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HomeMy WebLinkAboutCOW 2011-03-28 Item 4E - Ordinance - Raise Tax Rate Applied to Social Card Rooms COUNCIL AGENDA SYNOPSIS ILA (r Initials ITEM NO. s iv Meeting Date Prepared by Mayoreav until revien 1 a f;' 0 I 02/22/11 1 SH 1 1 i 0 4' 0 03/28/11 I SH I I Z9o: I I I I I q. E' ITER INFORMATION CAS NUMBER: 11-007 1 STAFF SPONSOR: CITY COUNCIL I ORIGINAL AGENDA DATE: 02/22/11 AGENDA I1"EM TITLE An ordinance to raise the tax rate applied to social card rooms. CATEGORY Discussion ['Motion Resolution Ordinance Bid Award Public Hearing Other Mtg Date 03/28/11 Mtg Date Mtg Date Mtg Date Mtg Date Mtg Date Mtg Date SPONSOR Council Mayor Adm Svcs DCD Finance Fire Legal P&R Police Pi-V SPONSOR'S The attached ordinance would increase the tax rate applicable to social card rooms from SUMMARY 10% to 15 REVIEWED BY COW Mtg. CA &P Cmte F &S Cmte Transportation Cmte Utilities Cmte Arts Comm. Parks Comm. Planning Comm. DATE: 02/22/11 (REGULAR MTG.) CONDEIl"1'EE CHAIR: CITY COUNCIL RECOMMENDATIONS: SPONSOR /ADMIN. City Council COMMITTEE i COST IMPACT 1 FUND SOURCE EXPENDITURE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED Fund Source: Comments: MTW,D ATE, N RECORD OF COUNCIL ACTION` 02/22/11 No action taken, defer agenda item to future COW meeting. 03/28/11 MT DATE 1:; y ',:"'ATTACHMENTS 03/28/11 1 Informational Memorandum dated 03/24/11 Ordinance in Draft Form Minutes from the 02/22/11 City Council meeting 139 140 ,1 I A'11; sy City of Tukwila 0 14 Jim Haggerton, Mayor a 90 INFORMAT MEMORAN DUM TO: Mayor Haggerton Committee of the Whole FROM: Shawn Hunstock, Finance Director DATE: March 24, 2011 SUBJECT: Gambling Tax Rate for Social Card Rooms ISSUE Should the gambling tax rate on public card rooms be changed from the current rate of 10 BACKGROUND One of the ordinances considered at the February 22, 2011 City Council meeting was an ordinance that would have changed the tax rate applicable to public card rooms from 10% to 15 The City Council deferred the tax rate ordinance that evening and asked that it come back to a future Committee of the Whole meeting. The purpose of this informational memorandum is to reintroduce the tax rate change ordinance, as well as discuss the potential impacts of a gambling tax increase on the operations of the three casinos. The current gambling tax rate of 10% for public card rooms has been in effect since November 1976. The initial rate when the tax was adopted in February 1975 was 20 Following is a list of surrounding cities that allow social card rooms, and the applicable tax rate: City Tax Rate Auburn 12% Burien 11% Des Moines 10% Federal Way 10% Fife 4% Kent 11% King County 11% Kirkland 11 Renton 10% SeaTac 10% No casinos currently operating in the City. 141 INFORMATIONAL MEMO Page 2 Gambling tax revenue for the three existing casinos was $2,023,726 in 2010. Assuming no other changes in revenue or operations at the casinos, each 1% increase in the gambling tax rate would generate approximately $200,000 in additional revenue to the City. An increase of 5% in the gambling tax rate would generate approximately $1,000,000 in additional revenue each year. DISCUSSION Staff requested financial information from the three casinos operating in the City to determine the potential impact of a tax rate increase on their profitability and operations. To date, two of the casinos have provided the requested information. Both casinos are publicly traded corporations, whose financial statements are audited and subject to review by various organizations including the Securities and Exchange Commission. Staff review of the financial statements consisted of evaluating the financial position and results of operations of the casinos to determine the potential impact of a gambling tax rate increase. The review did not consist of an audit by staff as the financial statements were previously audited by independent certified public accountants. Staff makes no assertions regarding the accuracy of the financial statements or representations made by representatives of the casinos. Non disclosure agreements were signed by City staff and given to all three casinos. Following is staff evaluation of the financial statements that were provided. Oral and written statements of casino representatives were not relied upon when evaluating the audited financial statements. The most recent financial statements provided for both locations was for 2010. One of the two responding casinos operates fourteen card tables, and the other location operates fifteen tables. In addition to the card tables, both locations also have pull tab sales. Food and beverage service is provided at each location. Gambling