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Buckley business owners ask for change in the way gambling revenues are taxed

In mid-May, business owners Jeff and Debra Schweter closed the doors of the White Horse Sports Bar after eight years of operation, citing business that had been limping along for too long.

The closure has provided the impetus for another bar-owning couple – Jason and Bonnie Schafer of the Firehouse Pub – to approach the city of Buckley and propose a change to the gambling tax code as it applies to pull tab and punchboard games. The two visited the June 2 meeting of the City Council's Finance and Administration Committee to make their case. As a result, city leadership is considering an ordinance changing taxation from gross revenue to a form of net revenue on the games.

"For me, the White Horse is a big red flag I drive by every day," Jason Schafer said. "A business doesn't close if they're making money. Not that we're going out of business, but who's next?"

Pull tab games are run by private businesses and have gamblers buy tickets and remove tab coverings to immediately see if they have a prize-winning combination of symbols. Punchboards require players to pull instant-win tickets embedded in a large centralized board, but they are generally less popular games, Schafer said.

Buckley currently taxes businesses 5 percent based on gross revenues from ticket sales. That means if the business sells 100 tickets to a $100 prize game at $1 each, its owners pay $5 in tax no matter what, even if paying out a winning ticket depletes the gross revenue.

The rate of the gambling tax is not a new problem for business owners in the city. City Administrator Dave Schmidt pointed to the minutes of a council meeting from 1951, in which business owners protested an increase from 4 to 5 percent. The rate of the tax has fluctuated between 4 and 5 percent since that time.

"The problem is on the way it is now: gross," Schafer said. "So it doesn't matter if you're making money or losing money, you're still paying.

"There are months I make $200 after taxes."

Schafer presented P.J. Pockets Casino in Federal Way as an example of gambling taxes' importance to the city. The minicasino closed May 3, laying off 85 employees and threatening to end a sizable source of revenue for that city; it had brought in more than $849,000 in taxes. The city council declared an emergency and voted to lower card room taxes from 20 to 10 percent of gross revenues and pull tabs from 5 to 3 percent of the same. The owner of P.J. Pockets has since stated he will reopen.

The White Horse owed gambling taxes for the first quarter of 2010 at the time of its closure, which the city will not likely receive, Schmidt said. Meanwhile, tax revenues from categories residents can control, like consumer purchases and telephone use, are consistently down, placing overall city revenues about 4.5 percent below projections as of April.

Firehouse Pub's own revenues from pull tab games have suffered. The Schafers presented to the committee their April revenues from pull tab games for the past three years, which showed substantial regular decreases from year to year.

"(Tax reform) isn't an issue of next month or next year, it's an issue of last week," Schafer said, illustrating his perceived urgency for a change to the gambling tax.

The White Horse's closure wasn't primarily caused by taxes on gambling revenue, but the most recent increase in 2006 put a squeeze on cash flow, Jason Schweter said. He estimated 25 percent of his gross revenue came from gaming.

Part of the problem is competition from native American casinos, Schafer said. Those establishments are untaxed and can therefore afford to host higher stakes games, he said.

"There are people that gamble every day and we provide gambling in Buckley," he said. "Whether you like gambling or not, it provides revenue to the city. So if you're going to spend $200 a day on gambling anyway, spend three of them here and two of them over there "

The discussion led to city leadership stating they would develop and consider an ordinance changing the system to something based on gross revenue minus prize payouts.

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