Category Archives: taxes

People’s Interests Being Dealt a Losing Hand

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Several bills have been introduced to legalize casino wagering on sports in Missouri this year.  Most are versions of bills that have failed to gain passage for the past three years.

None of the bills has a single word protecting the state’s interests in casino gambling.  Not a single word.

What are the state’s interests?

Funding for public schools.

Funding for various veterans’ services.

The National Guard

Funding of a college scholarship program.

Funding for a program to help people who become addicted to the casinos’ products.

Funding for the cities that are hosts for casinos.

The first hearing on one of the bills took place yesterday in a Senate Committee before which I raised this issue last year. In the year since, there has been time to dig deeper into this concern. And the concerns have become deeper.

Yesterday, I talked to the Senate Appropriations Committee about, first, the much-lower tax proposed for sports wagering adjusted gross receipts and, second, about the multi-million dollar damages that tax will cause to elementary and secondary education. Other concerns will be voiced as other bills are brought up for hearings.

None of these bills should be sent out for floor debate until they have been extensively revised to protect the state’s interests.

Please understand that these comments do not oppose casinos or sports wagering. But they do oppose the Missouri General Assembly being skillfully maneuvered into passing new gaming laws that degrade the state’s interests and the interests of the people of Missouri.

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After listening to three years of committee hearings on proposed sports wagering legislation, I am left with the impression that the proposals are being presented as if the issue is unique, separate from other forms of gambling and therefore should be treated as a special category.

It would be erroneous to accept that concept.

The creation of legalized sports wagering can be likened to the addition of a new kind of cheeseburger to the menu at McDonald’s. The biggest difference is that McDonald’s is not lobbying you to lower the sales tax on the cheeseburger while leaving it the same for all of its other products.

Sports wagering is just one more activity in which casino customers can take part. One more item on the gambling menu. But the menu also contains the same products it always has had. Separating one product from the other for taxation purposes makes no sense, whether is a sports bet or a cheeseburger.

This year’s proposed legislation makes it clear that sports wagering will not be done in some other building but will be done on the property of the casino, a phrase that bears scrutiny because it does not specifically say the activity will take place within the wagering area of the casino, a clear position for the state to take. Nonetheless, the assumption seems to be that bets will be accepted within the casino, processed within the casino, and—when necessary—paid within the casino—the same as with bets in all other forms of casino gambling.

Betting on sports is no different than betting on the fall of the cards, the roll of the dice, or the circling of a little white ball.  You will hear me say it many times in these discussions: a bet is a bet is a bet. It’s done in the same facility; the money goes into the same bank account; the taxes are paid on both kinds of money—although the casinos want much less tax charged on proceeds from sports betting by calling for a much lower rate and then by re-defining AGR to make less money taxable by exempting things from the taxable amount in some of the bills.

The proposed legislation accepts that casino winnings on sports bets will be considered part of the casino adjusted gross receipts (AGR) and part of those receipts will be funneled to public education. But the industry claims some of those receipts are not equal to the others for taxation purposes. Once again, a bet is a bet is a bet. That’s the central issue.

Although I have not seen a federal or state income tax form filed by any of our casinos, I doubt that there is one line for taxable income and a second line for taxable sports wagering income on those forms. The federal tax on that income is the same regardless of the source of the income. There is no fair reason why the state tax on AGR should be different from the tax on AGR generated by other forms of gambling.

Sports wagering is NOT something apart from the rest of the casino operations in either space, processing of bets, or in accumulated casino income.

The casinos argued in an earlier hearing that the tax on adjusted gross receipts should be much less than the tax on other forms of gaming because the house advantage on sports wagering is “only five percent.”  That is true. But it’s not the whole truth.

The house advantage of sports wagering is more than the house advantage of several other games offered by the casinos. A study done for the Center for Gaming Research at the University of Nevada-Las Vegas indicates the house advantage is lower than five percent for some of the other gambling opportunities in casinos, yet the industry has never sought a lower tax rate on those games.

Because sports wagering is just another gambling opportunity within the casino, the income from which is part of the general profits of the business, there is no reason to grant sports wagering a preferred tax rate or a different definition of AGR than is used for other gambling activities—as is proposed in this year’s sports wagering bills.

Missouri has 28 years of history to support this argument.  For almost three decades the monthly financial reports of the State Gaming Commission have broken out revenues from table games from revenues from slot machines for each of our casinos. Table games contribute about 15% of the revenues; electronic gaming devices, as the category is called, contributes the other 85%.

For almost three decades, the casinos have had no problems with the revenues from those two sources combined into one AGR figure and taxed at 21%.  Now, however, the industry wants you to approve and new, and what is likely to be the second-most lucrative revenue stream, but they want the legislature to approve a far lower tax rate for it—a tax rate that will undermine support from the other two categories for elementary and secondary education.

I have been told that casinos say they cannot do sports wagering with a 21% tax on AGR.  That’s THEIR problem.  The legislature has a responsibility and that responsibility is not to solve the casino industry’s problems.  The legislature’s responsibility is to the people back home–the school teachers and children, the veterans, the college kids needing a state scholarship, the home dock citis.

If the casinos “can’t do sports wagering,” there still will be gambling on sports.  It just won’t be legal.  and the casinos won’t make any money from it.  That’s their choice.

DAMAGE TO ELEMENTARY AND SECONDARY EDUCATION

Various sports wagering legislation this year proposes tax rates on sports AGR of nine percent, 6.75 percent, 6.25 percent and 6.0 percent. (The particular bill heard yesterday proposes a nine percent rate)

The present tax on AGR from all other forms of gaming is 21 percent.  Ninety percent goes into a fund for elementary and secondary education. Ten percent goes to the home dock cities.

We can explain the problem with a fourth-grade-style arithmetic example.

Johnny’s mother wants to make some apple pies.  She gives him some money and tells him to guy ten apples. There will be enough to buy something for himself if wants it.

Johnny buys ten applies and, seeing plums also on sale, buys a plum to eat on the way home. At the checkout counter, he learns the apples cost $2.10, or 21-cents per apple.  His plum costs 6.75 cents.  The first ten items cost 21-cents each. The last one lowers the average cost of the eleven items to 19.7 cents each.

