Md. Plans to Audit Profits on Video Bingo Machines

Audit teams from the state comptroller's office plan to show up at several St. Mary's County bars and restaurants today to determine whether the video bingo machines that have popped up recently have proper documentation and whether the machine owners are paying the requisite taxes.

The video bingo devices, which look like slot machines, are considered legal by the state attorney general, and St. Mary's law allows nonprofit organizations to operate them. By law, the company that owns the machine can take a cut to cover expenses, as can the bar or restaurant. But profits from the machines are subject to the state's 20 percent admissions and amusement tax.

Maryland Comptroller Peter Franchot wrote in a letter yesterday to top state lawmakers that the cash-only business "is not only ripe for corruption, but for tax evasion as well." He also called for the machines to be outlawed. Franchot has been a vocal opponent of legalizing slot machines in a few places in the state, an issue voters will decide in November.

Lobbyist Bruce Bereano said his client Frank Moran and Sons, a Baltimore-based company that has 80 machines in St. Mary's, "has, is and will always pay all lawful, applicable taxes." He said that the state tax applies only to for-profit gambling devices and that the machines his client has placed in Southern Maryland are operated by nonprofit groups.

Joseph Shapiro, a spokesman for the comptroller, said the company that owns the machines must properly document the flow of money and file a tax return; if they do not make a profit and can document that, they might not owe any tax.

The auditors plan to check the paper trail and tax account numbers kept by owners of the establishments and might seal the machines so that no one can remove money for a week to see how much is collected, he said. The comptroller's office conducted similar audits last year in Baltimore and Baltimore County after a 2006 study by the Abell Foundation found that Maryland lost about $15 million annually in uncollected taxes from the underground video-gambling industry.

"It's one of the harder things to control because it's pretty much cash only," Shapiro said. "We just want to make sure it's in the ballpark of what we're collecting."

Franchot's letter about the audits was sent to Senate President Thomas V. Mike Miller Jr. (D-Calvert) and House Speaker Michael E. Busch (D-Anne Arundel). Miller, a leading supporter of legalized slots, has called the video bingo machines "clearly illegal" because charities receive only a small portion of the money and the state receives none.

In the past month, the number of such machines in St. Mary's has risen from 150 to nearly 1,000, Sheriff Timothy Cameron (R) said. That has galvanized Southern Maryland lawmakers. Sen. Thomas M. Middleton (D-Charles) said he is drafting legislation to outlaw the machines, and Sen. Roy P. Dyson (D-St. Mary's) introduced a bill that would require Attorney General Douglas F. Gansler (D) to go to court to decide whether the video bingo devices in St. Mary's are legal.

In video bingo, players generally insert cash into a machine in exchange for one or more pull-tab cards, slips of paper with a printed grid of cherries, oranges or other icons. Players win if the icons on their card are lined up in certain combinations. The result also appears on a screen, giving the player the sensation of playing a slot machine. But whereas casino-style slot machines are games of pure chance, video bingo machines have a preset number of winners and losers. Also, rather than a payout from the machine, players receive a coupon they can exchange for cash.

State lawmakers placed an admission and amusement tax of 20 percent on such machines, along with electronic tip jars, during an emergency legislative session late last year. The tax took effect Jan. 3 and overrides the county's regular amusement tax of 10 percent, Shapiro said. Other amusements taxed include concert tickets and circus admissions, he said, and most of the money collected is returned to the county.

In the six months ending Jan. 31, St. Mary's had collected about $89,300 in amusement taxes, a decrease of about 9 percent from this time last year, Shapiro said. This fiscal year, the state has collected about $34 million, up about 3 percent from last year.