HF4994

Purpose

Expand and clarify local government authority over lawful gambling, giving cities, townships, and counties the ability to regulate more strictly, require permits, set fees, impose local taxes, and direct a portion of proceeds for local public purposes and trade-area spending, while preserving core licensing frameworks.

Key Changes and Provisions

• Local Regulation and Authority

  • Local governments may adopt more stringent regulation of lawful gambling within their jurisdiction, including prohibition.
  • A permit may be required for gambling activities that are exempt from licensing under current law.
  • Local governments may not impose license fees for certain gambling-related roles (e.g., organizations, managers, employees, or distributors) beyond specific limits.
  • Any local regulation or prohibition must apply equally to all forms of lawful gambling unless an exception (paddlewheels) is allowed.

• Local Fees and Costs

  • Local investigation fee (to cover local oversight) may be charged to organizations applying for an initial premises permit. Maximum annual fees:
  • Cities of the first class: up to 500
  • Cities of the second class: up to 250
  • All other cities and townships: up to 100
  • Counties: up to 375
  • A local permit may have a separate fee cap of up to 100.

• Net Profits and Expenditures

  • Local governments may not require organizations to spend more than 10% of their net profits per year.
  • Net profits are defined as gross profits minus allowable expenses and taxes related to lawful gambling.
  • A local government may require specific expenditures to be directed to the city/township/county’s own purposes, but only within certain limits:
  • Up to 10% of net profits per year may be contributed to a local fund for charitable contributions or for police/fire and other public safety-related services (excluding pension obligations).
  • Contributions are not considered an expenditure or tax, and recipients must be disclosed in annual reports.
  • If required, charitable contributions must be reported by March 15 to the state board, including details of revenues, interest, and expenditures, and the local government must acknowledge contributions in appropriate communications.

• Trade Area and Local Expenditures

  • A local ordinance may require a licensed organization to spend all or part of its lawful gambling expenditures within the city/township/county trade area.
  • The ordinance must define the trade area, specify the percentage of expenditures to be used within it, and ensure the trade area includes contiguous jurisdictions.

• Local Approval for Premises Permits

  • The state board may not issue an initial premises permit without local approval.
  • The local approving body (city council, township board, or county board) must adopt a approving resolution within 90 days of the permit application.

• Local Gambling Tax

  • Local governments may impose a gambling tax on licensed organizations within their jurisdiction, but only if the tax is necessary to cover regulatory costs.
  • Tax rate cannot exceed 3% of gross receipts from all lawful gambling, less prizes paid.
  • Tax revenue must be used only to regulate lawful gambling and is in lieu of other local taxes and investigation fees.
  • Annual report due by March 15, showing revenue and how proceeds were used.

• Reporting and Transparency

  • Any local funds or expenditures related to enforcement, regulation, or charitable contributions must be reported to the state board, and the local government must acknowledge financial contributions.

Significant Changes to Law

• Broadening of local control: States’ local units can prohibit or tightly regulate lawful gambling beyond current statewide rules.
• Financial oversight: Establishment of local investigation fees and local gambling taxes to fund regulation.
• Profit-use requirements: Allowance of mandatory or permitted expenditures of a portion of net profits within defined limits and trade areas.
• Local approval gatekeeping: Requires local governmental approval for initial premises permits.
• Trade-area focused spending: Encourages or requires that some gambling proceeds be spent within the local trade area.

Significance and Potential Impacts

• For gambling organizations: potential higher ongoing costs (fees and taxes) and more administrative requirements (permits, reporting, local approvals).
• For local governments: new tools to fund regulation, public safety, and community initiatives; tighter control over where funds are spent.
• For communities: greater transparency and direct linkages between gambling activity and local services, though it may affect charitable distributions or operations of gambling organizations.

Relevant Terms - lawful gambling - premises permit - local investigation fee - board (state regulatory board) - local regulation - trade area - net profits - gross profits - allowable expenses - charitable contributions - police and fire/public safety services - paddlewheels - initial premises permit - local approval - local gambling tax - three percent (3% tax rate) - reporting (March 15 deadline) - local unit of government - contiguous jurisdictions - charitable contributions defined in 349.12 subdivision 7a - contributions as not a tax