Using this example, the tax rates proposed for sports wagering could lower the average AGR tax to 19.91% (nine percent rate), 19.70% (the proposed 6.75% rate), and 19.66% (the proposed 6.25 rate, which would establish a new low rate in the nation), and 19.64% (the 6.0% rate proposed in a House bill).

In fiscal year 2018-19—the last full year before the pandemic significantly affected the casino business, the casinos reported to the Missouri Gaming Commission that $15,160,505,906 had been bet in their slot machines.  Table games produced “only” $1,255,959,366 for a total bet in our casinos of $16,416,465,272.  The slot machines had a payout rate of 90.3%.  Table games had a “hold” of 20.8%–meaning table games produced a 79.2% pay out.

The result was an AGR of $1,735,757,881, or 10.57% of the total amount bet and Missouri’s tax on the AGR amounted to 2.2% of all funds bet in slot machines or at gaming tables.

The math shows that a nine percent tax on AGR (the definition used for all other forms of gaming in Missouri) would cost elementary and secondary education about $17 million. The loss to schools would top $21.2 million at the lowest rate proposed.

I don’t know how many members of the General Assembly want to go home and tell their school superintendents they favor legislation that would pump tens of millions of dollars into casino profits while cutting state funding to education by $17-21 million with no realistic hopes of recovery. It will take a lot of PTA chili suppers to make up the difference.

All of this is based on numbers supplied to the Missouri Gaming Commission by the casino industry in Missouri.  We believe it shows the depth of loss the state will incur if the legislature passes these gaming bills without major rewriting.

The extensive homework behind these observations is below.

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All discussion of percentages and holds and payouts aside, here is what the current AGR tax rate produced in that fiscal year and how much the state would have lost if the tax rate were reduced.

21%       $364,509,155    Existing rate

9% (19.91) $345,589,394     Reduction of $18,919,761 ($17,027,785-$1,891,976)

6.75%  (19.7)  $341,944,303     Reduction of $22,564,852 ($20,308,367-$2,256,485)

6.25%  (19.66) $341,249,999     Reduction of $23,259,156 ($20,933,240-$2,325,916)

6.0%   (19.64)  $340,902,848  Reduction of $23,606,307 (21,245,676-2,360,631)

It might be argued that the increased AGR of sports wagering would have offset those losses.  How much betting would have been necessary to bring about that offset?

It would have taken an AGR increase totaling $210 million to produce $18,900,000 at 9%

It would have taken an AGR increase totaling $336 million to produce $22,680,000 at 6.75%

It would have taken an AGR increase totaling $372 million to produce $23,251,000 at 6.25%

It would have taken an AGR increase totaling $ 394 million to produce $23.640,000 at 6.0%

Actually, the AGR increase would have had to be even more substantial because the sports wagering bills re-define AGR through a series of exemptions that would have lowered the amount of money that was taxable.

If, using the 2018-2019 fiscal year as the basis, we calculate how much more would have to be bet on sports to reclaim the lost funds, and understanding that AGR represents 11% of the total amount bet (we’ve rounded up the percent), then the amount bet on sports to recover the lost funds at the four tax rates advocated in this year’s bills would be:

9%—$2,079,000,000

6.75%—$3,326,400,000

6.25%—$3,682,800,000

6.0%—$3,374,938,195

And further, there would have been another loss occurring because of the lower tax rates because the schools and home dock cities would be losing income from the AGR if it had been  taxed at the present 21%.  For example:

$210,000,000 taxed at 21% would have earned $44.1-million.

$336,000,000 taxed at 21% would have earned $70.56 million.

$372,000,000 taxed at 21% would have earned $78.12 million.

$394,000,000 taxed at 21% would have earned $82.74 million

In other words, the schools and home dock cities, while waiting to collect $22,564,853 at 6.75% would have been foregoing $70.56 million that would have reached them at the current 21% rate.

The loss to elementary and secondary education and to the home dock cities, therefore would have been (approximately) $25.2 million, $48 million, $54.8 million, and $59.1 million.

Elementary and Secondary Education (and the home dock cities) will NEVER catch up.

The goal for the casinos in adding sports wagering is to INCREASE their AGR.  This study shows how much the DECREASE in elementary and secondary education and the home dock communities might have been if the average AGR tax had been lowered, that it would have taken hundreds of millions of dollars in wagering to REPLACE the funds lost by elementary and secondary education through the lowering of the average AGR tax rate, and the income loss while waiting to replace lost income through increased wagering would have been an even larger financial setback.

Casinos don’t seem to care about elementary and secondary education, veterans, college kids, problem gamblers, or even their home dock cities.  Somebody has to raise these issues. Perhaps you might ask your legislator about whether he favors passage of legislation that will undermine financing for all of these issues we’ll be raising in subsequent hearings.

I hope legislative committees don’t send any of these bills to the floors for debate without substantially rewriting them to protect the interests of the state.

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Us vs. It—Part XI, Reasons to Act

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I bought something from the internet the other day—a photograph from a company that sells archived news photos from decades ago.  No sales tax was charged by the company, which is in a nearby state.

The purchase is a reminder.

If the state needs money—and it surely does—

There is no better time to finally approve collecting a sales tax on purchases made through the internet.

The Missouri General Assembly has gone to great lengths to avoid enacting such a requirement for a decade or more. It has refused to create a collection policy of our own and it has rejected suggestions Missouri join a multi-state compact that collects sales taxes.

Past efforts have been attacked by those who use a faulty argument to avoid the responsibility needed to enact the bill.  “It’s a tax increase,” opponents claim.

Dishwater!

The state sales tax is not—let me emphasize that, NOT—being increased. If the law requiring the state sales tax be paid on purchases on the internet were to pass, the state tax you and I pay when we buy from an internet vendor would be the same as the tax charged when we buy from a hometown business. I should be able to duck a citizen responsibility to contribute to the well-being of others by buying something through the internet.

The argument in favor of an internet sales tax is even more compelling in today’s plague-mangled economy.  Hundreds of local businesses have closed because of stay-at-home orders. Many have not reopened and some never will reopen.  But one of our neighbors (yours and mine) who owns a brick-and-mortar business knows that customers who used to buy things at that store have been buying them on the internet while the store has been closed.

