Gov. Peter Shumlin is hoping to win big on a game of chance. The indisputable loser in his 2014 budget proposal will be the distributors of a little-known lottery-like ticket. In industry jargon, these tickets are alternately referred to as pickle cards, jar tickets or break-open tickets; in legislative jargon, they fall into the category of “games of chance.”
Shumlin has zeroed in on this hitherto unregulated — read untapped tax revenue — industry as one way to work around the state’s budgetary woes.
He wants to invest $17 million in the Clean Energy Development Fund; thermal efficiency programs; and LIHEAP (Low Income Home Energy Assistance Program), the state’ heating oil assistance program for low-income Vermonters, wholly funded by a tax on the seven distributors of these obscure scratch-offs.
After the budget address, the question on the tips of many lawmakers tongues was: What are these things?
The tickets, sold under names like Victory Bar, Texas Poker and Triple Bingo, are exactly like lottery tickets, except that, until now, they’ve evaded state regulation. The tickets are printed by seven manufacturers, most of which are located out of state. There are seven in-state distributors that sell boxes of the tickets to nonprofit organizations. The nonprofits typically hand the boxes over to for-profit bars, where they are sold to patrons. Fraternal organizations like the American Legion sell them at their own venues. In theory, all proceeds end up back in the pockets of nonprofits. In practice, Jeb Spaulding, secretary of administration, told reporters at a budget briefing on Thursday, all sorts of “shenanigans” take place. Spaulding did not elaborate but explained that profits often don’t make it back to the nonprofits.
Currently, the only tax encumbering this industry is a sales tax on the cost of the box of tickets, paid for by the distributors. Now the state wants to put a 10 percent excise tax on the total face value of the tickets in those boxes. The cost of the boxes varies but it reflects the cost of manufacturing the tickets — a tiny fraction of the total retail value of the tickets inside. The number of tickets within a box varies as well, but Michael Hogan, Department of Liquor Control (DLC) commissioner, said they’ve determined the average number is about 4,000. Distributors currently pay about $40 for a box of 4,000 tickets, sold for a dollar each; under Shumlin’s proposal, they would pay an additional $400 dollars per box. In his speech, Shumlin said that Massachusetts and Connecticut currently have a similar excise tax in place.
DLC would be charged with the enforcement duties. Hogan called the tax proposal a “win-win situation for everybody” — the state receives tax revenue, nonprofits take in the ticket proceeds, and the for-profit bars get a commission from the nonprofits. “Right now, nobody knows what’s going on,” Hogan added.
So why is the administration betting it can extract $17 million from a nebulous industry they admit to knowing little about?
Mary Peterson, the state’s tax commissioner, told the House Ways and Means Committee today that the manufacturers and distributors do have to obtain licenses, so the Tax Department has some record of them.
Based on these records, they took a stab at estimating the revenue potential based on confidential tax records. DLC also came up with an estimate, based in part on conversations with the market players, and then the departments hastened a joint guess.
Peterson told lawmakers that the $17 million figure was based on a “fairly moderate estimate” of the total revenue — somewhere between $140 million to $220 million — the tickets bring in. But, she conceded, “the reporting that they [distributers] did, did not really sync up with the tax so I have to say our data is not great.”
Right now the state collects about $35,000 in licensing fees — the Shumlin administration also wants to ratchet up these fees to bring in $105,000. The annual license fee would be $10,000 for manufacturers and $5,000 for distributors. The DLC plans to use the additional $70,000 to hire a staff member to assist with enforcement.
Who are these involuntary benefactors being asked to prop up LIHEAP by $6 million and put $11 million into a thermal efficiency initiative and the Clean Energy Development Fund? Neither Peterson nor Hogan could name one.
Peterson said the administration settled on the scheme early on during budget discussions, having identified it as a “longstanding area ripe for better regulation.”
Members of the Senate Finance Committee grilled Peterson on the department’s math calculations. Though Sen. Peter Galbraith said he would like to see the tickets regulated, he questioned whether every man, woman and child in Vermont really spends $375 per year on “break open” tickets when the average amount Vermonters spend on lottery tickets is about $50 per person. The “pickle cars” sell for a $1 per ticket. The department’s numbers assume there are a 145 million tickets sold per year in a state with a population of 630,000 people, Galbraith said.
“I would suggest these are astounding numbers in relation to spending on the Vermont lottery,” Galbraith said. “The numbers are so strikingly high, it suggests there is pervasive playing, and we were in the House Chamber, and it seemed like people had never heard of them before.”
Editor’s note: Anne Galloway contributed to this report.
