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Should Vermont take a 10 percent tax on 'break-open' tickets that officials say are unregulated but that charities look to as a lifeblood?
VFW patrons react to proposed tax on break-open ti...: Burlington VFW patrons react to a proposed tax on fundraising tickets by Governor Peter Shumlin.
Terri Hallenbeck
The VFW in Burlington sells break-open tickets, millions of which are sold at clubs such as this one around the state and which the governor now wants to tax. / ANDY DUBACK, for the Free Press
Craig Fox put down $10 for 10 �break-open� tickets at the VFW bar in Burlington on a recent Friday evening. He popped them open and found three were $1 winners.Bartender Judy Wright reached for her pile of tickets and slapped three more down for Fox. He came up empty that time.�It�s something to do,� Fox said of playing break-open tickets.For patrons, the tickets offer hope of winning as much as a few hundred dollars on a lucky ticket.For the VFW, they are a big source of money to help pay for veteran� programs. So, too, do school sports booster clubs, cancer-fighting groups and a wide range of other charities depend on selling these tickets to raise money.All that�s coming into question as Gov. Peter Shumlin suggests taxing the tickets.In his budget address Jan. 24, Shumlin proposed a 10 percent tax on the tickets, which are sold at service clubs and bars around Vermont. He would use the $17 million he estimates the tax would bring in to pay for home-heating assistance for low-income Vermonters, weatherizing homes and renewable energy projects.His plan didn�t go over well at the VFW bar a day after the governor�s speech.David Garen, a VFW auxiliary member sitting at the bar, puzzled over why, of all things, the governor was choosing to tax money that is raised for veterans� causes.�Are they going to tax the churches for Saturday night dinners?� he asked.Down the bar, Tom Chagnon didn�t understand the logic of taxing of the mostly working-class people who buy the tickets as entertainment. �Put a tax on ski lift tickets. You�d get a lot of out-of-staters,� he suggested. Or boost the tax on a cup of coffee, he offered.Chuck Munson, the quartermaster who does the books at the Burlington VFW, said the post can�t take a 10 percent hit on its fundraising. �We�re losing more members than we�re gaining every year,� he said.�We suffer to keep our doors open,� said Wright, the bartender.'An underground economy'
There�s more to the proposal than the 10 percent tax Shumlin mentioned in his speech, said Mike Hogan, commissioner of the state Department of Liquor Control who said he took the idea to the governor.The tickets are grossly unregulated, especially those sold in bars, he said, conceding that one in state government knows whether the proceeds really go to charity. Alongside taxing the tickets, the governor is proposing tougher enforcement to make sure the money raised through the tickets is really going to charity, as state law requires, Hogan said.�It�s been an issue that�s bothered me for a long time,� Hogan said. �It�s kind of an underground economy. We didn�t feel like we had much of a handle on them.�Shumlin, who said he�s played the tickets himself, argued that the changes will yield more money for charity while also bringing in revenue for the state. �I believe better regulation of these tickets will bring more money to charities, not less,� Shumlin said. �Under the current system there�s tremendous discretion.�When Shumlin mentioned taxing break-open tickets in his budget address, murmurs rippled through the Legislature. A good chunk of them had never heard of the tickets.�I think 70 percent of the body had never heard of them,� said Rep. Tim Jerman, D-Essex Junction.Jerman said after the speech he went to his local VFW to learn about the tickets, where he found out how popular they are, and how unpopular the proposed tax is.How many tickets?
