This article was written by Brian Arola and originally appeared in the Mankato Free Press on Feb. 20, 2017. Read the original article here.
MANKATO — Charitable gambling organizations parlayed a big sales year in 2016 into more donations to community causes.
But they feel they could help out even more if state taxes didn't claim so much of their gross receipts. In 2016, the nonprofits donated $62 million to charities, while paying $60.6 million in state taxes, according to the Minnesota Gambling Control Board's annual report.
The organizations may be in luck. Legislation passing through tax committees at the Capitol in recent weeks calls for charitable donations to be exempt from the state gambling tax rate.
Similar proposals haven’t gained much steam in past sessions, but there’s renewed optimism this year might be different. Al Lund, executive director of the Allied Charities of Minnesota trade group representing 1,200 organizations statewide, said he feels there’s growing recognition that the state tax is cutting into the nonprofits' abilities to donate in their communities.
“Our members are more and more getting to the tipping point, so more are realizing that they need to get involved,” he said.
Currently, a charitable gambling organization pays out more than 80 percent of its sales back in prizes to its patrons, which wouldn't change. The remaining percentage is then taxed incrementally depending on how much the organizations do in sales for pulltabs and other select forms of gaming — from 9 to 36 percent for the top sellers. Whatever amount remains is then spent on lawful expenditures like charitable donations, building upkeep and expenses.
The new legislation would only lower taxes on the money organizations donate to charitable causes.
“What our charities are saying is we didn’t get involved to become a primary tax collector for the state,” Lund said. “We got involved to help our community.”
Local gambling managers say the tax relief could be a major help, both in terms of allowing them to stay in the gaming business, and in how much more they’d be able to donate to their communities.
John Lamm, gambling manager for the Lake Washington Improvement Association, said he’s reached out to area legislators in the hopes they’ll get on board with the legislation. None of the 23 representatives signed on as authors for the bill are local.
Lamm said lowering the high tax rate — his organization is big enough to fall in the 36 percent rate — would be a step in the right direction.
“I think more should be done than that, but this is a start,” he said. “What we’re paying them is phenomenal.”
One of the biggest charitable gambling organizations in the state, the Mankato-based Community Charities of Minnesota, paid more than $65,000 in state taxes in January alone, according to gambling manager Mark Healy. Municipal taxes in some communities further cut into gross receipts.
Healy said any dollar they don’t have to pay in taxes would be a dollar put toward community causes.
“What’s unfortunate about this is we can get money to charities and needy people a lot quicker than the Legislature can,” he said.
Jim Steiert, president of Mankato Area Hockey Association, said he knows exactly how the tax relief could help his organization. With youth hockey participation on the rise, the extra money could be put toward a capital campaign for a new ice sheet in Mankato.
“Any tax relief would be welcome,” he said. “Whether it’s for charitable gambling or your personal tax return.”
One roadblock for the tax relief is how it could impact funding for U.S. Bank Stadium. Charitable gambling has helped fund construction costs for the stadium since 2012.
Speaking to the tax committees in recent weeks, the Minnesota Department of Revenue's Tax Policy Manager Paul Cumings said the relief could negatively impact stadium funding. The hit to the state's general fund could also be greater than estimated, he said.
Lund said his organization has offered to work with the department of revenue to address the stadium funding issue before its potential inclusion in the omnibus tax bill.
“It’s complicated and we have ideas on how to address that,” he said. “We’ve offered to work with the tax chairs and department of revenue.”