Proposal clarifies gaming tax

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BANGOR – A special panel created by Gov. John Baldacci has issued its recommendations to amend the state’s formula for taxing slot machines in Maine.

But unlike the last time state lawmakers tried to tinker with the formula, the owners of Hollywood Slots at Bangor are not expected to halt construction of its $131 million gaming and hotel complex being built on Main Street.

The recommendations call for clarifying the taxing formula so the public and state officials better understand what Hollywood Slots is actually earning and what is being taxed. Under the proposal, Hollywood Slots would pay the state about the same as under the current formula. Last year, the slots operator paid out about $20.6 million in taxes to the state.

“Unfortunately, [the recommendations do not] do anything to prevent people from trying to tinker with the tax formula in the future,” said Dan Tremble, a former Bangor City Council chairman who served on the Committee to Review the Taxation of Slot Machine Revenues.

That, Tremble and other committee members noted, is because the current Legislature can’t pass laws that are binding on future legislatures.

“The committee took that as a given,” agreed committee Chairman John Sagaser, general counsel for the Maine Revenue Service.

The taxation panel was empowered last June in the aftermath of a financial impasse between state lawmakers and Penn National, the parent company of Hollywood Slots at Bangor.

The dispute centered on the state’s share of proceeds from the company’s slot machines, specifically, a pair of legislative proposals that called for using more revenue from the company’s slot machines as a way to balance the state budget.

The impasse prompted the company temporarily to pull the plug last May 8 on the complex it is building just yards up Main Street from its temporary facility in the former Miller’s Restaurant building. The stoppage idled scores of subcontractors and construction workers.

The episode touched off an angry backlash, not only among Mainers who favored slots, but also among those who opposed gambling.

The common theme was that lawmakers, in effect, were reneging on an existing arrangement between Penn National and the state that established how revenues would be taxed.

A week later, the Legislature’s Appropriations Committee officially killed the two slots revenue proposals as a show of good faith aimed at getting workers back on the job, and construction resumed.

To prevent similar problems from surfacing in the future, Gov. Baldacci created the committee to review the tax structure for slot machine revenues.

The panel’s recommendations are being incorporated as part of LD 1924.

As of Monday, the Legislature’s Legal and Veterans Affairs Committee, which has jurisdiction over gambling laws in Maine, had not yet scheduled a public hearing or work session on the bill.

According to Sagaser, the mission of the Committee to Review the Taxation of Slot Machine Revenues was to come up with an amended formula that would provide for more stability and that also would be simpler to implement while remaining “revenue-neutral,” meaning it would result in neither lost nor gained revenue for the state.

As it stands, Hollywood Slots pays a 1 percent tax on its “gross slot machine income” or total wager.

Of the money that is left, 89 percent goes back to players in the form of winnings.

Of what’s left after that, or its “net slot machine income,” 39 percent goes to the state for distribution among 10 beneficiaries ranging from scholarship programs and the state’s harness racing industry to agricultural fairs and low-cost drug programs for needy Mainers.

Hollywood Slots General Manager Jon Johnson said Monday that terminology surrounding the 1 percent tax on the total handle, or “coin-in,” has proved problematic for the company.

“It leads everyone to believe that the slots operator is making far more money than it actually is, so it leads them to want to tax us more,” he said. A higher tax burden, he said, “would put us out of business.”

He further noted that Maine is the only state that taxes gross revenues, or “coin-in,” a dollar figure that’s misleading because it reflects winnings that are put back into the machines. In 2007, for instance, gross slots revenues were listed at more than $609 million, while net revenue was only about $43 million.

If the committee’s recommendations were implemented, Hollywood Slots would continue to pay essentially the same amount in taxes as it does now.

What would change are the terminology and percentages.

David Farmer, spokesman for Gov. Baldacci, said the idea was to develop “a more accurate accounting of [the slot operator’s actual earnings] so that it doesn’t look like this huge number.”

Instead of paying 1 percent on its “gross slot machine income,” the company would be assessed 12.9 percent of its “gross gaming revenue,” which does not reflect winnings that are recycled through continued play.

The recommendations also provide for an additional amount of about $160,000 to be collected each year in 2009 and 2010 to provide a small cushion against fluctuations in the percentage paid back to players in the form of winnings.

“We would be paying slightly more under the new [tax structure], but [the proposal is] as revenue-neutral as the committee could make it,” Johnson said.

The committee’s report and recommendations were approved by a 9-2 vote. The two opposing members filed a minority report.

Farmer said the governor is recommending that lawmakers support the majority report.

Bangor, the host city for the state’s only slot machine facility, has yet to take a position on the report. The Bangor City Council’s Business and Economic Development Committee will review the recommendations at its meeting at 5 p.m. Wednesday.