Taxing Charity
Charitable Gambling Taxes Top Expectations
Last updated Saturday, January 5, 2008 9:06 PM CST in News
By Christopher Spencer
THE MORNING NEWS
FAYETTEVILLE -- Springdale's bingo balls may stop bouncing soon.
A weekly bingo game run by the Veterans of Foreign Wars post in Springdale has lost about $1,500 a month since the state legalized charitable bingo in July.
State taxes are cutting away at the money once raised for local charities, said post quartermaster Randy George.
"Some people think it's not even worth having now," he said about the long-standing bingo game that attracts about 100 people to the post each Wednesday.
The money raised through the game funded two to five $500 college scholarships each year before the state taxation. Only one scholarship was offered in 2007 because the bingo game raised less money, he said.
Despite a constitutional prohibition against gambling, some groups throughout Arkansas had been holding regular bingo games and raffles. The state in the 1990s licensed illegal games and from 1995 to 1999 taxed their operations.
Before bingo and raffles were approved, the only gambling in the state was allowed at the Oaklawn Park horse track in Hot Springs and Southland Park, a greyhound track in West Memphis.
Act 388 of 2007 legalized charitable gambling through bingo and raffles and established a method of taxing the games. Any charitable group that runs either a bingo or raffle must purchase a license or risk prosecution. Those who run a bingo game must additionally pay a 1-cent tax on each bingo "face" sold and a 10 percent tax on all bingo equipment.
A bingo card can contain several faces -- or squares. Each face is a playing area.
It's the 1-cent tax on the bingo faces that drive the games into the red, George said.
State officials, at the time the legislation was passed in early 2007, said the taxation was meant only to cover the administrative cost of regulating the game. The state began collecting the tax in September.
It appears the money generated by the taxes will exceed the $700,000 originally forecasted by the end of the state's fiscal year in June, said John Tice, assistant revenue commissioner at the Arkansas Department of Finance and Administration.
What is to be done with that extra money is up to the General Assembly in 2009, he said.
The effect of taxation has been that some smaller bingo games in Arkansas have stopped because of the higher cost to run a game. The lower profit leads to lower payout for players, which entices fewer folks to play.
For example, if a group offers the state maximum payout of $7,500 in an evening to a crowd of 100 players then the organization must raise $75 per person to cover the winnings given out each session, Tice said. That amount is before the state taxation on bingo faces, which is usually higher than the cost of the printing itself.
"Some of the smaller organizations are finding that they just can't draw enough players," Tice said.
The intent of the state law governing charitable bingo and raffles wasn't to regulate the practice, it was to eliminate them altogether, said Jerry Myers, commander of American Legion post in Prairie Grove. The post hosts a Thursday night bingo game that attracts between 25 to 40 people each week.
"Overall, we are probably operating at pretty much a deficit," Myers said. One of the ways the post is considering keeping its bingo game afloat is by shutting down one of its high-paying games.
"Of course, if we were to shut that down, people would be mad," he said.
The post depends on an established audience of regulars who come out as much for the pleasure of playing as the hope of winning big, he said.
He wrote a check in December for a three-month supply of bingo cards and paid $1,800, about $1,100 of which went to state taxes on the bingo faces. The post gave away five college scholarships last year but decided to eliminate one because of the increased cost of running the bingo game.
Myers said he hopes the state regulations are changed in 2009 to lower the tax.
State Sen. Shane Broadway, D-Bryant, was a sponsor of the legislation that led to the new rules. He said the laws were meant to regulate charitable gambling, not squash it. By regulating the practice, it ensures bingo operators do not take advantage of bingo players.
If the money generated by the tax continues to exceed the amount needed to police charitable bingo and raffles, then the tax could be lowered when the Legislature meets next in 2009, he said.
"We will have to take a look at everything involved at that time ... but it is possible," he said.
The state has issued 337 charitable bingo and raffles licenses. Six of those are to the state-sanctioned manufacturers and distributors of equipment and bingo sheets. Twenty-four of those licenses are to groups in Benton, Carroll, Madison or Washington counties.
Of the licenses granted in Northwest Arkansas, half are temporary licenses allowing only a single bingo or raffle to be held. Half of the 24 licenses are to groups in Washington County.
The only group in Benton County to receive a yearly license for bingo is St. Bernard of Clairveaux Catholic Church in Bella Vista. The church is going to try its first bingo game Thursday and hopes to hold it twice a month, said parish manager Ray Brust, a church deacon.
The church recently paid about $4,000 for the bingo faces and equipment required to run a game.
"I was taken aback when I realized the state was taxing so much," he said. "I'm not really sure why the state felt like it needed to get involved in taxing the games."
The church plans to use any money generated by the game to help needy people in the community and continue financing several area nonprofits.
Brust said he is unsure if the game will generate any additional money for the church.
"We are testing the water. We are hoping at least to make our investment back," he said.
The Associated Press contributed to this story.
Charitable Gambling Windfall
Taxes levied on charitable bingo and raffles are supposed to cover administrative costs to oversee the programs, estimated at $700,000 a year. About $500,000 has been collected by the state in the first four months since the rules were enacted.
* September: $221,000
* October: $109,000
* November: $94,000
* December: $76,000
* Total: $500,000
Source: Arkansas Department of Finance and Administration
Gambling Licenses
The state offers four types of charity gambling licenses. Operating without a license is a misdemeanor punishable by a fine of up to $5,000. The licenses offered include:
* Bingo and Raffle: $100 for one year
* Temporary Bingo: $25 for one bingo session
* Class One Temporary Raffle: $25 for one raffle
* Class Two Temporary Raffle: $10 for one raffle (limited to a $500 prize)
Web watch
Rules governing charitable gambling in Arkansas can be read at http://www.arkansas.gov/dfa/rules/et2007_4.pdf
Source: Arkansas Department of Finance and Administration
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