The problem of local folks visiting stores, checking the prices, and then buying the same thing from an internet vendor already was a problem before virus-caused closings forced consumers to increasingly rely in the internet.  Now the question becomes whether they will go back into the hometown stores when they open?

Passing a law requiring Missourians to pay the same sales tax on internet items that they have to pay for local in-store purchases is more symbolic than profitable for the merchant.  But at the same time, promoting the reopening of brick-and-mortar businesses without taking a step that offers a slight whiff of equality with internet vendors seems pretty inconsistent (although you might have a stronger word).

The need to do this has been increased by an executive order signed by our president that he says will resume the expired supplemental unemployment payments.  The executive order will pay $400 but the states will have to contribute $100.

The legality of the executive order aside, Missouri’s general revenue fund needs every penny it can generate whether for supplemental unemployment payments, virus-fighting efforts or maintaining services even at their reduced levels.

Our state leaders have insisted time after time that testing is the key to controlling the Coronavirus in Missouri.  At this point, it’s anyone’s guess whether Congress and our president can agree on a stimulus package that will include billions of dollars for state testing. Lacking that, it’s hard for someone well detached from the ins and outs of the statehouse these days to imagine where the state will find money for that testing without further wrecking the state budget, let alone where it will find money for its share of unemployment payments without the same result.

Where the state of Missouri would find $100 multiplied by several thousand each week is a troubling question.  The governor already has withheld or vetoed hundreds of MILLIONS dollars to balance the state budget.  Schools are opening and education at all levels has been badly bruised by the necessary budget actions. Inflicting deeper cuts to the biggest places to cut, education and social services, could be tragic at a time when schools, in addition their normal expenses, have to face the costs of keeping students, faculty, and staff safe from the virus.

By making Joe or Josephine Missouri pay the same sales tax on a coat from a Internet Inc., as Sarah and Samuel Showme have to pay for the same coat from a Main Street store, Inc., Missouri’s leaders and lawmakers can send a little positive message to the businesses they want to reopen despite health uncertainties at home by collecting needed funds from consumers who want to avoid a few pennies in sales tax by buying online.

The virus has produced all the justification needed to finally impose an internet sales tax. It won’t entirely solve the state’s financial problems. But it could at least partly equalize the competition for the local dollar, provide at least some of the funding for the state’s contribution to the supplemental jobless benefit, and/or ease the depth of any additional budget cuts or withholdings.

Unfortunately, this is a campaign year and candidates will stampede away from advocating anything that can be called, however erroneously, a tax increase no matter how desperate the virus causes the state to be for additional funds. Perhaps we’ll have to wait until January to see if those whose political futures have been determined by then will screw up the courage to take this step.

Whose Money Is It?

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—OR, how a $2 fee is having a multi-million dollar negative economic impact in Missouri.

This entry will be lengthy because we have to use a lot of numbers to make our point.

A number of bills changing Missouri’s gambling laws have been filed for this year’s legislature. But we wonder if any of them should be considered until a significant problem with one of our existing laws is corrected because it has turned into a growing economic drain on our state.

Regular consumers of these pages know that the author has been advocating a fee increase for the casino industry to pay for the creation of a National Steamboat Museum.

As we’ve researched that issue we have come across a lot of interesting other issues and concerns. We passed some of them along to the House Interim Committee on Gaming that met this fall. In some cases we think we have some answers but here’s one where we don’t. Maybe some of our lawmakers will try to provide some. Or maybe somebody will ask the court system to do look into things. Our voice, however, is puny compared to the politically influential voices of a large, wealthy, and politically persuasive industry.

First, the scenario.

In 1993, the legislature required the casinos to pay the state two dollars for each admission on their proposed riverboats. Our first two casinos opened for business in the spring of ’94 and they paid the two dollars, no problem.

Our casinos have paid the two dollars in each fiscal year since. They are obeying the law.

But there’s this thing called inflation.

In the second fiscal year of casino gambling in Missouri, the inflated value of two dollars was $2.05 and the purchasing power of two dollars dropped to $1.95. In the fiscal year after that the equivalent value of two 1993 dollars was $2.11; purchasing power was down to $1.90. (Our numbers come from the Federal Bureau of Labor Statistics.)

We get into some higher mathematics now. Our casinos paid the state in fiscal 1994-95 a total of $25,216,862, a very healthy increase in state general revenue. But if they had paid the state the inflated value of the two dollars, they would have paid the state an additional $702,172.

Whose money was the $702,172? The 1993 law does not say anything about casinos being able to keep what we refer to as “windfall profits.”   In fairness, the law does not prohibit casinos from keeping that money, either.

We were around then, covering the legislature, and don’t recall any concerns that the day would come when two dollars wouldn’t be worth two dollars. Trying to determine legislative intent at this great distance could be difficult although there are a lot of people still around who were serving in 1993 and voted on that bill who might recall what it was.

Fast forward to fiscal year 2018-19 that ended last June 30. Our thirteen casinos paid the state $75,000,634. But the inflationary value of the 1993 two dollars had risen to $3.48 (and it’s $3.53 for this fiscal year). Had the casinos paid the state in contemporary equivalent dollars, they would have paid the state about $55.6 million more than they did. Instead, they kept the money. The total windfall profits after twenty-six years of unadjusted two-dollar payments had reached $888.5 million as of June 30.

Whose money is it?   And whose money SHOULD it be?

Neither side seems to be protected by that 1993 law.

Compounding this question is the continued decline in purchasing power of the two dollars our casinos pay the state. It was down to $1.15 in the most recent fiscal year. The total loss of purchasing power since our casinos opened had reached $944.2 million.

The combined total of dollars the casino industry has kept because of windfall profits and the loss of purchasing power of the two dollars the industry did pay represented an economic deficit to the state during those twenty-six years since the two-dollar fee was established of almost $1.833 Billion as of June 30.

Now the question becomes even more acute: Once again, Whose. Money. Is. It?

There are some other questions, too. Why wasn’t anybody paying attention, either at the gaming commission or in the legislature? The casino industry probably was because it was reaping the benefits but should the industry have stepped forward and said, “Hey, legislature, this two-dollar fee thing is making us a lot richer while the programs intended to be funded by the two dollars are getting poorer and poorer?”

