BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  1

DATE:  March 9, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SPAC Substitute for SB – 425 as amended on Senate Floor (#1 – 3/6/01)

SPONSOR: Senate Public Affairs Committee 

BILL SHORT TITLE: Reduce Gaming Tax for Fraternal and Veteran’s Gaming Operators; Restrict Scope of Audits of Licensees

DESCRIPTION: Although this bill covers other matters, this review covers only the changes to the gaming tax. The amended substitute proposes lowering the tax rate from 25% to 10% for all nonprofit organizations (including those determined to be nonprofit under state rules as well as those organizations receiving a nonprofit designation from the IRS). The original bill proposed the rate reduction for only fraternal organizations designated under IRC Section 501(c)(8) or 501 (c)(10).
 
EFFECTIVE DATE: not stated – 90 days after adjournment (June 17)

FISCAL IMPACT:
		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(1,160)	(1,210)	Recurring	General Fund	
	0	0	Recurring	Local Governments	

Currently, there are 29 veterans and fraternal groups operating gaming facilities. These facilities are operating 206 machines with an average net win per day of $113 (assuming two “dark” days per week). An additional 8 groups should be licensed during the remainder of FY 2001, and perhaps 15 in FY 2002. Total number of machines is expected to increase to 325 by the end of FY 2001 and 420 by the end of 2002. Thus, net win is expected to increase to $7.5 million in FY 2001 and to $8.1 million for FY 2002. The full year FY 2002 loss is then (1,210), but since the effective date of the bill is June 17, June receipts, reported in July, will be prorated. Each new organization registered and operating will create a loss to the state, on average, of $31K assuming a $113 per day average net win and 7 machines. The fact is, that even with the 25% tax, a fraternal organization could pay for a machine in about 135 days (exclusive of mandatory charitable contributions). This is an economic incentive of some magnitude. Veterans and fraternal organizations are currently contributing about $1.5 million annually to the general fund. This will increase at a greater than 10% per year rate as more groups become licensed even without the lower tax rate proposed in this bill, and the groups currently participating increase the number of machines per facility to the maximum 15.  In this analysis, it is assumed that machines are purchased new at an average of $8,000 each. These purchases are subject to a 10% manufacturer’s excise tax, however, the manufacturer’s excise tax is in the base and does not affect the analysis of this bill.

ADMINISTRATIVE IMPACT: none on the Department. 

OTHER IMPACTS AND ISSUES:
	Establishments	Estimated # Machines	Current Annual Revenue	Revenue per day per machine*	
Veterans & Fraternals	29	206	$6,082,000	$113*	

*Assuming the facilities are dark two days a week. If the facilities operate 24/7, then this per-day figure is about $82.