GAC tackles 'negative tax'
Pub Date: 9/1/2008
The Gaming Advisory Council (GAC) voted to work with the Gambling Control Division to pursue legislation to correct the "negative video gaming machine (VGM) tax" as well as address the need for independent sources to supply parts and upgrades for obsolete VGMs.
The GAC met at the Hampton Inn in Kalispell July 25 at 9 a.m. and concluded It's business by noon.
Earlier, the Council had appointed a subcommittee to study the negative tax which results when a VGM has paid out more than it has taken in during a tax reporting quarter. That loss is not credited when taxes for that quarter are paid, nor can the loss be carried forward into the next reporting period. For tax accounting purposes, every machine starts at "zero" at the beginning of a tax period, regardless if it lost money the previous quarter.
Gambling Control Division Administrator Gene Huntington said the subcommittee had met in a tele-conference earlier and recommended developing legislation to correct the anomaly. He said such action would likely entail licensees deducting losses from taxes owed for a reporting period. He said this would, as some see it, prevent the overpayment of taxes by an estimated $104,000 annually.
Council Chairman John Tooke said the brunt of the negative tax has fallen on smaller locations and was glad to see action being taken. Councilman Tim Carson expanded on the notion, pointing out that relatively low machine play volume means a machine takes a long time to get back in the black after a big payout and is often still in the red at the end of a quarter.
It was confirmed route operators would be required to share the tax reductions with locations per their contract splits.
Huntington also suggested it would be best to start the new accounting procedure at the beginning of the next full fiscal year following the effective date of the legislation.
If, for example, the 2009 legislative session passed the statutory amendment and made it effective Oct. 1, 2009, the change might best go into effect at the beginning of the next fiscal year, July 1, 2010.
He also pointed out some changes to the division's accounting software would have to be engineered to allow for the machine loss tax credits.
Next, the Council took up the matter of advancing VGM technology and its impact on the Montana market.
At the last GAC meeting, a subcommittee was formed to sponsor a forum on changing VGM technology which subsequently took place June 25 in Billings (see a full report on the conference in the August edition of the Montana Tavern Times).
Out of that meeting came three suggestions which were put before full GAC.
One idea was to find some way to dispense with impact printers now integral to Montana VGMs under state law. The devices produce printed duplicate audit rolls of machine events for compliance, record keeping and tax calculation verification purposes.
The impact printers add substantial cost to manufacturing Montana-specific machines since the devices are only required in two gaming jurisdictions Montana and South Dakota, gaming machine manufacturers said. Some have even predicted the printers may not be manufactured for long as demand for them declines.
Other methods to securely store machine play data could rely on small, portable USB plug-in "thumb drives" or even external or internal hard drives, it was said. In addition, smaller, less expensive thermal printers could be used in place of impact printers to produce win tickets.
Carson said first, though, a determination needs to made as to exactly what data will need to be recorded and stored. Huntington noted he didn't want to see drastic changes that would require overhaul of the division's newly configured database.
Carson also emphatically stated he didn't want operators to see this development as one that could drive further "forced" machine obsolescence. "This is not a retro-fit," he said, but rather an option for inclusion in new machine development.
Huntington said he thought associated regulations could be changed in rule and the Council moved and approved a direction to the Division to proceed with development of concepts and rules to allow an advance to thermal printers and computer memory data storage.
A second item that came out of the technology conference deliberations was finding a way to allow independent producers to develop software and hardware upgrades to machine models that had been declared obsolete or were abandoned by original manufacturers.
The issue came to a head last winter when the U.S. Treasury released new high-security five dollar bills that could not be recognized by older bill validators that also had insufficient memory to be upgraded. In tandem, some older VGMs cannot work with the new bill acceptors. It was estimated up to 4,000 machines in Montana's inventory could not be upgraded for the new fives.
Councilman Nick Murnion, Garfield County Attorney, said the intent was to find ways to extend the life of older machines which nevertheless remain important to some operators, particularly small-volume venues.
Tooke said it was necessary to establish a definition of when a machine was officially obsolete, abandoned or no longer supported by an original manufacturer and Carson said it was key that any independent entity providing upgrades be approved and licensed by the Division to assure continued industry integrity.
Whether upgrades to keep old machines running will be cost effective is an unknown and will only be illuminated by the market function, it has been said.
An affirmative vote by the Council directed the Division to pursue statutory or rules changes of definitions of "associated equipment and to broaden the (range of) types of components that can be replaced or modified by someone other than an (original) manufacturer" including consideration of whether proprietary components could be replaced.
Finally, the Council considered whether Montana's poker rules, governed by a text written decades ago and referred to as "Scarne," needed to be updated to bring Montana more in line with poker rules applied in other jurisdictions.
At the June 25 conference, it was noted Montana poker rules aren't in step with other jurisdictions, and vice versa, making poker games developed for Montana one-off items, increasing their cost while contributing to ever declining popularity.
arson said video poker accounts for only 20 to 25 percent of VGM play here. He said the game could be enhanced while remaining within Montana statutory restrictions.
The Council voted to direct the Division to begin discussions with Montana game manufactures to identify factors that are holding back improvement of the entertainment value of poker and to explore remedies.
The Council then returned to the issue of VGM record keeping requirements. At the earlier technology conference, it was suggested the success of the state's automated on-line reporting system could alleviate onerous record keeping requirements. Some operators are required to keep duplicate audit rolls for up to three years, others for two years.
he Division's Rick Ask said testing of the integrity of the automated system has begun and could be complete by October. He said then rules changes could be formulated as he didn't see any "compliance roadblocks."
Upon questioning, Ask said requirements could be initially reduced to one year, then maybe even further. He also said he thought using other data storage media could be viable.
Ask reported that the automated procedure for permitting VGMs on-line also appears to have gone well with a few minor wrinkles that are being worked out.
Carson, a route vendor from Billings, said from his perspective the automated systems for reporting and machine permitting are working very well. "We're extremely happy with how the system is working," he said.
Huntington reported that 78.4 percent of the state's VGMs were currently reporting on-line and so were 70 percent of locations. He noted to gain multi-game machines, locations had to commit to reporting on-line at some point after a system became available.
That time is now, Huntington said, and the Division has, district-by-district, begun enforcing the multi-game provision, but will approach the process from a constructive perspective, preferably helping operators comply rather than forcing them to yank multi-game machines.
Huntington then circulated draft "housekeeping" legislation that would address a number of relatively simple but desired legal updates including language governing cardroom contractor leases, updates to bingo card configurations and minor revisions of raffle laws, which will need to be addressed further in more depth at a later date.
He noted early estimates indicate gaming tax revenues would increase by about 4.3 percent for Fiscal Year 2008 (July 1, 2007-June 30, 2008) over the previous year (see complete story on FY 2008 gaming tax collections on page 14 in this edition).
Having completed its agenda, the Council selected Dec. 17 as the time for its next meeting and will gather at GCD headquarters in Helena, where, Huntington said with a smile, "I might introduce you to the new GCD administrator." A new attorney general will have been elected and GCD administrator is an attorney general's appointment.
Source: The Montana Tavern Times, September, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.