It was under no legal obligation to do so.

Now, with the accumulated negative economic impact after more than a quarter-century of casino gambling nearing Two Billion Dollars, shouldn’t somebody start trying to determine whose money this really is?   Should these windfall funds have been set aside in some kind of an escrow account until somebody decided who is entitled to them? Nothing in the law requires that.

A complicating factor is that the customers of casinos do not pay the fee. It comes out of casino revenues, the money casinos win from the customers. When the law was passed in 1993, it was still assumed there would be boats on the rivers making two hour cruises for which customers paid two dollars. They would get off the boat at the end of two hours and a new group would get aboard (and those wishing for another two hours on the boat would get back on board), each paying two dollars. But when the present system of boats in moats ended any thoughts of customers paying to enter the casino, the decision was made for casinos to pay the state two dollars per person with a new count being made every two hours. That’s how casinos wound up with 37.5 million admissions last year in a state of only six million people, most of whom don’t go to casinos. No customer pays anything.

That means the two dollars is not a pass-through from customers to the state, in effect a user fee. It is now a fee charged to the casinos and it is paid out of their money. (Their adjusted gross receipts in the last fiscal year were more than $1.735 Billion.)

If it is the casino industry’s money, is it the industry’s responsibility to make sure the two dollars going to the state are worth two dollars to the programs and entities that the fee was intended to pay for? If the two dollars are worth only $1.15 to the receiving entity, are they really the “two dollars” promised them by the statute?

The law says two dollars. Period. No inflationary adjustments are mentioned. And the casinos have done what most of us would have done (and what we might have done in certain circumstances)—if there’s money left on the table and nobody else claims it and if it’s MY table, it’s my money.

It is time to answer the questions. Here are the main reasons why.

The two dollar admission fee is split with one of the dollars going to the host city of the casino and the other dollar going to the state gaming commission which takes its budget out of those funds and then divides the remainder among a handful of worthy causes. The biggest worthy cause is the Missouri Veterans Commission Capital Improvements Trust Fund that provides money for nursing homes and cemeteries for our veterans.

Last fiscal year, each of those dollars had the purchasing power of 57.5 cents. The value is down another penny this year. Five years ago, the figure was 61 cents. At this rate, it won’t be long before the casinos are making more money from the two-dollar admission fee that was intended to offset the additional costs to host cities of a casino’s presence and to fund the gaming commission and its worthy causes benefiting veterans, college students, and programs for people who get in trouble because they gamble.

Nothing in the law says they can’t.

Nothing in the law says they can.

Whose. Money. Is. it? And—

Whose. Money. SHOULD. It. Be?

Who can answer the question? The state auditor? The attorney general? The legislature?

No matter what happens with our steamboat museum idea, isn’t it time to find an answer for our veterans, our college students getting scholarships under a program funded by admission fees, problem gamblers looking for help from a program financed by these fees, and our casino host cities?

Here are some additional figures that seem to bold-face the need to address this situation. It has been a long time since our high school bookkeeping class so we hope there is not a flaw in this reasoning. But here it is.

The state received $75,000,634 in admission fees in the last fiscal year. But because of the lack of inflationary adjustment in the two-dollar fee, it did NOT receive $55,600,438 more. That was the windfall profits that the casinos kept. The inflation-caused loss of buying power meant the $75 million the state did get was worth only $42,375,358, a loss of $32,625,276. Here is what it all adds up to:

If we add the amount of money that the casinos kept to the amount of lost purchasing power in the money the state got, the total is $88,225,744.

That means the state of Missouri and the home dock communities in the last fiscal year saw an economic DEFICIT of $13,225,110. Our analysis shows the unadjusted admission fees have produced annual economic losses to the state for the past five years totaling almost forty-eight million dollars.

That economic deficit is on track to almost DOUBLE in the current fiscal year.

In the first six months of this fiscal year (July-December) the economic loss was $$12,201,732—almost as much as all of last fiscal year. Why? Although admissions are down four percent from last year, the value of the two-dollars in contemporary money is more and the purchasing power of the money the state has received is less. The windfall profit so far this year is $28,285,835. The purchasing power loss for those six months is $20,890,844, a combined total of $49,176,680. The two-dollar fee has produced a payment of only $36,974,948.

At least, that’s how it appears from our calculator. And that’s why it is time for the General Assembly to take corrective action, despite this being a campaign year in which the well-financed casino industry can exert great pressure to keep millions flowing into its accounts while the programs the admission fee was created to pay for are victims of a rapidly rising negative economic impact. As long as that $2 fee is not adjusted, the casinos get richer and the programs and entities the fee was intended to finance get poorer.

The casinos want the legislature to let them take bets on sporting events, a new type of wagering that some expert testimony in last autumn’s committee hearings say could increase their revenues by hundreds of millions of dollars a year. Why should it be unrealistic to think the admission fee problem should be solved before these thirteen businesses are allowed to haul in even more dollars through sports wagering?

The casino industry probably would prefer this boat not be rocked, this sleeping dog not be awakened, this pot not be stirred. Its reasons are understandable. But for the others, isn’t it time somebody rocked the boat, awakened the dog, and got busy stirring?

A good time for a critical review

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As we have researched issues related to funding for construction of a National Steamboat Museum and a State Museum building, we have come to the conclusion that somebody should empanel a commission, task force, or committee to see if the laws and regulations on casino gambling in Missouri are best serving the interests of the six-million people who live here or are best serving the interests of the owners of thirteen businesses, all of which are headquartered in other states.

Frankly, we think things have evolved to the advantage of the latter and to the disadvantage of the best interests of the people of Missouri.

We don’t know if there has developed some kind of mysterious mental vortex on this matter, but it’s good to see that Speaker of the House Elijah Haahr has established an interim committee on gaming headed by Representative Dan Shaul of Imperial.

The committee already has held a hearing on Video Lottery Terminals. Efforts are being made to legalize them. Some people in the casino industry see them as illegal competition and folks in the home-dock cities of our casino boats are concerned those terminals will further erode patronage at casinos and the steadily-eroding financial support those cities draw from casino admission fees.

