May 6, 2008 — The Office of the Attorney General and Southland Gaming differ on whether Southland or its retailers pay gross-receipts taxes from Southland's video lottery terminals, according to testimony in Frederiksted Tuesday at an oversight hearing of the Senate Finance Committee.
Southland is licensed by the V.I. Lottery Commission to run video "lotteries," or video gambling, through its 624 machines on St. Thomas and John. St. Croix has a casino, but no video lottery terminals.
Officials from Southland, the V.I. Lottery Commission and the attorney general's office gave conflicting views too as to how gross-receipts taxes would be levied and who would have to pay.
"The attorney general's office issued an opinion last year in which we conclude the retailers and Southland are subject to gross-receipts tax," said Paul Paquin, deputy solicitor general of the V.I. Department of Justice.
Since most of the money coming in goes right back out as winnings and a large portion of the remainder belongs to the government by contract, there really is no "gross" revenue, only net, argued Southland attorney Arturo Watlington Sr.
"There is no gross-receipts tax in the gaming industry," Watlington said. "The dollars from a terminal belong to the winners and to the government of the Virgin Islands. … The concept of gross receipts is not one that can easily be applied here."
Restaurants, bars and other establishments host the lottery machines as retailers, taking a portion of the machines' revenues. Watlington said he had seen a letter from the attorney general's office regarding retailers paying some gross-receipts taxes, but Southland had not been told by the Internal Revenue Bureau or the Office of the Attorney General they were to pay gross-receipts taxes.
Shaine Gaspard, Southland's executive vice president for V.I. operations, testified about the nuts and bolts of the local operation.
"Mr. Gaspard, you run Southland's day-to-day operations in the Virgin Islands," Sen. James Weber III said. "Are you paying any gross-receipts tax?"
Weber asked if Southland was paying corporate income tax.
"Of course," Gaspard said.
The hearing was called at the request of Senate President Usie R. Richards, who wrote that he was concerned the video lottery terminals have "virtually no regulation," said Sen. Terrence "Positive" Nelson.
"That is not true," Watlington said, proceeding with his account of how past lottery directors had created regulations and then-V.I. Superior Court Judge Ive A. Swan had upheld them.
"Southland has been working under this," Watlington said. "Whether or not they have met [V.I. law] regarding the promulgation of regulations, those are intergovernmental questions."
The regulations being applied to Southland were not publicized in a newspaper of general circulation and otherwise not properly set up, Paquin said.
"These are policies and guidelines that do not have the effect of law," he said. "To even call them rules and regulations is not proper. If anything, you should call them video lottery guidelines."
But that doesn't mean there is anything illegal happening, only that the regulations did not have the force of law, he said.
The Lottery Commission is working up a set of formal regulations right now, said Lenyse Shomo, the commission's acting executive director. Paquin and Shomo both said the new regulations should be complete within a month.
Between 94 and 95 percent of video lottery revenue goes to pay prizes, said Southland CEO Robert Huckabee. Since 2003, the terminals have generated $29.7 million. Twenty-five percent, or about $7 million of that, went to the V.I. Educational Initiative Fund. Fifteen percent, or around 4.5 percent, went to the Pharmaceutical Assistance Fund, helping seniors with medication, he said.
There were no votes taken at the information gathering hearing. Present were Nelson, Richards, Weber, Sen. Carlton "Ital" Dowe and Liston A. Davis.
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