In response to the recent posting of IRS Notice 2015-21, we are preparing our opposition to the proposed rules, and request that our fellow operators join us in vocalizing our concerns. If you haven’t already submitted your comments to the IRS, there is still time.
Changing the Taxable Jackpot Threshold From $1,200 to $600
Our procedures, gaming machines, accounting systems, staffing levels and business models are based on the $1,200 threshold, resulting in tens of thousands of jackpots per year at FireKeepers. Any change to that threshold, up or down, would impact our operation. Here is a quick list of reasons that outline how the proposed rule would negatively impact our gaming operation:
• Increased Staffing: A quick review of our pay tables indicates that the frequency of taxable jackpots on high-denom machines would likely increase by 300 percent, up to 3,500. We manually and physically transact with each jackpot winner in excess of $1,200, to ensure that we properly identify the guest and accurately report the potential tax liability.
Therefore, the proposed change would significantly increase the staffing requirement to attend to the additional jackpots, which we have estimated at $870,000 per year (including burden).
• Less Revenue: The slot machines lock up when a taxable jackpot is hit, until we complete the necessary paperwork to unlock the machine. Lowering the threshold would increase the number of taxable jackpots, which would result in more players waiting for the W2G paperwork to be completed, resulting in less time gaming, which lowers gaming revenues and compact/tax payments.
• Vendor Changes: As vendors change their gaming software and/or pay tables to decrease the frequency of jackpots in the $600-$1,200 range (at the request of the industry, or to meet expected demand), the vendor costs will increase, which will result in increased costs to the casinos.
Single W2G Reporting
At first glance, the proposed change appears to reduce the amount of administrative work related to taxable jackpot reporting. But without industry feedback on implementation, the proposed changes are very concerning, for the following reasons:
• Gaming Day: Our gaming operation, like most, uses an early-morning gaming day for record-keeping purposes. The purpose of using an early morning start/end of the gaming day is to take advantage of lower business volumes, with the goal of increased accuracy and efficiency. Using a 12 a.m.-11:59 p.m. calendar day would require an investment in manual reporting, or upgraded system reporting capabilities, or both. Either includes the burden of additional cost.
• Player Tracking Systems: Simply put, they were created to develop loyalty programs for frequent players, based on an estimate of each club member’s overall play. The programs were not built with the responsibility of attesting to individual tax liability. Enhancing our systems to meet the responsibility of being an official tax document will increase costs.
• Guest Notification: Operators rarely know when a gaming session ends for any given player. This rule would require us to notify all taxable jackpot winners that their reportable winnings would rely upon what the player tracking system reports at the end of the day, pursuant to the taxable threshold. Trying to notify and/or explain the new tax rules would undoubtedly cause misunderstanding and alarm among our guests, resulting in frequent disputes over the accuracy of the activity being tracked.
• Player Behavior: We further speculate that the proposed rule would have an unknown impact on gaming behavior. Will the players use their cards more often, or less often? Will they be tempted to play using other players’ cards, or will they ask other players to play on their cards in an attempt to reduce or avoid tax liability after hitting a jackpot? The answers are unknown, and a significant concern.
In every case, the proposed rules are bad for the players, bad for the vendors, and bad for the casinos, if we are not consulted on the potential impact of each rule.
The additional burden to the operation, in addition to the dissatisfaction of the guest, when combined with the increased vendor costs to adjust to either of the proposed rules would, with certainty, have a negative impact on gaming revenues. A Wall Street gaming analyst recently estimated that each casino may lose $530,000 per year. Your costs may even be higher, based on your current systems and operational priorities.
We have until June 1 to submit comments to the IRS. But, I recommend that you consider sending comments to your respective gaming associations by May 1, and ask them to represent your voice and concerns, as well. The AGA has done a fine job of sending regular updates to members and email subscribers, but we need to be more vocal in our opposition to the proposed changes. We hope that you join us in our efforts to be heard.