Charities that hoped the Vikings stadium deal would bring them tax relief now worry that they may actually wind up paying more.
Gambling managers such as Laurie Gluesing of the nonprofit Climb Theater in Inver Grove Heights have crunched the new numbers and are worried. Climb is among roughly 1,200 Minnesota nonprofits being counted on to generate $348 million in taxes to underwrite the state's share of the cost of a new Vikings stadium.
"To reach my same profit level with the new taxes and new higher prize level, I would have to do more than $2 million in gross sales,'' she said. "But can I sell $2 million more in pulltabs?"
The stadium deal contains several tax changes that charities had requested. But the overall tax structure, which favors charities using games with higher payout rates, concerns many.
The Minnesota Department of Revenue insists it's too soon to tell how charities' taxes will fare. The department ran numbers for the Star Tribune last week that indicate roughly half of the charities could see their taxes increasing under the stadium funding formula.
But those figures are based on 2011 charity data, and only apply if charities don't add e-gambling, see an increase in gambling, or do anything different, said Paul Wilson, research director at the Revenue Department.
Overall, charity profits are projected to rise from $44 million to $111 million with e-gambling, he said. "We project profits as a group will more than double,'' Wilson said. "That doesn't mean there won't be losers.''
King Wilson, executive director of Allied Charities of Minnesota, said whether taxes rise or fall could depend on whether charities are willing and able to change to meet new gambling expectations.
"The question is, are organizations going to be able to make the business decisions needed to offset paying additional taxes?'' said Wilson.
Since the stadium bill became law, charity gambling managers have been hunched over computers, trying to figure out the tax implications. While much has been written about how their taxes will pay for the stadium, far less has focused on the effect on charities.
Lowering gambling taxes that has them paying the state an average of 46 percent of their net gambling profits has been a top priority for more than a decade.
Take the Spring Lake Park Lions Club, one of the larger operations. When it sells $100 worth of pulltabs, it pays about $82 back to customers as prizes. From the $18 left, about $7 goes to state taxes and fees. That leaves $11 to run the gambling operation and overhead. Charities receive an average of about $1.
"We're pretty much on the state average for running it [the gambling], which is 10 percent,'' said gambling manager Shawn Donahue. "If taxes increase, it comes right off our bottom line.''
Charities had long lobbied for taxes paid on net receipts, not gross receipts, and they got that this year. They also got another boost: They no longer will have to pay taxes on the games before they even sell them. But then came the issue of tax rates.
Senate's tax rates prevailed
The House version of the stadium bill, which they supported, would have created a four-tier tax structure starting at 6.89 percent (of net receipts) and topping at 27.56 percent. The bill that became law, however, is close to the Senate version, which started at 9 percent and ended at 36 percent.
Donahue calculates that he'll pay $13,000 more in taxes under the stadium funding plan. That's on top of the $216,400 in taxes and licensing fees already paid in 2011.
"I love the Vikings,'' he said. "But this is not the way to build a new stadium.''
Some charities, however, could see some pleasant changes. The Burnsville Lions Club, for example, tops the list calculated by the Department of Revenue. It would see a $109,000 tax cut under the departments's projections, which again, are based on no changes from 2011 in revenue or gaming.
Roger Richter is the gambling manager of the Burnsville Lions Club, which grossed $6.3 million in sales and paid $383,000 in taxes in 2011. He'd be happy if his club got even half of that $109,000 in tax relief. He's not planning to make any major changes to his operation.
"I hope it's true,'' said Richter. "I'll believe it when I see it.''
Meanwhile, Bonnie Merkling, gambling manager at the Bingo Emporium in St. Cloud, calculates that her taxes will jump a total of $28,000 for the four charities that the emporium supports with its bingo and pulltabs. The charities include a battered women's shelter and a home for unwed mothers.
The emporium will have to sell another $350,000 in pulltabs to break even under the new formula, she said.
"It's sad when I think of how that money could be used in our community,'' said Merkling. "Isn't that why charitable gambling exists?''
In the months ahead, charities must decide whether they're ready to adopt some new rules of the game, said Wilson. The tax advantages go to charities with high payback rates for games, which in theory will increase gambling. And that will pay for the stadium.
For the roughly half of charities that could see tax hikes, Wilson asked: Will they be able to increase prizes back to customers? Volume of sales? And if they do, can they do that without moving up into a higher tax bracket?
"It's going to be a fine line,'' Wilson said. "I think the whole industry is going to be watching to see how this plays out.''
Jean Hopfensperger • 612-673-4511