revenue from the card tables and pull tabs accounts for 85% of gross revenue. Food and beverage sales, rental income, ATM fees and other miscellaneous revenue accounts for the other 15% of gross revenue. Both casinos that responded to the information request are currently showing little net income from operation of the casino for the most recent reporting period, calendar year 2010. One property had net income of approximately 1% of gross revenue, and the other property had net income of approximately 5% of gross revenue. Removing non cash items, such as depreciation and amortization, resulted in slightly higher positive cash flows for both properties. However, the impact of a 50% increase in gambling taxes would result in immediate negative cash flows for one of the two properties, and little cash flow for the other property. The casino that would operate with negative cash flows right away would more than likely need a significant investment of resources from a parent corporation or issue debt to sustain operations. Given the finite amount of time the property can remain open due to the ordinance recently adopted by the City Council, it is unlikely this investment would take place and the casino would more than likely dose in the near term (approximately one to two years). C:ltemp\XPgrpwiselI nfoMemo _GamlingTaxlncreaseREV.doc 142 INFORMATIONAL MEMO Page 3 The other property that would still have a small positive cash flow would be able to sustain a 50% gambling tax increase in the short term. Profitability of the casino would be negatively impacted, though. As a publically traded company subject to investor expectations regarding earnings, the potential exists for the property to close early and resources reallocated to other more profitable casinos. Also, gambling revenue is down in the state overall, most recently by 10.1% for the twelve months ended June 30, 2010 according to the Washington State Gambling Commission. Given overall declining revenue statewide, and decreased profitability of the property if the gambling tax is increased, it appears unlikely this property would remain in business throughout the remaining five years available under the ordinance recently adopted by Council. RECOMMENDATION The administration is recommending Council not adopt the gambling tax rate change in the attached ordinance. The increase in gambling tax would negatively impact the profitability of all three casinos, it could lead to the closure of at least one of the casinos in the near term, and it would more than likely hasten the closure of all three casinos before the end of the five year sunset provision in the recently approved ordinance. ATTACHMENT Draft Ordinance C:ltemp\XPg rpwiselI nfoMemo _GamlingTaxlncreaseREV.doc 143 144 DRAFT AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, REPEALING ORDINANCE NOS. 1809 §1 (PART), 1891, 2150, AND 2230, AS CODIFIED -AT TUKWILA MUNICIPAL CODE (TMC) SECTION 3.08.030; RE- ENACTING TMC SECTION 3.08.030, "TAX RATES," TO RAISE THE TAX RATE APPLIED TO SOCIAL CARD ROOMS; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. WHEREAS, RCW 9.46.110(3)(f) allows the gross revenue from social card games to be taxed at a maximum rate of 20 percent; and WHEREAS, the City has had the same tax rate for social card rooms since 1976; and WHEREAS, the City Council desires to raise the tax rate applied to social card rooms; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY ORDAINS AS FOLLOWS: Section 1. TMC Section 3.08.030, "Tax Rates," Amended. Tukwila Municipal Code (TMC) Section 3.08.030, "Tax Rates," is hereby amended to read as follows: A. Pursuant to RCW 9.46.110 and RCW 9.46.120, as amended by the Laws of Washington, effective July 27, 1997, there is levied upon all persons, associations and organizations who have been duly licensed by the Washington State Gambling Commission, as authorized by law, the following tax: 1. To conduct or operate any bingo games and raffles, a tax rate of 5% of the gross revenue received therefrom, less the actual amount paid by such person, association or organization for or as prizes; 2. To conduct any amusement game, a tax rate of 2% of the gross revenue received therefrom, Tess the actual amount paid by such, person, association or organization for or as prizes; 3. For the conduct or operation of any punchboards or pulltabs, a tax rate of 5% of the gross receipts from such activities for commercial stimulant operators (taverns, restaurants, etc.); and a tax rate of 10% on the gross receipts less the amount paid out as prizes for charitable or nonprofit organizations; 4. For the conduct or operation of any premises or facility used to play social card games, a tax rate of 20% of the gross receipts received therefrom; and W: Word Processing \Ordinances \Tax Rates Amended Final 2 -17 -11 SMK:mrh /bjs Page 1 of 2 145 5. Any public card room operated as a commercial stimulant, a tax rate of 15% of the gross receipts received therefrom. B. Non Profit Organizations. 