Colorado casinos lose tax cut that cost regulators their jobs

Colorado casinos lose tax cut that cost regulators their jobs

Posted: 05/25/2012
By Andy Vuong The Denver Post

GOLDEN — Colorado gambling regulators on Thursday raised the tax rate on casinos by 5 percent, effectively reversing a controversial tax break awarded to the industry last year that led to Gov. John Hickenlooper's overhaul of the five-member Colorado Limited Gaming Control Commission.

A new panel of commissioners handpicked by Hickenlooper last summer authorized the increase, stating that the industry is taxed below most other gambling jurisdictions across the country.

"We have packaged a very, very attractive regulatory and taxing environment for the industry, especially when you look at other jurisdictions, other states, where the taxes are as high as 50 percent," commission chairman Robert Webb said.

Colorado taxes casinos on a graduated scale based on revenue, and the top rate was lowered by the previous commission to 19 percent for the fiscal year that ends in June. Thursday's decision will restore the cap to 20 percent for the next fiscal year, a rate charged on operators that generate revenue above $13 million. Smaller casinos are taxed at lower rates, which were also dropped as part of last year's tax cut. The bottom rate will return to 0.25 percent, from 0.2375, for revenue up to $2 million.

The commission reviews the casino tax structure each May and is required to set rates that "encourage business growth and investment in the gaming industry."

The Colorado Gaming Association sought a 10 percent tax cut a year ago, citing three consecutive years of collective net losses. The group urged commissioners Thursday to maintain the tax rate.

"The tax structure as set last year by the commission had the desired effect," said Andy Hamblen, general manager of the Ameristar Casino in Black Hawk and president of the Gaming Association.

"It reversed three years of losses by the industry."

Colorado casinos collectively posted net losses of $18 million in calendar year 2008, $1.8 million in 2009 and $12.5 million in 2010, according to the Gaming Association. Last year, with six months at the lower tax structure, the industry posted a net profit of $7.5 million.

After the commission issued its decision, Hamblen said the industry, which generates an estimated 27,380 jobs in Colorado, will "continue to work at creating jobs."

"We're going to continue to deliver what we can from the tax revenue standpoint to the recipients," he said "We hope we can continue to make a modest profit and good return on investment for our owners."

Among other things, Hickenlooper raised concerns about last year's tax cut because of its potential impact on community colleges and local communities, two primary beneficiaries of gambling-tax revenue.

The Division of Gaming, the commission's administrative arm, estimates that gambling taxes will drop by $2.7 million, or about 3 percent, to $102 million for the fiscal year that ends in June.

"The tax cut happened at a time when we had 40,000 new students entering the (community college) system and our state budget had been slashed by $28 million," said Nancy McCallin, president of the Colorado Community College System. "We estimated that the reduction in the tax rate probably cost us about $250,000. ... That equates to about 75 full-time resident tuition scholarships."

Community colleges received about $6 million from gambling-tax revenue last year. The revenue is also distributed to the state general fund, Historical Society and other recipients.

"We're very thankful to the commission for understanding the impact of the decreased tax rate last year on the recipients," McCallin said.

Casinos in Black Hawk, Cripple Creek and Central City are projected to post gross revenue of $761 million in the fiscal year that ends in June, up 1 percent from the previous year.

"We support the commission's decision and their thoughtful approach to the review," said Hickenlooper spokesman Eric Brown.

Before the passage of Amendment 50 in 2008, which allowed the gambling jurisdictions to raise bet limits from $5 to $100 and make other changes, regulators had authority to tax casinos by up to 40 percent. A provision included in Amendment 50 lowered the cap to 20 percent, and any change on the ceiling would require a statewide vote.

Webb, the commission chairman, cited that as one of the favorable conditions for the industry. He also said there's no indication that the tax rate impacts the financial health of the industry because the half-dozen or so casinos that have been shuttered in recent years were smaller operators that already pay at a lower rate.

"When you look at the numbers," said Commissioner Jannine Mohr, "we are seeing that there would've been a profit whether or not the tax would've been decreased."