GPWA Times - Issue 20 - March 2012

each individual account, rather than total amount in and amount out for the opera- tor, as is done for land-based casinos. It is not clear what would happen if the player left funds in the account and did not with- draw them. Do these funds escheat to the licensing authorities and if so when? • There is uncertainty over timing in col- lecting taxes. While a player is engaged in wagering, there is no tax due under a GGR until winnings can be calcu- lated. Depending on how regulations regarding GGR are defined, this could be deferred for an extended period with an “account,” as a customer could win one day, lose another and not withdraw funds for an extended period, with no taxes being due until the conclusion of that period. • There are substantial issues in allocat- ing funds for individual states. Under a GGR, it is not clear how an opera- tor would allocate which revenues should go to which state in any case in which there are players from multiple states competing with one another. Accounting rules could be complex. • Opportunities for operators and play- ers to “game” the system to defer taxes could be extensive. With a GGR, opera- tors and players could create incentives for funds not to be cashed out as “win- nings,” thereby deferring payment to the federal and state governments for extended periods. Promotional credits and other forms of non-cash payment could be used by casinos to encourage players to maintain accounts and not to cash-out as a means of deferring recog- nition of GGR. Players could choose to maintain funds in an Internet account in order to reduce the size of bank ac- counts and other assets that might be more visible to creditors. III. Deposit tax Players would deposit funds into an ac- count maintained by the operator, or on the operator’s behalf. The operator would be required at the end of each 30-day period to remit fixed percentages of the amount deposited to the federal govern- ment and to the state in which the player resides (or alternatively, depending on the legislation, the state in which the player is located at the time of the deposit). In cases in which a player chooses to with- draw funds without using them to play, the operator could impose an “early withdraw- al” fee, similar to the fees imposed on con- sumers withdrawing from a contract with a wire telephone company, or making a change to an airline reservation. This would have no impact on the amount paid to the federal or state governments. Similarly, any “free play” bonuses or other promotional funds would not change the amount of the deposit tax, which would be a fixed percent- age of deposits regardless of incentives. In an alternative version of deposit tax, a licensed operator would be provided a credit on the deposit tax for those funds withdrawn from player accounts at the end of each 30-day period, calculated us- ing the same rate as was used in calculat- ing the original deposit tax. Potential benefits of a deposit tax over a GGR tax • Calculations for operators are easy and transparent, as is verifying that they have paid the correct amount. Therefore, the costs of compliance from both the operator and the regulator standpoint are reduced. • The federal and state governments would receive funds without delay once a customer has chosen to engage in on- line gambling and without having to wait until the player commences wagering. • States can readily determine how much is due them based on the residence of the customer at time of deposit or, al- ternatively, the customer’s location. • Federal and state governments do not have to address complex issues relat- ing to “adjustments” for various forms of operator costs, as can happen in connection with adjustments to a GGR which operators have negotiated with some states. For example, if a GGR is 29