State Gambling Update
New laws allow enhanced card rooms - Local governments address effects

By Bob Meinig, MRSC Legal Consultant
Municipal Research News, March 1999

Have you heard that enhanced card rooms, or "mini-casinos" as they are popularly called, are sprouting up and are being proposed around the state, in both cities and in unincorporated areas? Do you know what they are and why they may legally exist in this state? Have you considered what effect they might have if they do locate in your community? You can answer the first question, and we can answer the sEcond. The third question is a hard one.

Many local governments in Washington State are now addressing the effects of 1996 and 1997 legislation that permits gambling establishments offering card room gambling to have up to 15 tables and to have "house-banked" card games. As a result of this recent legislation, many existing card rooms now offer enhanced card room gaming, and many new license applications for card rooms have been filed with the state gambling commission. What will be the social and Economic impacts on communities of these new mini-casinos? How are cities and counties currently responding, and how may they respond to this new type of legal gambling activity? This article will discuss, in general, local regulation of gambling, and, in particular, regulation of mini-casinos.

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.

The authority of a city or county to tax gambling activities is limited as follows:

• Amusement games: 2% of gross receipts less prizes (net receipts);

• Amusement games by charitable or nonprofit organizations: no tax on first $5,000 of net receipts, then 2% of net receipts;

• Bingo and raffles: 5% of net receipts;

• Raffles by charitable or nonprofit organizations: no tax on first $10,000 of net receipts, then 5% of net receipts;

• Bingo by charitable or nonprofit organizations: no tax on first $5,000 of net receipts, then 5% of net receipts;

• Punch boards and pull-tabs used by charitable or nonprofit organizations, 10% of net receipts;

• Punch boards and pull-tabs used as commercial stimulant, 5% of gross receipts or 10% of net receipts; and

• Social card games: 20% 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 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. The state supreme court has indicated that "primarily," as used in this statute, means that a city or county must first use these revenues for gambling law enforcement purposes. It does not mean that most or a substantial amount of the revenue must be used for that purpose. So, if a city or county needs only 10 percent of the tax revenues to enforce the gambling laws, then it need not spend more than that for enforcement.

The state legislature is currently considering bills that would reduce the maximum tax on card games (SB 5815) and on bingo and raffles (SB 5745), as well as a bill that further restricts the use of revenue from the tax on card games (SB 5790).

Under the statutory authority to prohibit gambling activities, at least 28 cities and one county have prohibited some type of gambling activity, and one of those cities has prohibited all gambling. 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." A city or county that prohibits any or all forms of gambling must notify the gambling commission in writing so that the commission will not issue or renew a license, which is valid for one year, for the type of gambling prohibited within that jurisdiction. WAC 230-04-500.

The Hoopla about Enhanced Card Rooms or 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 legislature responded with statutory amendments, apparently not much noticed by cities and counties, that authorized the commission to allow card rooms to operate up to 15 separate tables, and removed the limit on fees that a licensee may collect from players. In 1997, the legislature again amended the statutes relating to card games to allow house-banked card games.

In response to this legislation, the Gambling Commission began a pilot study of these "enhanced" card games (with up to 15 tables and house-banked) to collect information on their impacts for the purpose of developing permanent regulations to implement the legislation. (A January 1999 report on the pilot study is viewable at and may be downloaded from http://www.wsgc.wa.gov/docs/crpsrpt.doc.) Currently, only licensees participating in the pilot study are allowed to operate these enhanced card room operations. Based on the pilot study information, the commission will propose regulations to be permanently adopted on July 1, 1999. Under the pilot study, the commission has licensed 40 card rooms to operate house-banked games and 15 card rooms to operate generally enhanced games (without house-banking), which are located mostly in the Puget Sound area and in and around Spokane. There are many currently pending license applications for enhanced card rooms. In addition, the commission has approved increased wagering limits of up to $100 (up from $25) for certain card rooms involved in the study. According to the commission, quarterly card room gross receipts have more than tripled since 1995, while punch board and pull-tab receipts have remained fairly constant during this period.

