Hearing on slots tax change draws crowd

AUGUSTA – A proposal to amend the state’s formula for taxing slot machines drew a crowd of mostly supporters Wednesday to a nearly 31/2-hour public hearing before the Legislature’s Legal and Veterans Affairs Committee.

The proposal, which has been incorporated into LD 1924, seeks to clarify what many consider to be a misleading formula so the public and state officials better understand what Hollywood Slots is actually earning and what is being taxed.

If the change is adopted in its current form, 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.

Michael Andrew of Gorham, president of the Maine Standardbred Breeders and Owners Association, said his group has yet to take a position on the tax change for lack of lead time, though five members who recently met favored it.

“It seems very reasonable to base taxation on revenue and to not base taxes on all of the money that flows through slot machines,” he said.

“I think this will eliminate a huge misconception that a lot of people hold, that the gross income from slots is actually profits,” he said during testimony broadcast over the Legislature’s Internet audio system.

“This misconception creates a prime medium to grow sharks who think we are all getting too rich.”

The proposed change will “give a more accurate picture of what a huge revenue source the racino is for the government,” he said. “It’ll also allow everyone to see what the actual tax percentages are for slots revenue. I believe this is the highest taxed business in the state.”

As it stands, Hollywood Slots pays a 1 percent tax on its “gross slot machine income” or total wager. Also, by state law, at least 89 percent of the total money wagered must be paid back to players in the form of winnings. Hollywood Slots, however, has averaged a 92 percent payback.

Of the money left after the tax and payback are taken out, or the “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.

The focus on the total wager has proven politically problematic for Hollywood Slots because it creates the impression that the company’s profits are far higher than they actually are, according to Jon Johnson, Hollywood Slots general manager.

In a recent interview, John Sagaser, general counsel for the Maine Revenue Service and chairman of the governor’s slots tax panel, 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.

Rep. Linda Valentino, D-Saco, was the only opponent to speak against the proposal. Valentino served on the governor’s slot tax panel and was one of two on the 11-member committee who opposed the majority’s position.

She and fellow panel member Peter Danton of the Maine Gambling Control Board submitted a minority report that called for, among other things, removing commercial racetracks and off-track betting facilities from the list of slot machine beneficiaries.

“I must admit I feel a little like Hillary Clinton at an Obama rally,” Valentino said after 10 previous speakers spoke before her in support of the bill.

Noting that the governor’s panel was charged with developing a tax formula fix that was “revenue neutral,” Valentino urged the legal and veterans committee to cap revenues for its various beneficiaries and send revenues above the cap to the state’s general fund to help offset budget problems.

“We’re all in this together,” she said. “Why should we not look at the entire picture?”

The proposed tax formula change is the product of the Committee to Review the Taxation of Slot Machine Revenues, a special panel created by Gov. John Baldacci last June in the aftermath of a financial impasse between state lawmakers and Penn National, the parent company of Hollywood Slots at Bangor.

Misconceptions about how Hollywood Slots at Bangor is taxed has been blamed for the dispute with state lawmakers that prompted parent company Penn National Gaming Inc. to halt work at the $131 million gaming and hotel complex it is building on Main Street, idling scores of subcontractors and construction workers.

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 slots as a way to balance the state budget.

The episode touched off an angry backlash, not only among Mainers who favored slots, but also among those who opposed gambling. The bills were eventually dropped and construction resumed.

On Wednesday, Peter Vigue, chairman of the Pittsfield-based Cianbro Cos., general contractor for the Hollywood Slots project, testified in favor of the bill, saying it was crucial to Maine’s reputation in the global economy in which the state must compete.

“It’s all about creating a vision and an atmosphere that allows peoples’ investments to be tracked to be predictable and to be stable so that they have the courage and the appetite to make that investment,” he said.

The debate over LD 1924 will resume during a work session tentatively set for 1 p.m. Monday, March 3.