they gave away to the groups they support ($55.7 million).
"It's not going to surprise me, when the numbers are all in for 2008, those numbers (the amount going for taxes and for charity) are going to be the same for the first time," Wilson said. "If not, for sure they will be in 2009."
In the first three months after the statewide smoking ban was adopted in Minnesota, charitable gambling receipts dropped more than 13 percent, according to an impact study by the state Gambling Control Board.
The industry was able to get some positive changes passed into law by the legislature this year, based on "smoking ban remorse," King said. Legislators were thinking, "We did it to you, now we're going to do something to help you."
Even so, the industry is in trouble, Wilson said. He asked the group, "How many of you think we can do charitable gambling business as usual?"
"No way," and "Huh-uh" were the replies. No one there disagreed. King said he almost didn't ask the question, because after more than a dozen such meetings around the state, he already knew the answer.
State taxes eat heavily into money that would be going to charitable causes.
For example, the Cormorant Lakes Sportsman's Club paid $36,000 in state taxes in fiscal year 2006, or 18 percent of its net profit.
The Shrine Color Guard in Detroit Lakes paid $23,000 to the state that same year, or 14 percent of its net profits.
The Detroit Lakes VFW paid $43,000 in taxes, or 18 percent. Minnesota Flyers Gymnastics paid $24,000, or 16 percent. The Audubon Volunteer Fire Department paid $36,000, or 18 percent.
The percentage was even more for some groups.
The Wolf Lake Wolf Pack Baseball organization paid $41,000 in taxes that year, or 21 percent of its net.
The Otter Tail "Turn in Poachers" chapter in Detroit Lakes paid $129,000 in taxes, or 25 percent of its net profits.
The Ottertail Lions Club paid $138,000 in taxes, or 38 percent of its net profits.
And the Park Rapids American Legion paid $290,000 in state taxes, or 48 percent of its net profits.
"If we pay less money in taxes, we have more for charitable purposes," Wilson said. "My guess is you're getting more requests than ever for contributions, and you have less than ever to give."
With the state facing a projected deficit of up to $2 billion for the next biennium, Wilson admitted that the odds don't look good for a reduction in taxes on charitable gaming.
But he noted that charitable organizations in Minnesota pay a far higher tax rate on their gaming proceeds than private companies pay on their profits.
"I think we can easily make the claim we're paying twice or even four times what for-profit companies pay," he said.
He also said Gov. Tim Pawlenty has taken an interest in the problem, and has asked for specific tax numbers.
Even a change in the way the state assesses its taxes would help, Wilson said.
Taxes should be levied on profits, not gross receipts, he said. "Businesses don't pay taxes until after expenses ... why are you paying taxes when you haven't made money? That's almost un-American," he said.
And a 9.8 percent flat tax -- equal to the 9.8 percent state business tax -- should replace the existing tax structure that escalates like the income tax. That's why big operators like the Park Rapids American Legion are paying out 48 percent of their profits in taxes.
Charitable gaming groups have to fight for legislative changes or perish, Wilson said.
"Our plan will cost $27 million. Legislators are going to gag," Wilson said. "But we are going to lay out an incredibly aggressive charitable gambling reform package. We're probably doing it at the worst time in history (because of the projected state deficit) but if we don't lay the full blitz on, we're just going to have problems.
"We can't compete with the Indian (casino) lobby and the money they have, but we have the people -- they need to hear from you that charitable gambling is hurting. Even supporters don't know all the good things charitable gambling does."
The Legislature has approved a study on ways to turn the industry around. Now underway, it is expected to be completed in December -- in time for the start of the next legislative session in January.