Casino tax hike could force some to close

Published 9:35 am Thursday, February 3, 2011

By Kristin Buehner, Mason City Globe-Gazette

NORTHWOOD, Iowa — A proposed state tax increase on Iowa casinos may face long odds due to strong opposition from the state gambling industry, which says it would have a devastating effect on casinos and their charitable giving.

“I believe some casinos would have to close,” said Kim Koenigs, executive director of the Worth County Development Authority, the nonprofit arm of Diamond Jo Worth casino at Northwood.

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In his budget proposals submitted a week ago, Republican Gov. Terry Branstad proposed increasing the tax from 22 percent to 36 percent on the 17 state-licensed casinos.

The increase, which would take taxes back to the original level when gaming was established in the state, could help pay for cuts in the state’s corporate income tax rate, Branstad said.

The governor calculates the tax increase would raise about $190 million in additional taxes, which would cover most of a proposed $200 million cut in corporate income taxes.

Branstad acknowledged casinos might have to pay more money to cover their requirements to invest in community improvements under the increase, but said he believed they would come out OK.

Koenigs does not agree.

“If that (tax increase) happened, that would devastate the gaming industry, in my opinion,” she said.

The WCDA currently receives 5.76 percent of Diamond Jo Worth’s gross income, Koenigs said. If state taxes were to increase even by just 1 percent, the WCDA would receive 1 percentage point less of the casino’s gross revenue, or 4.76 percent, she said.

State law dictates that casinos give at least 3 percent of their revenue to nonprofit organizations, a provision made when the state lowered the tax on casinos.

“What this means is that at 3 percent, everything would be cut in half, roughly,” Koenigs said. “This means scholarships, money to the schools, all grants would be cut in half. This would affect every community in Worth County and many outside Worth County.”

In 2010, Diamond Jo Worth awarded $3.752 million in grants to nonprofit organizations including schools, Koenigs said.

State Rep. Henry Rayhons, R-Garner, said he does not think the governor’s proposal will pass the Democratic-controlled Senate.

“I would assume that, if it were at all possible, we would try to raise the $200 million someplace else,” he said. “There are those here who feel raising taxes on one business to make up for taxes on another isn’t the best way to do things.”

Rayhons said it appears that when Branstad suggested the casino tax increase, “he wasn’t aware of the implications it would have on casinos.”

“Thirty-six percent might shut some of them down,” Rayhons said. “Casinos have worked out programs to do great things.”

State Sen. Merlin Bartz, R-Grafton, said he had not made up his mind on the question and was still in the information-gathering stage.

“I’m going to want to know how it affects North Iowa,” said Bartz, who also said he gives Branstad credit for attempting to balance the budget.

If the casino tax increase is not supported by the Legislature, “the question is, where are they going to come up with the additional cuts?” Bartz said. “The reality is, if they don’t support the gaming tax increase, then they have to reduce the budget yet more.”

Koenigs, who said she is attempting to arrange a meeting with the governor, encouraged North Iowans to talk to their legislators about the proposed tax increase on the gaming industry.

“We implore not only Worth County citizens and not-for-profit organizations, but any surrounding counties to contact their legislators and tell them how harmful this could be to our communities,” she said.