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Subjects › Legal › Regulation and Taxation of Gambling
Updated 12/2011

Regulation and Taxation of Gambling

Contents

State Regulation of Gambling

In 1973, the state legislature created the Washington State Gambling Commission and authorized certain gambling activities in the state - amusement games, bingo, raffles, punch boards, pull-tabs, card rooms, and social card games - if conducted by charitable/nonprofit organizations or by commercial food and drink businesses. Although Governor Evans vetoed the provisions allowing card rooms and social card games, these gambling activities were again authorized by the 1974 legislature, without a gubernatorial veto.

The Gambling Commission regulates and, with some exceptions, licenses the gambling activities authorized by the 1973 legislation and subsequent amendments. This legislation, codified in chapter 9.46 RCW, is implemented through the commission's extensive regulations in Title 230 WAC. The commission does not require licenses for:

  • certain limited gambling activities conducted by nonprofit or charitable organizations for fundraising purposes;
  • dice or coin contests for music, food, or beverage payment at businesses where food is bought and consumed on the premises;
  • sports pools when conducted within specified statutory limitations;
  • bowling sweepstakes conducted by bowling establishments; and
  • limited promotional contests of chance.

The gambling commission requires licenses for all other authorized types of gambling activities, including commercial bingo operations and the use of punch boards and pull-tabs and the operation of card games as a commercial stimulant by businesses primarily engaged in selling food or drink for consumption on the premises. All of these authorized gambling activities, whether subject to license requirements or not, are subject to the commission's detailed regulations in Title 230 WAC.

Local Regulation and Taxation of Gambling

Cities and counties are limited in their authority to regulate gambling. They may: (1) tax certain gambling activities; (2) enact as local ordinances any of the state gambling statutes the violation of which constitutes a misdemeanor or gross misdemeanor; and/or (3) prohibit any or all gambling activities for which licenses are required.

State law authorizes cities and counties to tax gambling activities, with the maximum rates varying depending on whether the gambling activity is conducted by commercial stimulant operators (for profit businesses) or by charitable or nonprofit organizations. RCW 9.46.110. The maximum allowable levies on gambling activities by commercial stimulant operators are as follows:

  • Bingo - up to 5 percent of net receipts (gross receipts less cash or merchandise prizes).
  • Raffles - up to 5 percent of net receipts.
  • Amusement Games - up to 2 percent of net receipts.
  • Punchboard, pulltabs - up to 5 percent of gross receipts or up to 10 percent of net receipts.
  • Social card rooms - up to 20 percent of gross receipts.

The maximum allowable levies on gambling activities by charitable or nonprofit organizations are as follows:

  • Bingo - no tax on first $5,000 of net receipts, then up to 5 percent of net receipts.
  • Raffles - no tax on first $10,000 of net receipts, then up to 5 percent of net receipts.
  • Amusement Games - no tax on the first $5,000 of net receipts, then up to 2 percent of net receipts.
  • Punchboard, pulltabs - up to 10 percent of net receipts.
  • Social card rooms - up to 20 percent of gross receipts.

Charitable and nonprofit organizations are exempt from bingo and amusement game taxes if the combined net receipts from these games are no more than $5,000 per year and the organization does not pay personnel to operate the games. The first $10,000 of net receipts from charitable or nonprofit organization raffles are also exempt from the local tax.

Revenues from local gambling taxes must be used primarily for the purposes of public safety. The permitted use of gambling revenues was expanded to include any public safety purpose. Previously these revenues were to be used "primarily for the purpose of enforcement of the provisions of this chapter [9.46 RCW] by the county, city or town law enforcement agency." RCW 9.46.113.

Under the statutory authority to prohibit gambling activities, a number of cities and one county have prohibited some type of gambling activity. See the Washington State Gambling Commission list of cities and counties prohibiting gambling activities, revised March 8, 2011. Card rooms are the type of gambling activity most frequently prohibited by local governments. The statute that authorizes these local prohibitions, RCW 9.46.295, provides that cities and counties "may absolutely prohibit, but may not change the scope of license, any or all of the gambling activities for which the license was issued." Before being considered by the Gambling Commission for a gambling license, an applicant "must prove that they have the required applicable business licenses, permits, health certificates, fire inspections, and use and occupancy permits required by local authorities." WAC 230-03-030.

House-Banked Card Rooms / "Mini-Casinos"

Prior to 1996, legally authorized card rooms were limited to "non-banked" card games and to no more than five tables. In non-banked games, the players play against each other rather than against the "house" which pays winnings or collects losses. According to the Gambling Commission, card game licensees had been experiencing a decline in gambling activity and, in response, sought changes in the laws regulating card games. The 1996 and 1997 legislatures amended the statutes relating to card games to allow house-banked card games. As of December, 2011 there are 62 licensed house-banked card rooms, or mini-casinos, in the state. See Washington State Gambling Commission, House-Banked Public Card Room Report. They are extensively regulated by Gambling Commission regulations in chapter 230-15 WAC.

A city or county may prohibit certain types of licensed card games, but allow other forms of licensed card games, as long as the particular form falls within a license type. See Washington State Gambling Commission, Limiting Types of Card Games Within a Jurisdiction.

An issue involving prohibitions on card rooms that has twice reached the state court of appeals is the result of such a prohibition for existing card rooms. In Edmonds Shopping Center v. City of Edmonds, 117 Wn. App. 344 (2003), the court of appeals held that a city may prohibit these card rooms, including existing card rooms, but is preempted by state law from requiring or allowing a phase-out period of operation. And, in Paradise Village Bowl v. Pierce County, 124 Wn. App. 759 (2004), the court of appeals upheld the county's ban on for-profit social card games, rejecting a challenge by a business that included such card games and that alleged that the ban was a takings and violated substantive due process and equal protection.

The 2009 legislature enacted legislation (ESSB 5321, Laws of 2009, ch. 550) that applies to large annexations (10,000 population or more) for which cities impose a sales tax under RCW 82.14.415 and that operates as a credit against the state sales tax. That legislation amended RCW 9.46.295 to allow a city with a prohibition on house-banked card rooms that annexes an area that permits house-banked card rooms to grandfather an existing card game business in an existing area and allow it to continue operating, if the city is authorized to impose a tax under RCW 82.14.415 and can demonstrate that the continuation of the house-banked card game business will reduce the credit against the state sales as provided in RCW 82.14.415(7).

Additional legislation that was enacted in 2011 provides that a jurisdiction with a ban on house-banked card rooms that annexed an area and allowed a house-banked card room in the annexed area to continue operating before July 15, 2010, must allow all card rooms (i.e. house-banked) card rooms licensed and operating as of January 1, 2011 to continue operating.

A city that allows a social card game business in an annexed area to continue operating is not required to allow additional social card game businesses.

Zoning for Gambling Activities

One issue that has yet to be resolved is whether a city or county may zone for gambling activities - restrict where they can be located. As a practical matter, this is an issue only with house-banked card rooms. MRSC legal staff takes the position that cities and counties have that authority and that they are not preempted from zoning for gambling activities by chapter 9.46 RCW. However, the gambling commission has taken the position that cities and counties are preempted by that chapter from zoning for gambling activities. As a result, the gambling commission will issue licenses without regard to city or county zoning, though it will not issue a license for a gambling activity that a city or county prohibits.

Bills have been introduced in the legislature to clarify local zoning authority, but they have not passed. Legislative clarification or judicial interpretation is called for here.

Related MRSC Resources