Tribal Tussle

California online poker moves raise taxing questions

With the ever-growing possibility that California will approve some sort of internet poker, some are wondering if members of gaming tribes participating in such an enterprise would be taxed by the state.

Two bills are currently being considered by the legislature, one by Senator Lou Correa and the other by Senator Rod Wright.

Their casino profits are not taxed, if tribal members are living on the reservation, but are online profits the same since they are not taking place on sovereign land?

That would depend on the bill’s final wording, according to Allison Harvey, director of governmental affairs for the United Auburn Indian Community.

Currently, 3,500 members of that tribe get about $20,000 a month per person in disbursements, which are not taxed by the state.

If the bill says that money made on the internet is money that is made on the reservation, the state tax will not apply, says Harvey.

However, that might not be possible unless the computer servers that would operate the websites are on the reservation. That is seen as highly unlikely.

According to gaming attorney Sanford Millar, quoted by the Capitol Weekly, “No one is going to get them on the reservation. They’re going to be housed at Cisco or Google or someplace with a server farm. It’s not like you just plug in a phone line.”

Some experts say the neatest solution would be for the state and tribe to agree to a state percentage for the online profits, and leave individual payments untouched.

That could be complicated by the fact that the state of California recently was rebuked by the federal courts for trying to demand a 25 percent share of the Rincon Tribe’s casino profits in return for allowing more slot machines. That violated federal law, which forbids states to tax tribes.

Further complicating things is Proposition 26, a state initiative passed last year that makes it impossible to raise state fees or taxes without a two-thirds vote by the legislature.

It is this uncertainty about state taxes that has made some California tribes oppose the proposal for online poker operated by a tribal consortium, which is being pushed by the Morongo Band of Mission Indians.

Senate Bill 40 by Correa would legalize internet poker and help alleviate some of California’s $25 billion deficit.

The bill would allow the state to license operators of internet poker within the state and criminalize websites that don’t have the state imprimatur. It would sweep up an estimated $1 billion a year in taxes that proponents say is escaping collection.

They estimate that 2 million Golden State residents regularly play poker online, which is about a $13 billion industry.

Supporters include the California Online Poker Association, which was formed by 21 gaming tribes and several card rooms. Opponents include the California Tribal Business Alliance, which fears that tribes might have to pay state taxes on the revenue, something they are not subject to with brick-and-mortar casino profits, as long as the casino is on tribal land.

 The legislature is also considering SB 45, authored by Wright.

Similar bills were introduced last year, and the Senate Committee on Governmental Organization held hearings on them. At that time some of the interest groups surfaced and occasionally clashed, including online poker providers, Indian leaders, anti-gaming groups, government representatives and representatives of existing casinos.

Wright recently issued a statement saying he hopes to continue the debate “in greater depth and focus on some of the major issues and concerns raised last year by various stakeholder groups,” and, he hopes, create a consensus bill.