Was gambling tax a sucker's bet?

The Lodge at Belmont has decided against challenging the tax on gambling winnings in court, Rick Newman, the lobbyist and spokesman for the establishment, said yesterday. But, he was quick to add that "we are working with the Racing and Charitable Gaming Commission and the Department of Revenue Administration to mitigate the impact of the tax and if there is opportunity we will seek a legislative fix."

Newman said that the management team at The Lodge was on the brink of filing suit, but after much discussion decided "we would sue and wait two years for decision. We've already seen an exodus of customers and we'll see more. We don't have the luxury of time."

The 10-percent tax on all winnings in excess of $6,000 was added to the state budget by the House and Senate committee of conference at 1 a.m. on its last day of deliberations and is scheduled to begin being collected today, July 1, the first day of the new fiscal year. The tax is pegged to the federal gambling tax as reported on the withholding form W-2G.

However, Newman stressed that unlike the federal tax, the state tax provides no deductions for losses. "That is the fatal flaw in the tax," he said, explaining that "a gambler could file any number of W-2Gs and pay little or no federal tax, but pay the full freight of 10-percent on all reported winnings in New Hampshire." Newman said other states tax gambling winnings, but at a lower rate with a deduction for losses.

"This tax puts us at a huge competitive disadvantage," Newman said. He estimated that as much as 90-percent of the wagers on simulcast thoroughbred, harness and greyhound racing taken at The Lodge are placed by telephone by players from out of state. "Why would they continue to play here?" he asked.

Newman ventured that the net effect of the tax would be to reduce revenues from the pari-mutuel tax, which amount to about $2.8-million a year, as well as the business taxes levied on the three racetracks — The Lodge, Seabrook Greyhound Park and Rockingham Park. "I doubt the tax on winnings will offset the loss of other revenues," he said, "and it will certainly lead to lost jobs."

Moreover, although all gambling winnings are liable to federal tax, the taxable amounts vary with the type of gambling. All pari-mutuel payouts of more than $600, or where the winnings are at 300 times the amount of the wager, are taxable, But, the threshold for bingo games and slot machines is $1,200, for keno $1,500 less the amount of the bet and for poker tournaments $5,000, less the buy-in. Newman said that by applying the thresholds of the federal tax the New Hampshire tax violates the state Constitution, which requires that all taxes must be "proportional and reasonable."

On the eve of beginning to levy the tax, which state officials and lawmakers estimate will yield $14-million during the 2010-2011 biennium, confusion reigned over how to collect it. Newman said that while the Lottery Commission may be prepared to collect tax on winning lottery tickets, he does not know how the state intends to collect the tax on pari-mutuel wagers and charitable gaming. "The law says that the Racing and Charitable Gaming Commission will withhold the tax," he said, "but the commission doesn't pay out any money so how can it deduct any tax?" Nor can the tracks collect it. "We will not be deducting the tax," Newman continued. "The law does not require us to deduct it and more important, we have no authority to deduct it."

On Monday, the Racing and Charitable Gaming Commission wrote to the Department of Revenue Administration, raising nearly two dozen concerns about the administration and collection of the tax. Executive Director Paul Kelley told the New Hampshire Union-Leader "we don't believe we can fairly and accurately start the tax collection process until we know what criteria they are going to set," adding that in places the law appears to contradict itself.

Meanwhile, Newman suggested that the chances of lessening the adverse impact of the tax would improve if other parts of the budget unravelled. He said he was eying the legal tussle between policyholders and the state over the $110-million from the New Hampshire Medical Malpractice Joint Underwriting Association (JUA). "I've got pompoms," he crowed. "All the way JUA!"