About two months ago, Platte County Prosecutor Eric Zahnd sued a company that provides VLTs. He says the company has put a couple of the illegal machines in stores in Parkville, where police seized five of the machines last year. The company says the machines are not “betting devices” because lottery results already are determined before the player uses the machine. The case apparently is set for hearing in December.

We understand from talking to Rep. Shaul that the committee also will examine issues such as proposed sports wagering and other things.

We’ve had casinos in Missouri since the spring of 1994. There is ample evidence that at least one part of casino law is badly outdated, allowing the casinos to make large profits at the expense of their home dock cities, veterans, and others. And there are some serious questions about proposed sports wagering legislation.

Speaker Haahr has taken an important initiative and members of the committee and members of the legislature next year might be asked to exhibit courage during an election season in the face of a politically-powerful industry to tilt the tables back to a more fair level for the all of the people of Missouri rather than thirteen businesses.

There is nothing wrong with casinos making a lot of money. The problem is how they keep it. And after a quarter-century, it’s time for a fair but critical look at an industry that seems (from this perspective at least) to have only one goal: to take as much money out of Missouri as possible—by obeying the law. But are laws passed in the early 90s valid a quarter-century later?

They are to the casinos, who correctly note they are obeying laws and regulations. But are they fair to the people who elect members of the legislature to watch out for the welfare of all of the people of Missouri?

Speaker Haahr has appointed the committee to answer that important question.

Sponsorships

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State government never has enough money to fix the roads, educate our kids, take care of those of us in our declining years, pay our prison guards and state employees  enough to get off of food stamps, maintain hundreds of buildings it owns, keep our air and water safe, and a lot of other things.

I woke up on a Monday morning a few weeks ago with the solution.  I think it was the day after I’d watched the Indianapolis 500 in person and the NASCAR 600-mile race at Charlotte that evening on the telly.  It came to me that state government could make millions if it followed an economic model based on racing.

A few years ago the stock car race at Indianapolis was called something like the Your Name Here Crown Royal Brickyard 400 Powered by Big Machine Records.  Each year the name of some citizen—a private citizen who was a veteran or someone who had voluntarily done something of public benefit would be picked to fill in the “Your Name Here” part of the event name—a nice thing to do to recognize the importance of people like most of us who do good stuff just because we do good stuff.

And if you watch any of these events, you know that the first thing the winners do in the post-race interview is thank all the sponsors whose logos adorned their cars and are sewn onto their fire-resistant driving suits. “You know, Goodyear (Firestone) gave us an awesome tire today and our (Chevrolet, Honda, Toyota, Ford) had awesome power.  I’d like to thank Bass Pro, M&Ms, Budweiser, Coke, Monster Energy, Gainbridge, NAPA, and all my other sponsors who make this possible—and the fans, you’re the BEST!!!”

Suppose state government was run like that.

At the end of a legislative session, the Speaker and the President Pro Tem, in their joint news conference, began with “We have had an awesome, productive session here at the Anheuser-Busch Capitol powered by Ameren.”

“The Monsanto Department of Agriculture driven by the Missouri Farm Bureau will be better equipped than ever to regulate corporate farming through the Tyson CAFO Division.

“The Master Lock Department of Corrections employees are getting a significant pay increase; The Depends Division of Aging is expanding its services significantly; the Tracker Marine Water Patrol is able to hire more officers; and the Dollar General Department of Revenue is going to install new computers to get our H&R Block tax refunds out faster.

“The Cabela’s Department of Conservation sales tax renewal has been put on the ballot next year.  The Wikipedia Department of Higher Education driven by Nike has been given more authority to approve such programs as the Shook, Hardy & Bacon Law School at UMKC, the Wal-Mart Business School in Columbia, the Eagle Forum Liberal Studies program at UMSL, and technology developed at the Hewlett-Packard 3-D Missouri University of Science and Technology will now be capable of building new football facilities on our campuses for pennies..  And we found additional funding for the Cologuard Department of Health and its Purdue Pharma Division of Drug and Alcohol Abuse.

We also were able to put a proposal on the ballot next year to increase funding for the Quikcrete Department of Transportation.

“We couldn’t do all of the great things we’ve done in the 101st Session of the Citizens United General Assembly fueled by Laffer Economics without the support of all of our state’s other great sponsors.

“And we appreciate the participation of you citizens out there.  We couldn’t do this without all of you. You’re the BEST!!!”

And the confetti made from 1,994 un-passed bills would rain down and the legislative leaders would spray champagne (or, more likely, shaken-up Bud) all over each other in the Chamber of Commerce and Industry Legislative Victory Circle (previously known as the rotunda) and the legislative mascot dressed as the Official State Dessert would dance to a celebratory song performed by Sheryl Crowe, who next year will be chosen as a project by a third-grade class studying state government to be the subject of a bill designating her as the Official State Country Singer.

This would never work, of course.  We can’t see members of the legislature in uniforms that have state government sponsors’ patches all over them during the sessions or campaigning in outfits that have the logos of their donors.  And the Senate would just flat out refuse to tolerate anything that would eliminate Seersucker Wednesdays.

Even if government tried something like this, the Supreme Court would be tied up for years in lawsuits determining whether sponsorships should be calculated as Total State Revenue under the Hancock Amendment, thereby triggering tax refunds that would undermine the entire idea.  And Clean Missouri would get another ballot proposal approved by voters that would tie the Missouri Ethics Commission into knots trying to define whether sponsors constitute campaign donors.

Hate to say it folks.  In the real world, if we want better services or more services or better roads or prison guards who don’t have to hold two other jobs, it’s us taxpayers who will have to be the sponsors of state government.    And after all, shouldn’t we want to be

THE BEST?

They never give up, do they?

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The newest trick by the casino industry to escape any taxes on another slug of money removed from customers’ pockets has been heard by a House committee.  No action’s been taken and it’s likely too late in the session for this latest scheme to make it into the statute books. But there’s always next year.

If the bill somehow passes this year, that casinos will take another $100,000,000–plus out of Missouri in the next four years. And big boatloads annually after that.

It’s another broken promise by the industry.

Since the day casino gambling was legalized in Missouri, most of the tax on the industry’s adjusted gross receipts has been earmarked for education. For 25 years, that’s been okay with the casinos.

