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Issue Date: Vol. 43, No. 5 / May 25, 2003 - June 24, 2003, Posted On: 5/26/2003


Prepare Now For Future Tax Battles


Marcus Webb

America's 50 state governments this year face a collective budget deficit that is currently estimated at $50 billion or more. The shortfall ranges from a few hundred million each in some states, to roughly a billion dollars in states like Nevada and five billion in states like Illinois, to the breathtaking sum of $25 to $35 billion in California, depending on whose figures you believe. Any way you look at it, that's a lot of red ink. And, it's structural: the imbalance of state expenditures and state revenues appears built-in for the next several years (barring a sudden, miraculous boom in the U.S. economy).

So far this year, state governments have struggled to find the least painful ways to solve their money problems. States are holding the line on new spending, cutting services and departments only when necessary, and as a last resort, seeking new taxes. There has been a great deal of talk about the possibility that states might expand the scope of legalized gambling, but in reality there has been little action. One exception is Illinois, where the governor appears grudgingly willing to sign certain pro-gambling bills - but strongly opposes operator-run, payoff video poker. Another exception is Maryland, where the governor enthusiastically pushed for more slot machines (however, he was soundly defeated by anti-gambling forces).

All of this is immensely relevant to the amusements industry. Sooner or later, we are likely to see lawmakers pushing for higher taxes and license fees on amusement equipment and profits. This has already happened in Illinois, where the governor wants to boost the per-machine annual license fee from $15 to $100. Less spectacular tax hikes have been proposed for coin machines in one or two other states. Since state governments face a structural deficit that will probably continue for years, many states that haven't proposed higher amusement taxes to date, may very well do so next year, or the next.

In years past, coin machine operators have been able to defeat some proposed tax increases in states from Tennessee to Nevada, by pointing out that they cannot easily pass on a tax increase to consumers. "There is no way to increase a 25 vend price by charging an extra nickel; it will come out of our pocket," is the way some operators explain it. Lawmakers faced with this line of argument have often relented and scrapped tax proposals aimed at the coin machine industry. However, it appears this rationale will not persuade the new governor of Illinois. Last month he told the Associated Press that all of his proposed tax increases are deliberately designed to take money from business's bottom line, not from consumers' pockets.

Operators in those states that have not been threatened by a possible tax hike this year should not assume they are permanently off the hook. Operators have been granted a little breathing-room. Associations should use this time to prepare to prevent or defeat future tax hike proposals. As we've seen in the battles against cigarette vending and video game violence, the coin-operated machine industry is an easy , even popular , target for politicians. The time to begin educating lawmakers about this industry's own tough economy, about our already-substantial tax burden, and about possible lost jobs from higher taxes, is now.


Topic: Editorial: Music and Games

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