A Kent City Council committee voted 2-1 Tuesday on a proposal to reduce the city’s gambling tax on gross revenues of casino card rooms from 11 percent to 7 percent in order to help the Great American Casino cut its losses.
The proposal goes before the full council on April 2. At least four of the seven council members must approve the tax cut.
Operators of the Great American Casino, the only casino in the city, requested the reduction in a Feb. 26 letter to the city. They wanted the gambling tax reduced to 4 percent. The casino had net operating losses of $649,177 in 2011 and $533,038 in 2012.
“In order for Great American Casino to remain open and continue to employ just over 100 staff, we ask for your consideration on this relief in our gambling tax,” wrote general manager Shannon Younker in a letter to the city.
Council President Dennis Higgins and Councilman Les Thomas voted in favor of the tax cut that would be lowered through Dec. 31, 2016. Councilwoman Elizabeth Albertson, sitting in on the Operations Committee meeting for the absent Jamie Perry, voted against the reduction.
“Eleven percent of zero is zero,” said Higgins prior to the vote. “If they go out of business we get nothing and it doesn’t matter the tax rate.”
Higgins explained earlier why he favored the reduction.
“I’m unwilling to go to 4 percent but we do need to recognize the competitive environment this business is in,” Higgins said. “I value the presence of jobs and I enjoy going there myself. I think it adds value to the city and I’d hate to see it go out of business. I’m willing to meet partway (on the gambling tax rate).”
David Fretz, Great American president, came away from the meeting hopeful that the full council will support the tax cut for the casino at 20500 108th Ave. S.E.
“I’m happy they are considering a reduction in our tax,” Fretz said. “Right now the city makes money and we don’t so any reduction is going to help us. We were asking for 4 percent because our preference is to get as low as possible so we can dig out of a hole we dug ourselves in the last couple of years.”
Great American paid $335,000 in gambling taxes to the city in 2012 and city expects to get about $330,000 this year, said John Hodgson, city chief administrative officer. At 7 percent, the city would see that annual amount drop by about $120,000. A 4 percent rate would drop the city revenue by about $210,000 per year.
Younker pointed out in her letter that the city of Auburn cut its gambling tax from 12 percent to 4 percent in 2010 and renewed that 4 percent rate last year.
Tax rates are 10 percent of gross card room revenue at the neighboring cities of Tukwila, Renton and Federal Way, although the latter city no longer has any casinos.
“We can impose a 20 percent tax but we did 11 percent because that was their rate when they were in King County so they can operate their business the same way,” Albertson said in reference to Kent’s annexation of Panther Lake and the casino in 2010. “I think that’s reasonable. I’m not comfortable lowering it to 4 percent. Auburn is in a unique situation with a highly successful (Muckleshoot) casino at its doorstep and their intent of helping one of their smaller casinos.”
Federal law prohibits states from taxing tribal gaming, such as the Muckleshoot Casino.
Albertson also feared a gambling tax cut would set a bad precedent because other businesses would come to the city for tax reductions.
“Any business could come before us and say their business would be more profitable if they did not have to pay taxes,” she said. “I don’t think this is in Kent’s or our residents best interest.”
Fretz said no other business pays an extra tax such as the casino has with the gambling tax.
“I believe we are the only business that pays an additional tax besides a B&O (business and occupation) tax and property taxes,” he said. “I don’t believe any other business pays a tax on gross receipts to a tune like we do.”
Fretz said after the council makes its decision in April about the proposed tax reduction, he will need to figure out what to do next.
“We’re going to have to make some business decisions about our future given the tax rate and where we are with our revenues,” Fretz said. “I don’t know what I’m going to do at this moment in time. I have to sit down and see how it’s going.”
Fretz said renovations last summer at the casino has helped business pick up a bit but not as much as expected.
The council also is considering whether to remove the city’s ban on casinos. Great American operates under an ordinance with a grandfather clause that allowed the business to stay open after Kent annexed the Panther Lake area. The council will further discuss that issue at an April 2 workshop before the regular council meeting.
Great American would like to see the ban lifted so it could possibly move to a larger and better location within the city.
“We’re not on a highly trafficked street and that’s a challenge,” Fretz said.
Even if the city lifts its ban, Younker doubts anyone would open a new casino. The number of social card rooms in the state has dropped from 96 to 58 as the casinos struggle to compete against tribal casinos that feature numerous slot machines and a variety of entertainment.
“If they were knocking on the doors they would be at the neighboring cities that allow them now,” Younker said. “If people we’re dying to get in, they’d be in Auburn and Renton and all over because everyone around here allows them except Covington.”
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