Not anymore.

A trend that could, in time, wipe out all of the gambling money going to education has been gaining momentum in the last four years.  The casinos are giving out coupons to customers allowing them to get free plays at machines and gaming tables. And they seem to be giving out more and more.   The legislative fiscal oversight office says the growth in taxes collected by the state in the last four years from these free play coupons has averaged 8.73%.  In Fiscal 2018, the state collected $37.8 million dollars from those taxes. Thirty-four million went to the “gaming proceeds for education” fund. The rest went to the home docking cities.  More about that later.

The casinos think there should be no tax charged on the money casinos take in from people using those free play coupons. None. They propose completely phasing out the 21% tax on money they make from these promotions in the next five years.

Some if this is kind of technical so I ran it past an accountant who gave me some help. When you read the technical stuff, that is the part from my advisor.

Here’s how it would work.

Suppose you wager $100 at the casino, twenty dollars from the coupon the casino has given you and eighty more out of your own pocket. You win $40 (half of it from the coupon and half of it from your own pocket).  You walk out of the casino sixty dollars in the hole.  The casino, by giving you a twenty-dollar coupon has made sixty dollars.

That’s how the current law works.  The state collects 21% of the sixty dollars you left behind, or $12.60.

The argument from the casino side seems to be that the $20 coupon comes from the casino’s previously-taxed adjusted gross receipts.  So it shouldn’t have to pay tax again when the $20 comes back.

The industry claims it recognizes only $80 in revenue, that it paid out $40, so its adjusted gross receipts are forty dollars, not sixty and therefore owes the state only $8.40, one-third less than the present law requires.

Whatever.

What the casinos want is to pay NO tax. The bill says, “Promotional play receipts shall not be taxed after June 30, 2023.”

Thus, the bill seems from here to say the casino that gets a business tax deduction with its promotional coupon would be excused from paying any gaming taxes on adjusted gross receipts generated by that coupon when it is gambled.

My accountant friend thinks the casinos are creating an un-level playing field (imagine that, casinos have tilted tables!) where the wagers are not taxed but the patron winnings from those wagers are still allowed to be deducted from the casino gross receipts, thus lowering the casino’s AGR taxes.

There’s an even greater hazard here.

The casinos want to pay no taxes on promotional play receipts. There is nothing in this bill that prohibits casinos from issuing promotional play coupons to every customer. And as the oversight division of fiscal research points out, the casinos’ use of promotional play has been increasing.

Fiscal research estimates the state will collect $244,650,481 under the existing 21% tax on promotional play between this fiscal year (FY2019) and FY2023.  If the present tax says in effect—as it has all this time—the state would collect an additional $62,457,772 in FY2024 and each year after that.

BUT if this bill passes this year and the tax rate is gradually reduced to zero, the state would collect only $138,624,390 during that same period, and would collect nothing in FY2024 and every year after that.  That’s a loss of $106,026,891 during that phase-in period plus the $62.4 million each year afterwards. .

But it’s not just the education fund that will get hurt with this demand from the casinos.  Ten percent of the adjusted gross receipts tax goes to the home dock cities that already are seeing their funding reduced because the dollar they get from casino admission fees isn’t worth anywhere near a dollar.  Fiscal research estimates they will lose $10,602,610 by the end of FY2023 and will lose $6,245,777 each year after that.

Many years ago the casino industry agreed that the tax on adjusted gross receipts would go for education with a little bit to the home dock cities.  At that time all of the promotional play was taxed. If this bill passes, hundreds of millions of dollars more will go to casino corporate headquarters instead of being used to underwrite a small percentage of Missouri’s school funding and meet additional costs the home dock communities have because they have welcomed a casino.

As usual, the casinos get richer and richer while the causes that are supposed to benefit from casino taxes get poorer and poorer.

Just another example of an industry that cares not one whit about the people of Missouri, its education system, or even for the communities that think they’re great corporate citizens.

They’re not.

But they never give up, do they?

A t-shirt story

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I have a t-shirt that says “Missouri. It’s not all that bad.”

Some folks laugh at it.  Others just shake their heads.

A new survey indicates why those opposite reactions are both accurate.  A new survey says we’re keeping our money (“because the people know better how to spend their money than government does,” as the legislative cliché goes).  But what’s it costing us?

A personal finance company in Washington, D.C. peppers our mailbox regularly with surveys on local and state issues. One of the most recent looks at where Missourians rank when it comes to return on investment of their tax dollars.

Wallet Hub says Missouri is the sixth-lowest in total taxes per capita (meaning the population 18 and older).

But we don’t rank as highly in some key things the company also measured.

Our economy isn’t bad—19th, rated on the median household income, annual job-growth rate, the share of people living below poverty line, economic mobility, unemployment and underemployment rates.

We’re 25th in education, a measurement of the quality of our public university system. The company ranked 500 of the 951 public and private universities in another survey.  Truman State was the highest ranking public university in Missouri and it ranked 107th among the private and public schools. Missouri University of Science and Technology in Rolla was 140. UMKC was 200th, the University of Missouri (apparently Columbia) was 223.  Schools were measured on Student selectivity, cost and financing, faculty resources, campus safety, campus experience, educational outcomes, and career outcomes.

We were 29th in public schools rankings.  Among categories in that ranking were the number of blue ribbon schools per capita, high school graduation rate among low-income students, projected high school graduation rate increase between 2017-18 and 2031-32 school years, dropout rate, math test scores, reading test scores, median SAT and ACT scores, and pupil-teacher ratios.

Missouri ranked 35th in health, measured in terms of hospital beds per 1,000 people, the quality of public hospitals—using data from the Centers for Medicare and Medicaid Services, average life expectancy at birth, births, infant mortality rate per 1,000 live births, average health insurance premium, and the quality of health care.

The numbers for safety are worse. We’re 42nd in safety. The ranking is based on our per-capita violent crime and property crime rates and vehicle fatalities per 100-million miles traveled.

In infrastructure and pollution quality—only seven states are worse. The poor quality of our roads and bridges is well-known.  But other factors enter in: average commute time, parks and recreation expenditures, highway spending per driver, air pollution, and water quality and the share of the population that receives fluoridated water through public water supplies.

