October 3, 2008
WISCONSIN TAXPAYERS LOSE IN HO-CHUNK SETTLEMENT
Wisconsin’s dispute with the Ho-Chunk Nation might be over after a four year battle, and Wisconsin taxpayers got the short end of the stick in the gambling compact settlement.
The Ho-Chunk stopped making payments to the state in 2004 after signing a compact with Governor Doyle in 2003. The tribe argued that because a 2004 state Supreme Court ruling invalidated a similar compact agreement with the Forest County Potawatomi, it owed the state nothing.
Since 2004, Ho-Chunk halted payments with the exception of a one-time $30-million payment during 2006 it claimed demonstrated good faith bargaining.
Here are the details of the recent settlement that should have taxpayers quizzically shaking their heads wondering, is that all there is?
The state contended the Ho-Chunk owed $72 million. Ho-Chunk has agreed to pay $60 million. That is a $12 million jolt to Wisconsin taxpayers.
Terms of the old compact had the Ho-Chunk paying the state a six percent tax of its take. Under the new compact, the Ho-Chunk will make payments of five percent if net earnings are below $350 million and 5.5 percent if earnings exceed $350 million. The reduced percentage means a loss of millions of dollars to the state. By contrast, the Potawatomi pay 6.5 percent of winnings.
The new compact also allows the Ho-Chunk to make reductions in their annual payments to the state:
· Beginning May 1, 2010, the tribe can deduct payments made to counties totaling $1,000 for every acre of land owned by the U.S. government in trust for the tribe located within each county’s jurisdiction in July, 2003. The LFB informs me that during July 2003 the Ho-Chunk had approximately 2,300 acres of trust land that could result in a reduction in their annual state payment of $2.3 million.
The casinos are arguably some of the most lucrative, profitable businesses in Wisconsin, yet their payments to the state are questionable. I asked the non-partisan Legislative Fiscal Bureau (LFB) to prepare a memo that provides information that compares the imposition of the state corporate income and franchise tax, general sales tax, and local property taxes on private businesses to tribal casino operations in Wisconsin.
· During a 10-year period from May 1, 2009 to May 1, 2019, the tribe could deduct the amounts it paid for public works projects that benefit both the tribe and the state. Deductions would be limited to no more than $1.0 million in any one year and the total deductions for the period could not exceed $5.0 million. That means there could be an average annual deduction of $500,000.
· The tribe can also deduct any additional amounts paid by the tribe for projects that the state and the tribe agree provide a substantial public benefit in areas of economic development, infrastructure, health, safety, or welfare. These deductions would begin May 1, 2019, would be limited to a total of $4 million, with annual deductions limited to a maximum of $1 million.
The LFB writes a “tax rate of 7.9 percent is applied to Wisconsin net taxable income to determine gross tax. The annual payment negotiated with the Ho-Chunk Nation is five percent of net win (5.5 percent if net win is greater than $350 million). Since net win generally does not include deductions used in determining net income, the net-win amount is likely larger than would be the case if the Ho-Chunk Nation casino was subject to the state corporate income and franchise tax. In addition, corporate income and franchise taxes can be offset by state tax credits. However, the corporate income and franchise tax rate is 7.9 percent which is higher than the 5.0 percent or 5.5 percent rate applied to net win.”
On the matter of the sales tax, the LFB writes, Due to restrictions in federal law, the state sales tax is not imposed on purchases or leases of otherwise taxable items by the tribes for use in the casinos. In addition tribal gaming proceeds generally are not subject to the sales tax. Sales of lodging, food and beverages, and admissions to the entertainment events at the casino are taxable if the purchaser is not a member of the tribe that is operating the casino, but exempt if the purchaser is a tribal member.”
Finally, on property taxes, the LFB writes, “Casinos owned by Native Americans are exempt from the property tax.”
To re-cap, Wisconsin businesses pay a higher tax rate than the rate Ho-Chunk and other tribes pay the state from their earnings. The tribes do not pay sales taxes or property taxes.
At first blush, the amount of the payments being made to the state through negotiated compacts may sound sizeable. However, there are significant societal costs due to gambling.
Serious problem gamblers lose or quit their jobs, steal money to support their gambling habit, think about and actually plan suicide, and some even make suicide attempts. Children of problem gamblers develop behavior and adjustment problems suffering from depression, anxiety, and cynicism.
The Wisconsin Council on Problem Gambling Helpline Executive Director Rose Gruber says the average debt of callers to her hotline during 2007 was $43,000, up from $37,000 during 2006. Wisconsin has over 332,000 serious problem gamblers reported during 2007, up from 265,000 the previous year.
A Wisconsin Policy Research Institute study in 1996 reported the average serious problem gambler imposed costs close to $10,000 upon Wisconsin each year with a total annual social cost impact of over $307 million. The same study reports the average serious problem casino gambler imposed costs of over $10,000 upon Wisconsin each year with a total annual social cost impact of over $138 million.
The Ho-Chunk’s deal with the state can be renegotiated after 25 years. Meanwhile, for the next two and half decades, the Ho-Chunk can offer Las Vegas-style games at its casinos in Baraboo, Black River Falls, Nekoosa and Tomah. It operates a bingo parlor in Madison and a new casino is scheduled to open in Wittenburg in October.
Governor Doyle negotiated a deal that brings in less money at a smaller percentage to the state and allows huge expansion of gambling in the state.
If you have comments on this or any other issue, please contact me at firstname.lastname@example.org, www.senatorlazich.com, Senator Mary Lazich, State Capitol, P.O. Box 7882 Madison, WI 53707 or 1-800-334-1442.