Record year for charitable gambling also means record taxes

Taxes and fees could take such a big chunk out of charitable gambling this year, according to the trade group for nonprofits that run those operations, that they might eclipse the proceeds left for charity — even though Minnesotans spent a record $1.7 billion on gambling last year.

"We are now tax collectors for the state instead of workers for our communities," said Al Lund, executive director of the trade group Allied Charities of Minnesota, who has written a mock obituary for the industry.

But tax relief could come at the cost of slowing payment on the state's $348 million share of the $1.1 billion U.S. Bank Stadium.

Preliminary numbers show a 12 percent hike in money spent on pulltabs and other bar games for the fiscal year ending June 30. That makes seven straight years of dramatic increases, said Tom Barrett, executive director of the Minnesota Gambling Control Board.

"The market has been good, things like gas prices are relatively low and the Twins are winning. When sports teams do well, people are out at bars celebrating," Barrett said.

Most of that money, about $1.45 billion, was paid out in prizes. Of the $277 million left, about half goes to operating expenses and the rest goes to taxes, fees and charities ranging from veterans organizations to youth hockey to church missions.

Nonprofits are offering a larger variety of games and "the charities are doing a better job promoting where the money goes," Barrett said.

In 2016, after operating expenses were taken out, 49 percent of what was left from gambling proceeds — $61.7 million — went to a variety of taxes and fees. Charity got 51 percent of the proceeds, or $64.3 million, Lund said.

He believes this year will be the tipping point when more will be paid out in taxes and fees than for good works.

The Minnesota Gambling Control Board said final numbers for fiscal year 2017 won't be available until late November. "With record sales and record prizes, we expect to see the highest amount of taxes paid. We know taxes are part of the industry, but we don't take a position on it," Barrett said.

Lund penned the mock obit for charitable gambling this summer. "Born in 1945 to raise funds for church and community needs by conducting bingo, mostly in church basements and at county fairs, it culminated in 2017 with the strangling of the golden goose," he wrote.

There were two contributing factors, the obit continued: "the 2012 stadium bill that made millionaire professional football team owners into billionaire professional football team owners at the expense of Minnesota communities and a seemingly insatiable appetite by the state for increased tax revenue at the expense of community-based nonprofit groups."

They introduced a progressive tax structure, ranging from 9 to 36 percent. The first $36.9 million collected is deposited into the general fund, per state statute, with the remaining millions going toward paying off the state's share of the stadium.

At a legislative committee meeting earlier this year, Paul Cumings, tax policy manager for the Revenue Department, cautioned lawmakers that the cost of the proposed tax relief could significantly affect the amount of money left to pay for the stadium.

"We understand we have to pay taxes, but we pay above and beyond what any other businesses pay. There is no other company that pays 36 percent taxes and doesn't get to exclude expenses," said Corey Rasmussen, assistant gambling manager for the Spring Lake Park Lions.

"We are paying for the stadium. That puts a bad taste in everybody's mouth."

Nonprofits pay sales taxes and state regulatory fees on the paper products used in gambling, including bingo cards and pulltabs. Cities and counties can charge a regulatory fee and, in addition, municipalities can take another 10 percent of net profits to fund local government operations.

Many individual charities already pay more in taxes and fees than they collect for their work. For instance, the Spring Lake Park Lions paid $439,000 in taxes and fees and had $156,000 left for charity.

The Lions club, which has a handful of gambling sites in Spring Lake Park and Blaine, gives its money to local school districts, food shelves and charities such as Hope For Youth for homeless teens and young adults.

Of the 1,200 nonprofits that run charitable gambling, the top 93 pay half the taxes, according to the Minnesota Gambling Control Board.

An effort to change the law stalled last year at the Legislature. At a hearing earlier this year, Rep. Diane Loeffler, DFL-Minneapolis, expressed skepticism about changing tax laws and said she worried about the expansion of gambling, which can breed compulsive gambling issues.

"It shows up in all kinds of social costs in our state budget," she said.