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REVIEW STATUS CASE OF LAWFUL GAMBLING ORDINANCE BY COUNCIL APPOINTED TASK FORCE By: Jessie L. Hart, Finance Officer Background: On August 25, 1993 Councilmembers Beyer and Zimmerman and myself met to review the status of our current gambling ordinance. The gambling managers of each organization operating one or more sites in the City of Ramsey were also invited to attend this mee~Sng or send someone in thek place to represent their organization. There was no one in attendance representing any of the organizations. At this meeting we reviewed our current ordinance and whether it complied in all senses to the laws established in Chapter 349 of the Minnesota Statutes. We found that the ordinance on gambling does comply but is very cumbersome to administer and to apply equitably from organization to organization due to methods of bookkeeping and business practices which we have no control over. One of the items that makes enforcing the ordinance difficult as it currently exists is the consideration and pro-rating of taxes such as federal taxes, distributor taxes and combined receipt taxes. While some of these taxes are site specific, others are figured on the total gambling operations of the organization, which is where we become faced with enforcement issues. While we have allowed these taxes to be used in determining "net profit", the statutes do not def'me them as an "allowable expense" in the definition of determining "net profit," but rather as a lawful purpose expenditure. Earlier this year it was decided that an organization could carry forward net losses, during a permit year, to offset net profits. Net losses generally occur in organizations only in the first few months that the combined receipts taxes must be paid to the state, generally beginning in August and September. It was determined that a new method of calculation was necessary in order to make the enforcement less cumbersome and more equitable across ail organizations while still bringing money into the City for park purposes as designated by the City Council. We talked about several options that were viable but most likely would have "driven" the organizations from our City. The following option was one that was determined to be the most viable as to equity and enfomement: Utilize "gross profit" as deemed in MS Chapter 349 and give each organization the benefit of automatically allowing 50% of the "gross profit" as the "allowable expenses" in arriving at "net profit" which would then have a standard percentage applied to it. This method would eliminate the question of pro-rating taxes and would also eliminate the availability of losses to be carried forward to offset future "net profits". It would be less cumbersome to monitor each organizations compliance on a monthly basis and would guarantee the City income each month, rather than sporadically during the year. Without consideration of net losses, the permit year of each organization would no longer have a bearing on the calculations. I have attached a number of schedules to this case showing the actual year-to-date activity for each organization and the impact of different percentages applied using the aforementioned option when utilizing the current years information. The activity levels for 1993 are the most representative information that we have to work with at this time. 7