Originally created 05/17/99

Gambling earnings scrutinized



COLUMBIA -- Former state Revenue Department officials say South Carolina's $2.5 billion-a-year video gambling industry is underreporting profits by more than 10 percent.

Comparisons with other states' industries indicate the underreporting could be far higher. For example, the average video poker machine in Louisiana takes in $18,000 more a year than those in South Carolina.

Based on those two measures, South Carolina's video poker industry could be earning $72 million to $524 million more than the $728 million the industry said it got from machines after payouts last year.

If the Legislature imposed a 20 percent tax on that net, as some state officials propose, the state would take in additional taxes each year of from $14 million to $105 million.

The state won't know how much money is moving through South Carolina's 34,000 machines until a new computer monitoring system goes online. It has been delayed until July.

Democratic Gov. Jim Hodges has called for $200 million in taxes and fees on the industry, about $150 million more than it currently pays.

Revenue Director Elizabeth Carpentier dismisses the 10 percent to 15 percent underreporting estimates as merely guesses.

"Our audits have not revealed any substantial underreporting," Ms. Carpentier said, noting the industry is audited more than any other in the state.

But Ms. Carpentier's predecessors disagree.

Burnet R. Maybank III, who headed the Revenue Department from 1995 to early this year, says he thinks the industry underreports its take by up to 15 percent.

"Beyond a doubt with any cash-based business, be it waitresses, pawn shops or bars, there's tax evasion going on," Mr. Maybank said.

But he and other officials do not have documentation. Al Nix, manager of audit selection under Mr. Maybank, said audits led him to believe that about half the stores with video poker machines underreport their income.

"I just reviewed a lot of returns," he said.

Revenue officials reviewed the industry's nearly 500 operators and focused audits on 114. Of those, 29 were found to owe nearly $600,000 in additional taxes, penalties and interest, 28 owed no taxes and 57 audits are still being conducted.

Since 1990, the department has criminally prosecuted eight poker operators for tax evasion. The state's third-largest operator was convicted of failing to report almost $1 million in income over five years.

"We paid our dues," said Jimmy McDonald. "It won't happen again."

Revenue officials agree that many of the larger operators have clean paperwork. "At the very top, they're fairly scrupulous," Mr. Maybank said.

South Carolina's $25,000 average earnings per machine is low compared with other states.

Only Montana's video poker machines earn less. That state has a much smaller population than South Carolina and it also does not have computer monitoring.

In Louisiana, which has several other types of legalized gambling to compete for gamblers' dollars, the state's 15,000 video poker machines earn an average of $43,000 a year.

In Oregon, which owns and monitors its video poker machines, the average is $45,000 per machine.



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