Pulltab operators, city await court's decision

Posted: Monday, January 29, 2001

A lawyer representing three pulltab operations that don't want to pay Juneau's sales tax made their case in a hearing before retired Supreme Court Justice Jay Rabinowitz on Friday.

Attorney John Rice, representing Last Chance Co-op, Multiple Charities Association Co-op and Alaska Native Brotherhood Camp 2, sought a trial that would be conducted without reference to the existing 1,300-page record of administrative appeals. The pulltab operators - officially dubbed Multiple Beneficiary Permittees, or MBPs, by the state - had claimed a trial was necessary because matters of fact needed to be established.

The city, represented by Assistant City Attorney John Hartle, claimed the matter to be ruled upon was strictly legal.

Rabinowitz also listened to arguments on the city's motion for summary judgment on its claim for back taxes, interest and penalties. Last Chance, Multiple Charities and ANB Camp 2 owe the city $300,000, $310,000 and $258,000 respectively, according to Hartle.

Rabinowitz said he would pronounce judgment within 10 days.

After a determination by the city sales tax administrator in September 1997 that the tax applied to the selling price of the pulltab games, the MBPs appealed to the city's Sales Tax Board of Appeals. The board denied the appeal, at which time the MBPs appealed to the Juneau Assembly. The assembly appointed a hearing officer who decided motions, held hearings and drafted the decision adopted by the assembly without amendment. While the appeal to the assembly was in progress, the MBPs filed suit in Juneau Superior Court against the city in March 2000, alleging invasion of their constitutional right of privacy.

The three MBPs stopped remitting the sales tax to the city early in 1998 and have since been called to task at several city administrative hearings. They have defended themselves with rationales ranging from invaded privacy, to unfairness, to a lack of due process, to an allegation that "the CBJ is killing the goose that lays the golden eggs."

Both facts and legality were in dispute even before the assembly passed the ordinance levying the then-4 percent tax on pulltab sales in 1991.

A city analysis showed pulltab sales in Juneau grossed $9.3 million in 1990. (The current Juneau figure is $14 million.)

Sentiment on the assembly was not with the operators.

"At the time, there were hefty charges being levied by the operators - high rents and salaries," said state Sen. Kim Elton, a Juneau Democrat and former assembly member who sponsored the measure taxing pulltab operations. "There was the feeling that they were padding their expenses."

Elton had worked closely with the state and the city attorney's office to determine whether there were legal problems with his tax proposal, he said.

There also were questions about the manner of collection, Elton said. "We left it open to the purveyor: Raise the price of the pulltab from $1 to $1.04; lower the payout by 4 cents; or absorb the cost."

The ordinance passed in October 1991, when the city sales tax was 4 percent.

In February 1992, then-Lt. Gov. Jack Coghill showed the same concern as Elton about high claimed expenses and issued an emergency order mandating pulltab expenses be no more than 60 percent of adjusted gross income - 15 percent less than Juneau operators claimed they spent in 1990 - and that 40 percent of the adjusted gross income be distributed to member nonprofits. But a court ruled that order excessive and invalidated it two months later.

The state Legislature mandated the current 70 percent limit on expenses - and 30 percent distribution - in January 1994. Until that date, MBPs, except for those two months in 1992, had been required to distribute to nonprofits only 15 percent of their adjusted gross income.

The real problem, according to briefs filed by the MBPs, began in 1996 when the city put another 1 percent sales tax on the ballot, which voters passed. The MBPs argued that because the ballot explanation did not specifically mention pulltabs, it didn't apply to them.

"The charities (nonprofits) argue that this omission on the ballot is important enough to mandate a decision by this court that the ballot measure language did not afford the voters with a clear opportunity to decide if they wanted the increase of the sales tax to apply to the sale of pulltabs," Rice said in a brief.

In an Empire interview appearing before the 1996 tax increase was ratified by voters, Last Chance Co-op Manager George Wright spoke out against the proposition as detrimental to Juneau's gaming operations. A city brief cited the article as proof that Wright knew the tax did apply.

The assembly-appointed hearing officer last summer dismissed the MBP notion that the tax did not apply to them.

In various briefs, the MBPs continue to contest the tax on the grounds that it is "impossible" to pass on sales tax to pulltab customers. They have claimed it unfair that the tax is levied on the selling price of the pulltab instead of the total receipts for the sale of pulltabs less the prizes awarded.

Hartle of the city attorney's office has dismissed that argument as tantamount to Fred Meyer levying the tax only on the markup from wholesale.

Assembly member and Finance Committee Chairwoman Cathy Munoz is making collecting back sales taxes from the pulltab operations a priority. Two-thirds of pulltab operations remit the tax to the city, she said.

That the majority pay the tariff, however, may not be an indicator that pulltab taxation is feasible or workable in the long run. A Juneau pulltab manager whose organization does remit the tax to the city, as well as distribute funds to nonprofits in accordance with the state mandate, said on condition of anonymity that heavy competition among pulltab operators, high payout rates of about 80 percent, and the burden of the 5 percent sales tax will, sooner or later, mean the end of all pulltabs in Juneau.

If Rabinowitz finds for the city, Hartle said, the city is likely to try to settle with the MBPs.

Fernand Chandonnet can be reached at fchandonnet@juneauempire.com.

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