What does all this mean for cities and counties that do not already have in place a prohibition on card games? It means, first, that businesses may operate larger and more lucrative gambling establishments. Poker and other authorized card games no longer need to be limited to a group of people playing against each other and throwing wagers into a "pot" in the middle of the table, with the winner of the hand taking the pot and with the house charging a limited fee for table time. Now, card rooms can have professional dealers, and the game participants play against the house. The types of card games played are generally very different with house-banked games, with Blackjack being by far the most common. As a result, mini-casinos can now have an environment more like Las Vegas or Reno or tribal casinos, and they can make more money.

It also means that enhanced card rooms or mini-casinos may have much greater social and Economic impacts than previous card rooms on the communities in which they locate. However, the nature and extent of those impacts are not clear. While some studies have been made, or are in progress, concerning the effects of gambling on local communities, there is no definitive word on these impacts, and there may never be one. The results and predictions of existing studies are often dependent on the agenda of the sponsoring organization. In an attempt to obtain an objective assessment of the impacts of gambling in our society, Congress, in 1996, created the National Gambling Impact Study Commission "to conduct a comprehensive study of the social and Economic impacts of gambling in the United States." The Commission is contracting with research organizations to help accomplish its goals. One of the Commission's contractor's, the National Opinion Research Center (NORC) at the University of Chicago, just released, in preliminary report form, a national survey of gambling behavior.

Of course, whatever impacts may occur will depend greatly on the nature of the community and the type and extent of gambling activity that is allowed and that becomes established. For the most part, how cities and counties react to the prospect of new mini-casinos opening will depend on how they and their citizens perceive the projected impacts.

How have cities and counties reacted? Many have reacted with some surprise, because of a lack of awareness of the new laws and what they may mean. Ron Sims, the King County Executive, has proposed prohibiting new card rooms in the unincorporated areas of that county. At least four cities (Auburn, Burien, Kent, and Shoreline) have recently adopted moratoriums on accepting applications for business licenses for food or drink establishments proposing to conduct commercial stimulant card games. The Auburn and Burien moratoria also require any existing food or business establishment to apply for an additional business license to conduct such card games, and those applications would be subject to the moratorium. The Burien and Shoreline moratoria also apply to applications for building permits and other approvals that may be necessary for these gambling activities. While their moratoria are in effect, these cities plan to evaluate whether to permit card rooms in the future.

Some local governments are also looking at their gambling tax rates and are considering raising them for card rooms. Many cities that impose a tax on card rooms do not levy the maximum rate.

The concern generated locally by the new card rooms has reached the state legislature. Recently proposed legislation, HB 2154 and HB 2177, would require the Gambling Commission to notify the city chief executive officer of an application for a house-banked card room license and to allow that official to request and be granted by the commission a one-year halt on consideration of any application (or, in HB 2154, until April 1, 2000). Proposed HB 2177 also requires the Gambling Commission to provide extensive public notice regarding applications for house-banked card room licenses. The prospects for these bills are unknown at this time.

If your city or county has not addressed the issue of whether card rooms should be allowed to locate or continue to operate in your jurisdiction, you may want to do so now. Adopting a moratorium on business license applications for activities involving gambling may be a good idea if it appears likely that card rooms will soon seek to locate in your jurisdiction. However, there apparently has been some concern expressed by the gambling industry about the legality of these moratoria. Another option is to simply prohibit card rooms, if only temporarily, and then address the issue of whether and where to allow them.

If your city or county is considering a prohibition on card games or restricting them to certain areas, a number of legal issues will need to be addressed. One is whether existing businesses with card rooms, if there are any, will be affected and, if so, to what extent, if at all, they would need to be compensated or offered an amortization period during which the card rooms will be allowed to continue operation. Another issue that has been raised concerns the authority of a city or county to restrict the location of these gambling businesses by zoning. Your city or prosecuting attorney should be consulted on these issues.

MRSC will continue to monitor the issue of enhanced card rooms or mini-casinos and to collect information on city and county responses. Please send us any information you collect on this subject and on how you are responding, and any resolutions or ordinances you adopt concerning this type of gambling activity.