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Charitable gambling has nonprofits betting on legislative change

Pull tabs at Tin Cup, located on Rice Street in St. Paul. Photo by Paul Battaglia
Pull tabs at Tin Cup, located on Rice Street in St. Paul. Photo by Paul Battaglia

Eastview Hockey Association, home of the Lightning, boasts some traditional sponsorships that help children in Apple Valley play hockey so parents and coaches don’t have to shoulder the entire costs that come with fueling a youth hockey league.

Sponsors include a dentist office, a couple sporting goods stores, a car wash and detailing business, and even the Minnesota Wild. But patrons of Bogarts, where there’s a dueling piano bar and bowling, or Valley Tap House (a selection of 30 beers on tap) also benefit the association every time they gamble on electronic pull-tabs or linked bingo.

Charitable gambling is a huge moneymaker for the state. Last year, the Minnesota Gambling Control Board reported another record year: $1.5 billion in gross sales, up 13.2 percent from 2015. With some 2,800 locations throughout Minnesota, mostly in bars and in veterans halls, charitable gambling helps fund youth sports, food shelves, scholarships and even wildlife management projects.

Increased sales also means increased winnings — organizations awarded $1.3 billion in prizes last year — and increases in funds going back to nonprofits like the Eastview Hockey Association. In 2016, after handing out winnings for gamblers at places like Bogarts, there was $252.3 million in mostly cash left over statewide. Of that chunk of cash, however, only $70 million went to those groups that bank on charitable gambling.

Taxes on charitable gambling are an estimated seven times more than an average Minnesota business’s tax, according to Alan Lund, executive director of Allied Charities of Minnesota, a nonprofit trade association for charities. Last year, charitable gambling raked in $60.89 million for state, local and federal gambling taxes and regulatory fees.

Moreover, Lund and others contend, after regular expenses and bills, these groups are paying more in taxes than they can spend in their communities and on their missions.

“State government is strangling the golden goose,” Lund told the House Commerce and Regulatory Reform Committee in January.

 

Easing the tax burden on charities

The numbers project an increase in upcoming years, too. Tom Barrett, the gambling board’s executive director, told the House Commerce and Regulatory Reform Committee in January that spending on charitable gambling in the current fiscal year is already up 11 percent.

“It’s been a good six years,” Barrett said.

With some 2,800 locations throughout Minnesota, mostly in bars and in veterans halls, charitable gambling helps fund youth sports, food shelves, scholarships and even wildlife management projects. Photo by Paul Battaglia

The gambling board requires every organization benefiting from charitable gambling to be registered and gives them an annual “star rating.” Any group below three stars gets put on probation but is given the chance to bounce back. Much of those rankings depends on how they spend their money.

A provision previously included in the omnibus tax bill that passed the House March 30, and since removed, would reduce the amount of taxes these groups pay on charitable gambling collections. Originally HF226, sponsored by Rep. Bob Dettmer (R-Forest Lake), the provision would allow organizations to deduct lawful purpose expenditures from their gross receipts and pay less in taxes.

In an interview, Dettmer said some of that money going to the state should instead stay at home.

“They aren’t able to put as much into their communities,” Dettmer said. “I’d like to see that money stay within their communities.”

Dettmer, a veteran, pointed to American Legions and VFWs suffering from declining membership. Fewer members means less revenue for nonprofits like American Legion Post 225 in Forest Lake or Moose Lodge 1274 in Cloquet. When taxes take out an additional fat chunk, Dettmer said, these groups have less dedicated funding to their mission and more to the state.

 

Where does the money go?

The gambling board estimates 16.5 cents on every wagered dollar goes to something other than prizes, like “lawful purpose expenditures,” or LPEs. A majority of the 1,170 registered organizations are required to spend 30 percent of their net purposes on LPEs, which includes taxes.

Last year, much like most years, younger Minnesotans were the biggest beneficiaries of charitable gambling. More than $9 million went to youth activities associations and $3.67 million funded scholarships in Fiscal Year 2016, an increase from $8.27 million and $3.18 million in Fiscal Year 2015.

Public programs and projects received $10.79 million from charitable gambling in Fiscal Year 2016, while capital assets or real property improvements received $2.47 million. Problem gambling, which the state spent $2.1 million last year battling, received $6,245 from charitable gambling proceeds.


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