Not sure what we should expect as the sixth lowest in total taxes per capita.  Probably not surprising that we’re only average at best in some categories and among the worst in others.

But everybody has to be someplace.  And Missourians seem to be happy to be in the lower third of state in some important areas.

“Two roads diverged—”

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“In a yellow wood,” wrote Robert Frost

“And sorry I could not travel both and be one traveler, long I stood and looked down one as far as I could to where it bent in the undergrowth.”

Two years ago, Missourians elected a charismatic young man who promised to make his state office something special, something different, something clean.

Two years ago, Missourians elected another charismatic young man who promised to make his state office something special, something different, something clean.

One of those young men took a road that has led him downhill into the darkness of the undergrowth, out of sight, and probably away from his dream of much bigger things—although there have been reports of some sounds coming out of that darkness that he’d like to come back for another trip.

The second young man last Tuesday took a road that is leading him up, to a sunny future, and perhaps an opportunity to reach the destination the first man thought he was going toward.

Poetry can take some interesting political turns.

—

Two roads.  One paved, one gravel.  One that would have been important to maintaining and bringing jobs.  One that is paved now but facing reduction to gravel in the future. Missourians have chosen the gravel road into uncertainty’s undergrowth with their rejection of the latest gas tax increase.  Our state legislators and other state leaders who have made economic development a constant theme of their work have failed to convince voters that a tax increase would result in the good roads necessary to encourage economic growth.

They have sewn the wind by preaching the evils of taxes and the blessings of tax cuts and tax breaks, particularly for businesses that presumably will create more jobs.  But industry wants good roads to ship in manufacturing materials and equipment and good roads to ship products out.

“The people know better how to spend their money than government does,” we have heard them say repeatedly.  Again, the people have decided to keep their money and spend it for things better than building roads and bridges and interchanges to companies that might have provided jobs to those same people and their relatives and friends.

The people have decided they want a higher minimum wage, meaning many of those who might benefit from better roads and the better jobs they could help create will have more money for themselves.

Two roads.  Two men.  Two political philosophies.  But we travel with them and we are the ones who often decide which road they, and we, take—a road rising to the future or a gravel road descending into the dark undergrowth.

“And that has made all the difference.”

—or will, perhaps.

Let’s just end it

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Bought something on the internet the other day.  Clicked on an icon that said, “calculate sales tax.”   It was optional, but I clicked on it and was told my purchase would entail $1.79 in sales tax.

Did I regret clicking on that icon?   Not at all.  Just a half-hour earlier I had shopped for a similar item at a brick-and-mortar store and hadn’t seen anything I liked.  If I had bought that item at that store, I would have paid about that much in sales tax anyway.  So by clicking on the internet icon, I—to use a cliché—levelled the playing field.  And I remained a law-abiding citizen.

Please don’t congratulate me for my fairness.  I’m sure I could have found something better to do with that $1.79 than give it to the government which—to use another cliché recently spoken—doesn’t know how to spend my money as well as I do.  I just felt that since the U. S. Supreme Court has said states can collect sales taxes from out-of-state internet vendors I should respect the majority opinion of our highest court.

It has not been a surprise that a member of the legislature quickly has come to my rescue. And his reasoning is no surprise, either.  This legislator considers imposition of the Missouri sales tax on internet purchases made by Missourians to be a sales tax increase and thinks the state needs to provide some relief for such an onerous imposition.

Pardon us, however, if we have trouble understanding how the state collection of sales taxes on internet purchases is a tax increase. But if we accept that line of thinking, why accept the  convoluted solution that goes with it?   We have a far better one and one that without doubt would be much more politically popular.

The idea put forth in the proposed legislation is to cut individual income tax rates even more to offset the internet sales taxes that income taxpayers might soon have to start paying. The idea seems premature because it’s going to take some time to make it legally and mechanically possible to collect those sales taxes. Then it will take some time to get a consistent measurement of how much those collections will be and how Hancock limits affect them.  A little less enthusiasm for immediate remedies to the “problem” of collecting internet sales tax might be advisable because there are other issues to be considered.

Think of all of the Missourians who shop locally and pay the state sales tax.  They are good citizens. They follow the law.  The law says those Missourians will pay sales taxes.  They obey the law.

Where is their outrage or political outrage on their behalf—the good citizens—when other citizens avoid following the law by using the internet to avoid paying the sales tax on the things they buy?   Tax avoidance often lands some people in the pokey—unless its sales tax avoidance by using the internet.  It seems this early legislative proposal legitimizes their tax avoidance.

I’d be willing to bet that many Missourians intentionally avoid paying state sales taxes at felony levels each year.  They keep their $1.79 and are never prosecuted for avoiding the sales tax law.

Let it be clearly stated:  Requiring citizens to pay a tax they have avoided paying is NOT a tax increase.  It is a matter of fairness.  It is requiring the sales tax scofflaws to live by the same standards with which their shop-local fellow citizens live.

Here is an idea that is eminently fairer:  Eliminate the sales tax for everybody.

Clearly, there is within the philosophy that the state should not recognize additional funds by collecting taxes from people who should have been paying them anyway, an implied acknowledgement that adequate funding for state programs and services and bureaucrat salaries is not a matter of concern.

So let’s just level the playing field by eliminating the sales tax on everything.  That puts our local businesses on an equal footing with internet sellers—in fact, it might give them an advantage because they don’t charge shipping fees for local purchasers.

To carry out contemporary political thinking: Eliminating the sales tax will trigger a boom in local retail sales, thus providing more jobs that generate more income taxes that will offset the loss of sales tax revenue.

Let’s not make this thing more complicated than it is.  There’s no reason to start calculating income tax cuts.  Just get rid of all sales taxes, period.   That makes everybody equal.

After all, I could have done a lot of good things with that $1.79 if I hadn’t been honest enough to pay a sales tax.

A tax gift, if we want it

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The U. S. Supreme Court has shown it can change its mind and a new ruling that lets states collect sales taxes from out-of-state internet retailers gives Missouri government a new opportunity as well as some new issues to confront.

All reasons for NOT collecting taxes on out-of-state internet sales seem to have been eliminated by the court’s narrow decision to throw out a 1992 ruling saying out-of-state internet merchants would not have to collect state sales taxes and pay them to the purchaser’s state unless the company had a substantial presence in a state.