1. No tax shall be imposed under the authority of TMC Chapter 3.08 on bingo or raffles when such activities or any combination thereof are conducted by any bona fide charitable or nonprofit organization as defined in RCW 9.46.0209, which organization has no paid or management personnel, and has gross income from bingo and raffles, or any combination thereof, not exceeding $5,000 per year, less the amount paid for or as prizes. 2. The Finance Director may waive the tax due each quarter from a bona fide charitable or nonprofit organization as defined in RCW 9.46.0209. This waiver may occur only if the charitable or nonprofit organization demonstrates by clear and convincing documentation that an amount equal to at least 70% of the tax due the City, as computed pursuant to TMC Section 3.08.030, will be donated to charitable nonprofit organizations serving the City whose purpose is to provide programs or facilities for meeting the basic health, education, welfare, or other needs of the residents of the City. Failure to donate at least 70% of the tax due the City will result in revocation of the waiver and the disqualification of the bona fide charitable or nonprofit organization to receive a waiver for future tax payments. Section 2. Repealer. Ordinance Nos. 1809 §1 (part), 1891, 2150, and 2230 are hereby repealed. Section 3. Severability. Should any section, paragraph, sentence, clause or phrase of this ordinance, or its application to any person or circumstance, be declared unconstitutional or otherwise invalid for any reason, or should any portion of this ordinance be pre empted by state or federal law or regulation, such decision or pre emption shall not affect the validity of the remaining portions of this ordinance or its application to other persons or circumstances. Section 4. Effective Date. This ordinance or a summary thereof shall be published in the official newspaper of the City, and shall take effect and be in full force five days after passage and publication as provided by law. PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of 2011. ATTEST /AUTHENTICATED: Christy O'Flaherty, City Clerk Jim Haggerton, Mayor APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Published: Effective Date: Shelley M. Kerslake, City Attorney Ordinance Number: W: Word Processing \Ordinances \Tax Rates Amended Final 2 -17 -11 SMK:mrh /bjs Page 2 of 2 146 Tukwila City Council Regular Meeting Minutes February 22, 2011 Page 6 of 8 *ROLL CALL VOTE ON AMENDMENT TO THE MAIN MOTION DUFFIE NO HERNANDEZ NO EKBERG YES ROBERTSON NO SEAL YES HOUGARDY NO QUINN YES MOTION FAILED 3 -4, WITH DUFFIE, HERNANDEZ, ROBERTSON, HOUGARDY VOTING NO. *ROLL CALL VOTE ON MAIN MOTION TO ADOPT THE ORDINANCE AS READ BY TITLE ONLY DUFFIE YES HERNANDEZ YES EKBERG NO ROBERTSON YES SEAL NO HOUGARDY YES QUINN NO MOTION CARRIED 4 -3, WITH EKBERG, SEAL, QUINN VOTING NO TO ADOPT ORDINANCE NUMBER 2323. 7,\,/ 2. An ordinance to raise the tax rate applied to social card rooms. MOVED BY DUFFIE, SECONDED BY ROBERTSON THAT THE PROPOSED ORDINANCE BE READ BY TITLE ONLY. MOTION CARRIED 7 -0. Christy O'Flaherty, City Clerk, read the proposed ordinance by title only. AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, REPEALING ORDINANCE NOS. 1809 §1 (PART), 1891, 2150, AND 2230, AS CODIFIED AT TUKWILA MUNICIPAL CODE (TMC) SECTION 3.08.030; RE- ENACTING TMC SECTION 3.08.030, "TAX RATES," TO RAISE THE TAX RATE APPLIED TO SOCIAL CARD ROOMS; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. MOVED BY DUFFIE, SECONDED BY HERNANDEZ THAT THE PROPOSED ORDINANCE BE ADOPTED AS READ.* Shelley Kerslake, City Attorney, explained this ordinance was requested at the last Council meeting. The State law allows cities to tax social card rooms up to a 20% ceiling. The City's current tax rate is 10 and this ordinance would raise the rate to 15 Councilmember Robertson would like to forward this issue to a future Committee of the Whole meeting to allow time to gather information, perform analysis, and review the financial impacts. COUNCILMEMBER DUFFIE WITHDREW THE MOTION TO ADOPT THE ORDINANCE AND COUNCILMEMBER HERNANDEZ WITHDREW THE SECOND. MOVED BY ROBERTSON, SECONDED BY DUFFIE TO FORWARD THE ORDINANCE TO A COMMITTEE OF THE WHOLE MEETING IN 5 WEEKS. MOTION CARRIED 7 -0. 9:23 p.m. Mayor Haggerton declared a brief recess. 9:32 p.m. Mayor Haggerton reconvened the Regular Meeting. 147 148