Yelm City Council discusses gambling taxes at study session

Vote will occur to switch from gross to net collection or to eliminate tax entirely


The Yelm City Council will soon vote on the fate of gambling taxes collected by the City from pull tabs, punchboards or other local gambling activities.

Members of the council spoke in favor of collecting taxes based on net revenue rather than gross revenue, or even potentially eliminating the tax altogether.

Stephanie Nanavich, Yelm’s finance director, said RCW 9.46.110 authorizes cities and counties to tax gambling activities. She said these taxes are collected at the local level and stressed that the state does not receive any of the revenue. Currently, the City collects tax money from three operators in Yelm. She said the average annual revenue from tax collections is around $20,000.

Revenue collected from the gambling tax goes into the general fund and pays for police activities, Nanavich said.

The majority of the gambling revenue collected by the City of Yelm comes from punchboards and pull tabs at local establishments, Nanavich said. Revenue can also be collected from bingo games or raffles, she added.

“We [currently] tax on the amount of gross receipts from the operation of punchboards and pull tabs,” Nanavich said. “We do 3% on gross receipts. If you drop down RCW 9.46.110, we can charge up to 5% gross receipts or up to 10% net receipts.”

Nanavich added that while comparing what local surrounding cities are doing, she found that some were collecting revenue based on gross income, while others were collecting based on net income.

Gross receipts are the total amounts an organization received from all sources during its annual accounting period for goods sold or services performed, without subtracting any costs or expenses. Net receipts are the amount collected deducting costs including raw materials, taxation and other expenses.

“It’s been a long time since I’ve played any of these games, and so I think the prizes vary,” Nanavich said. “It’s our choice. We can put it in the municipal code either way. We can put it on the gross, or we can change it to be 10% of the net.”

Depending on the outcomes of each individual game, if charged by net income, the establishment could pay $0 in taxes, they could pay $5 in taxes or they could be in the hole. Nanavich said while city code establishes collecting gambling taxes, the council could eliminate them altogether.

“I would stress that there are several different taxes the city collects,” she said. “If you’re going to look at one, you’re probably going to have people coming in asking you to look at others.”

Mayor Joe DePinto said the council can vote on gambling taxes in the coming weeks at a City Council meeting. He believes the council agreed businesses should be taxed based on net revenue instead of gross. Councilor Joshua Crossman agreed with the mayor’s take.

“It makes sense to tax them on what they make, not just on what they spend, in any aspect of business, not just gambling tax, but anything,” Crossman said. “You can be taxing them on a loss. Not only do they have a loss on the game, but there’s even more because of taxes.”

Councilor Tracey Wood believes that, with some minor tweaks and adjustments, the City of Yelm could make up the $20,000 revenue loss in other aspects if the gambling tax is adjusted or eliminated.

“I think it would encourage these businesses to do more of this revenue, which brings more people into our community,” Wood said. “I think to encourage the business owners to continue to do this pull tabs, and I’m not a pull-tab player, but it sounds like what I’ve heard from the friends I know that are involved in it, there isn’t a big profit margin here. They’re not making a killing on these things.”