That ruling in the early days of internet commerce put brick and mortar businesses in Missouri and other states at a disadvantage and they’ve been aggravated for years that the legislature hasn’t corrected the problem.  The legislature has said its hands have been tied by the 1992 ruling.

The ropes are off now.  We’ll be interested to see if state leaders next year call for passage of a law requiring collection of that sales tax.  There is no doubt the state could use the money.

The legislation will not be easy to write although the court ruling does provide some hints about what will work.

It would not be surprising to hear some voices claim—as they have in the past—that imposing sales taxes on internet merchants would be a tax increase on purchasers and therefore not something the state should lay upon the shoulders of taxpayers who have avoided sales taxes on certain purchases up to now.  We’ll have to see if that lame argument still has any legs in a state that continues to rank in various studies in the lower third of all states for overall tax burden.

The court ruling makes it harder to justify saying, “We’re pro business” while maintaining a sales tax policy that puts our home-town merchants at a sales disadvantage to businesses that exist on our computer screens.

And where do we get the idea that the computers on our desks or in our pockets are not some kind of a “physical presence” in our state? Let’s be honest and admit that the internet long ago became more a physical presence in our lives than Wal-Mart. We don’t have to drive across town to buy something on the internet, after all.

Checking out through Paypal is no different from checking out at the local counter.  The buyer doesn’t  physically stick a credit card into a slot at a cash register with Paypal.  But internet merchants do have a cash register right in front of us—the computer that is a very real physical presence. My brick and mortar house becomes an internet merchant’s physical presence in my town and my state every time I check out with Paypal or some similar system.  (Ohio tried to address the issue with a law saying the use of cookies on consumer’s computers by internet retailers constitutes a “presence.” The retailers are fighting the idea in court.)

The danger, as some might see it, to requiring sales taxes to be collected on internet purchases is that state revenue might increase to the point that some lawmakers will decide to once again ease the overall tax burden on Missourians again.

That idea is getting pretty old. And shaky.

Political commentator Josh Barro, a former staffer at the Tax Foundation (considered a conservative think tank) who contributes to Business Insider, observes in a new article that the court decision reminds states of the Constitution’s Commerce Clause that says states cannot unduly burden or discriminate against businesses from other states.

South Dakota, which brought the lawsuit, avoids that pitfall by providing those retailers with computer software that makes it easier for them to pay sales taxes.  It does not require those retailers to deal with the state and every political subdivision within it that charges sales taxes.  The money goes to a central state agency.  Our Department of Revenue, which collects sales taxes collected by our local businesses and then sends proper amounts to local governments, would fill that role with internet sales taxes.

Missouri has not joined the twenty-or-so states that have signed on to the Streamlined Sales and Use Tax Agreement.  Those states have agreed to some common rules dealing with their sales taxes.  This ruling might encourage a new legislature (The 2019 General Assembly will have new leadership and several dozen new members) to take a new look at the SSUTA as it considers what to do to capitalize on the ruling.

One of Barro’s former colleagues at the Tax Foundation, Joe Henchman, says, “If you want to be absolutely sure that your statute is valid under these rules, you should try to emulate South Dakota as much as possible.”  So that’s a starting point.

Barro makes an important observation that some Missouri leaders seem to have been going against for some time: “It is important for a tax system to be adequate—that is, revenues should grow on pace with the economy, so the government can keep pace with the demand for services as the economy grows.”

He notes tax-free purchases from internet retailers distorts the behavior of purchasers by encouraging them to buy online when they otherwise would buy at a local store, thus reducing local tax collections and that means “the government either has to cut back on services or it has to raise taxes on something else.”   The resulting erosion of sales tax income at the state level has put a heavier burden on property taxes and “taxpayers have revolted against increases in this inflexible tax, voting to impose caps that have in some states kept revenue growth well below economic growth.”

Add to that the penchant government has to lower various taxes under the philosophy that lower taxes will mean more jobs that will stimulate the economy and you can get a state that reduces services that industries and employers would like to see before they commit to creating jobs.

So Missouri has an opportunity because of the court ruling.

Justice Anthony Kennedy, writing for the majority in the Supreme Court decision, estimates the ruling could mean eight to thirty-three Billion dollars in annual tax revenues for the states.  The federal Government Accountability Office thinks Missouri’s share would be $180-275-million a year in state and local sales taxes.

Missouri could do a lot with that amount of money at the state and local levels.  Except—

We have the crippling Hancock Amendments.

Those parts of our state constitution put a ceiling on how much new taxes can be collected without a statewide vote.  State Auditor Nicole Galloway, a little more than a year ago, estimated that taxes at the statewide level could not increase by more than $94-million without such a vote. We’re not sure how much of the figure from the GAO would go to the state and how much would go into local government revenue accounts, but Hancock appears to put a cloud over the issue at the state level.

Before the passage of what was called Hancock II, the state had to make refunds to income tax payers if state revenue growth exceeded the original Hancock limits. The state did make those refunds for a couple of years before adopting the first of a series of tax cuts to make sure the state did not to go to the inconvenience of mailing out checks.  The state hasn’t come close to hitting the refund threshold since Hancock II. In fact, Auditor Galloway says Missouri is four BILLION dollars under that limit now.

Will voters support the new authority given Missouri by the U. S. Supreme Court to collect more than $94-million in internet sales taxes?  Will collecting six or seven or eight cents per dollar from an out-of-state internet seller increase state revenue so much that a statewide vote will be required, giving Missourians a chance to reject the proposal?  The GAO and the state auditor have put forth figures indicating that vote might be needed.

We have had about two decades of leadership telling voters their taxes are too high. We’ve seen voters who travel to the polls on increasingly bad roads that go across increasingly crumbling bridges refuse to support gas tax increases to make their journey smoother and safer. And the legislature has taken steps year after year to reduce the state’s financial ability to “keep pace with the demand for services as the economy grows.”

The court has presented Missouri with a gift.  Will Missourians decide to leave it unopened?

(You can read Josh Barro’s article at https://amp.businessinsider.com/supreme-court-wayfair-internet-sales-tax-decision-good-for-consumers-2018-6)