The Gambling Division prepared and presented a "white paper" at the council's previous direction to examine the issue of "negative taxes" on gaming machine revenue.
This occurs when a machine has actually lost revenue--paid out more than it takes in--at the close of a quarterly tax reporting period. Its losses are instead reported as "zero" income and cannot be balanced against revenue produced by other machines at that location, nor can the loss be carried into the next period.
The "white paper" found that deducting losses from gains, or at least carrying the losses forward to the next reporting period when presumably that machine would produce a positive revenue flow, would mean a reduction of $25,000-$45,000 in annual taxes collected.
The paper said an earlier opinion from the attorney general's office said there is no provision in the statute to credit machine losses and that since it had not been done perviously, a legislative change would be required to rectify the situation.
Council chairman Tooke, himself a Certified Public Accountant, observed that individuals can balance losses against income when calculating income tax owed, and said he felt this situation was similar.
"It's a matter of fairness," he said. "There should be some allowance made for losses." The losses are "money down a rat hole," Tooke said.
Carson, a gaming machine route vendor, said, "I had a half-dozen locations last week in the hole, and 13 the week before. We should be able to include losses in the income total, and that should be easy with electronic (tax) reporting" that is becoming the norm. "It's just not fair," he said.
GIA's Miller said the statute very explicitly calls for a 15 percent tax rate on gaming machine revenue. When losses cannot be deducted or carried forward, the actual effective tax rate exceeds the 15 percent mandated by statute, he said. Thus, the appropriate change could be accomplished by amending administrative rules to bring the real tax rate into compliance with the statute, he said.
Huntington said some software adjustments in the state's new electronic tax reporting system would be required to accommodate the change.
Carson said the tax data gathering tools used at the location level can be adjusted "very promptly."
Montana Tavern Association counsel Mark Staples asked if perhaps the change could be wrought by adjudication in a court challenge.
The division's Rick Ask said the division had been relying on the earlier attorney general's opinion as its authority in the matter.
Council member Bob McAnally said, "Isn't that what we call 'gambling'? Aren't the losses just part of the business?"
Marc Wass, GIA president, said from the audience, "We don't expect to win all the time; we just don't think its fair to pay taxes on money we didn't earn."
Again, as discussion dragged on, Pam Kennedy moved to establish a committee to study the issue and bring forward recommendations. A unanimous vote to approve Kennedy's motion spawned the new committee with Carson, Blasdel and McAnally to serve on it.
Huntington noted that he would need to submit a notice of intent to bring legislation on the matter to the budget office and to the Legislature's Law and Justice Committee for approval.
Source: The Montana Tavern Times, May, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.