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Gaming tax issues brewing

Every year, legislative bills are introduced that include some reference to raising taxes on the gaming industry. But since gaming was legalized during the 1990 special legislative session, the tax rate has remained constant: 12% gross tax rate on total revenue, with 8% earmarked for general funds and the remaining 4% returned to the cities and counties where gaming properties are located.

With state lawmakers looking under every rock and in every cranny for money to fund budget shortfalls, chances are good that bills introduced during the 2005 legislative session to help cover the budget shortfall will be given a longer look.

“There’s been so much coverage of the budget deficits in Mississippi,” said Andy Bourland, executive director of the Mississippi Gaming Association. “Every year, a handful bills are introduced looking to raise taxes on the gaming industry in Mississippi for various reasons, such as education or disaster relief. We’ll keep an eye on that during this legislative session.”

The gaming industry represents big bucks in the Magnolia State, funneling more than $360 million annually from casino operations to state and local governments. The casino industry employs 40,000 people in Mississippi, with a $1-billion payroll, which adds another $90 million to the state’s tax revenue.

Also, Mississippi casinos purchase more than $2 billion in goods and services each year to support their operations, including food and beverage, advertising, office supplies, computer equipment, vehicles, hotel and restaurant supplies and other items. According to the Mississippi Development Authority, the gaming industry has been the driver behind the tripling of Mississippi’s tourism and recreation sales from 1992 to 2000.

“The main reason that state lawmakers have not increased our tax rate is because Mississippi did it right the first time,” said Bourland. “The legislative and executive branches studied this very hard and set a reasonable tax rate and have maintained it because they want to encourage capital investment. Over the 12 years that gaming has been in Mississippi, we’ve seen existing properties upgraded or brand new operations added. Just since 1999, there’s been great investment in Imperial Palace, Beau Rivage, Isle of Capri, Casino Magic, and the list goes on. For the most part, the Legislature clearly understands the contributions of this industry and has resisted attempts to raise taxes. That reasonable tax rate has really allowed operators to continue to invest as opposed to what you’ve seen happen in most of the gaming jurisdictions across the country that have used the limited license approach.”

According to a 1999 study by the University of Southern Mississippi, commissioned by the Legislature, raising taxes on Mississippi’s casinos “would put people out of business,” said Bourland.

“If taxes are raised 2%, 3% or 4%, it will put approximately half a dozen operators statewide out of business,” he said. “It will unemploy thousands of people. How would the state deal with those issues? The last thing you want to do is rob Peter to pay Paul.”

The states of Nevada, New Jersey and Mississippi allow the marketplace to determine the healthiest competition. In limited license states, the number of operators is limited, generally to 10 to 15, with those operators paying a substantially higher tax rate.

“In some cases, it’s as high as 70% of gross operating revenue,” said Bourland. “Could you imagine us opening a hardware store and having to pay the state 70% off the top? In those states, you really have riverboat-like operations. The trade-off is limited competition, but it limits your ability to invest in advertising, marketing and capital investment projects, which is the real heart and soul and strength of the Mississippi market. Because of a healthy competitive marketplace, Mississippi now has a full resort casino experience to offer, everything from wonderful restaurant choices, headliner entertainment and ongoing shows to retail operations, spas, golf courses, all representing a tremendous diversity of product that has made the state, in a very brief time span, the third leading gaming jurisdiction in the U.S.”

For the most part, the Mississippi Gaming Association will be monitoring legislative activity during the 2005 session without the backing of Beau Rivage, one of its biggest financial contributors. Late last month, Beau Rivage, the only casino to oppose the expansion of the Mississippi Coast Coliseum and Convention Center, withdrew its membership to the organization.

“We … commit to working with them on select projects of mutual interest,” offered Beau Rivage president Jeff Dahl.
Neither Imperial Palace nor Copa Casino belongs to the group.

Bourland said Beau Rivage’s decision to withdraw from the association would not affect its lobbying efforts.

“By and large, the gaming industry’s role in Mississippi is to educate and inform legislators about what the industry is doing for Mississippi,” said Bourland. “Occasionally, other issues more property-specific come up. In a given year, six to 10 bills concerning taxes, gaming commission changes, and so forth catch our attention. For the most part, we play defense.”

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.

About Lynne W. Jeter

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