State could take a smaller cut of lawful gambling receipts

What are the odds that the state could cut its tax rate on lawful gambling?

We’ll leave that to the pros, but Rep. Kristin Robbins (R-Maple Grove) would like to pull back the tabs and see if the numbers come up to her fellow legislators’ liking. She’s sponsoring HF169, which would repeal the combined net receipts tax imposed on certain gambling receipts and subject all gambling net receipts to a flat rate tax of 5%.

Current rates range from 8% to 33% — in addition to flat fees — depending upon the type of games and an organization’s combined net receipts.

On Tuesday, the House Taxes Committee laid the bill over, as amended, for possible omnibus bill inclusion.

“We are making money for the state on the backs of our charities,” Robbins said. “Before I was a legislator, I didn’t know this. I thought the money stayed in your community. I had no idea until I got here that this is a huge moneymaker for the state.”

Under the bill, charitable organizations that would see their tax computations become considerably less complicated are those that sell paper and electronic pull tabs, electronic bingo and tip boards. They’re currently subject to a combined net receipts tax.

Currently, if a charitable organization’s annual combined net receipts from those games are $87,500 or under, the tax is 8%. Above that level are three other tax rates, with the maximum being — for annual combined net receipts of $157,501 or higher — a tax of $21,700 plus 33.5% of the amount over $157,500.

The Revenue Department estimates the change would decrease the General Fund by $298 million in the next biennium, and that, over the next two biennia, appropriations to the Department of Human Services for problem gambling would decrease by $6.3 million.

Rep. Aisha Gomez (DFL-Mpls) suggested that the bill’s price tag was too high, considering the state’s shrinking revenue forecast.

The department said that 1,390 charitable organizations paid combined net receipts and lawful gambling taxes in fiscal year 2024.

Testifiers from American Legions and Lions Clubs spoke of the benefits that the proceeds of charitable gaming have brought to their communities and the harm that they believe has come from the state no longer making electronic pull tabs with “open-all” functions available as of Jan. 1 of this year.

But Rep. John Huot (DFL-Rosemount) asked if the smaller number of customers engaging in charitable gaming might correspond with a drop in attendance and food and alcohol sales at those establishments.

While Rep. Jeff Witte (R-Lakeville) said he supported the bill, his question about how much of the gross receipts on charitable gaming goes toward operational and administrative costs and upkeep of buildings led to a discussion about the level of overhead financed by gaming proceeds.

Tim Engstrom, communications director for the American Legion Department of Minnesota, said organizations offering charitable gaming receive rankings based upon the percentage of proceeds that go toward the organization’s mission. He said the highest rating of five stars is for organizations that apply 50% or less to administrative costs.