Online Poker

Online Gambling Makes Major Noise in Congress

by Poker Team

This week marked a hot and heavy set of events regarding the future of online gambling in the United States.  Things got rolling on Wednesday morning when Congressman Barney Frank (D-MA) introduced the Internet Gambling Regulation Consumer Protection and Enforcement Act, his highly anticipated framework for creation of a licensing and regulatory framework for the gaming industry in the United States.  In his proposal, Frank makes it unquestionably clear that his bill is designed to protect consumers.  The bill clearly states that:

“Internet gambling in the United States should be controlled by a strict Federal licensing and regulatory framework to protect underage and otherwise vulnerable individuals, to ensure the games are fair, to address the concerns of law enforcement, and to enforce any limitations on the activity established by the States and Indian tribes.”

According to the proposal, companies must be in good standing legally and financially and be equipped with safeguards to combat underage and problem gambling.  Licenses will be valid for 5 years where they are then allowed to re-apply.  To be in good standing with the US government, site operators must disclose criminal records, credit histories, comprehensive financial statements, and outlines of the corporation’s structure.  In addition, they must also protect against fraud, money laundering, and terrorist financing.  Also, Frank’s bill does not make exemptions for any type of sports betting that falls under the Professional and Amateur Sports Protection Act (PASPA) is not allowed under Frank’s legislation.   Contrary to popular belief, Frank’s bill does not seek to abolish the UIGEA, rather, it would exempt licensees from it.

Introduction of the Internet Gambling Regulation and Tax Enforcement Act

A missing component was the actual taxation framework of the bill.  Enter Congressman Jim McDermott (D-WA) who on the same day, introduced the Internet Gambling Regulation and Tax Enforcement Act, HR 2268.  This is designed to work in conjunction with Frank’s bill and paves the way for the Federal Government to extract tax revenue from the gambling industry. The bill states:

“Each licensee… shall be required to pay an internet gambling license fee by the end of each calendar month in an amount equal to two percent of all funds deposited by customers during the preceding month.. the 2% fee may not be deducted from the amounts available as deposits by the person placing a bet.” So players are not taxed up front by the companies, but they are legally bound to pay income tax on any internet gambling winnings. Any unauthorized bets or wagers are taxed at 50% and all money is sent to the United States Treasury.

In addition, each licensee is responsible to provide upon request, full disclosure of the names and addresses of licensees, the gross wins and losses by each person wagering, the total of “net internet gambling winnings,” the amount of tax paid, and account balances are required once per year.

McDermott spoke briefly stating the it was not prudent for the government to continue to ignore a very viable and consistent revenue stream, noting the PriceWaterhouseCoopers estimates of $52 in gross revenue expected to be raised under the new tax guidelines.

While PPA Chairman Alfonse D’Amato applauded the bills and pledged that the PPA would provide over $3 million in lobbying efforts, naturally there was some loud opposition in Congress, the loudest coming from one of Frank’s own House Financial Services Committee members, Spencer Bachus of Alabama who played an integral role in the passing of the UIGEA.  He issued a statement which basically said that he will do everything he can to ensure that any legislation that Frank attempts to put into law be stopped.

This is truly an historic time in this country for the future of internet gambling.  Only time will tell who will ultimately win.

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