Shumlin�s staff suggests the tickets are extremely popular, estimating that as many as 250 million tickets are sold in Vermont a year. Legislators, who would have to approve the governor�s idea, think that�s an overestimation. One ticket dealer said it�s a grossly inflated figure. Shumlin said he stands by his numbers.At the Burlington VFW, a variety of games tickets are available. The post buys them for $60 a box from two distributors, said Munson, the quartermaster. Each box contains 2,400 to 2,800 tickets. A 2,800-ticket box will generate $600 to the VFW, with the rest going to winnings for the players, Munson said.Munson estimated that the Burlington VFW averages 6,000 ticket sales a week.The way it works at the VFW is that the bartender rings up the ticket sale separate from other bar sales, with the cash register keeping track of how much money comes in through ticket sales. Proceeds go to pay for VFW causes such as placing flags on veterans� graves and supporting Veterans Administration homes and scholarships.For-profit bars also sell the tickets, but by state law may only do so as an agent of a nonprofit organization. Proceeds from the ticket sales have to go to the nonprofit. That�s the part that Hogan said is ripe for fraud. Nobody�s really checking where the money goes, he said.The governor�s proposal would give the Department of Liquor Control an investigator and greater authority to track and enforce where the money�s going, Hogan said.�We really don�t have the manpower,� said Bill Goggins, director of education, licensing and enforcement a the department. �Ticket investigations are very cumbersome.�Goggins said he�s come across a few cases over the years where for-profit bars were scamming people, but the state has no idea how common that is. The department doesn�t have the staff to go looking at bars� records, he said.In one case during the late 1990s, Goggins said, a bar was selling tickets, ostensibly to raise money for the Shriners International. The bar even had a $160,000 money order that looked legitimate, he said, but the Shriners knew nothing of the money and told the state they don�t allow fundraising through gambling, he said.Goggins said the state discovered in that case that the bar, which has long since changed hands, was splitting the take with the ticket distributor.Indications are that clubs and nonprofits who sell the tickets themselves do a better job of using the money as it is supposed to be used, he said.Hogan said the governor�s proposal would allow those nonprofit clubs to use the money from break-open tickets for any part of their operation, not just the charitable portion as law now requires. He said he hopes that will be a selling point to clubs worried about losing money from the 10 percent tax. For-profit bars would still be required to give all proceeds to charity, he said.Running the numbers
Charity is one of the great appeals of the tickets, said Jeff Temer, owner of BBS Gaming in Colchester, the largest distributor of the tickets in Vermont. �When I play, if I win, great. If I lose, at least that money is going to support charity,� he said.Temer said he favors greater enforcement of laws surrounding the tickets, but he disagreed that there is wide abuse of them and contends Shumlin is overstating the number of tickets sold.�We report every single deal of tickets,� he said, though he speculated the Tax Department might not keep that information in an easy-to-track form.He said commercial bars must have an agreement to serve as an agent of a specific nonprofit charity before he can sell the tickets to the bar. Bars, by law, are able to retain an accounting fee.Temer said most of the tickets are sold to clubs and bingo halls. Charging a 10 percent tax on each ticket � making a $1 ticket cost $1.10 � would hurt sales, he said, and would also complicate the barroom transactions.Ticket-buyers at the Burlington VFW typically put down $10 for 10 tickets. If they get a $1 winner, the assumption is they�ll take another ticket rather than the $1. With the tax, they�d have to add a dime to the transaction, interrupting the flow and probably hurting sales. �It makes it less desirable to play,� Temer said.Hogan said that�s how the tax would work � 10 cents levied on a $1 ticket the customer buys, but Shumlin said his understanding was that it would be charged on the transaction between the distributor and the nonprofit organization that sells the tickets. The governor agreed that charging $1.10 for a ticket would be awkward.Temer said New York state, where he also does business, collects a 5 percent fee on the net profit that the charitable organization receives from the tickets. That�s a simpler system, he said.Temer said he ran some estimates based on his own sales and what he knows of the market in Vermont, which includes six other licensed distributors, and deduced that the state would take in $10 million less than Shumlin estimates."The actual market for these tickets in our state is approximately $95 million per year,� Temer said. �My educated guess is that the tax would negatively impact ticket sales by roughly 30 percent, leaving an actual post-tax market of approximately $70 million. So at the end of the day the tax would yield approximately $7 million to the state, but that brand new revenue source would cost our veterans� organizations, nonprofits, charities, schools and local municipalities direct net proceeds of about $6 million.�He concluded. �The end result is that the state ends up costing our nonprofits $6 million in real proceeds in order to gain $7 million for the state.�Is it a fair tax?
When climate change activist Bill McKibben went to the Statehouse last week, he urged legislators to find a way to pay for programs that encourage thermal efficiency, or weatherizing homes. As much as he supports that idea, McKibben said he wasn�t sure taxing break-open tickets was the way to do that.McKibben is among those who�d never heard of the tickets and, he said, people like him should help shoulder the efficiency program. �It actually seems to me more as if all of us should have to pay for making this stuff happen. I�d rather pay my share,� he said.That�s what patrons at the Burlington VFW thought, too.Chagnon, who is president of the club�s men�s auxiliary, chatted while playing bingo.�How much does the working class have to absorb in taxes?� Chagnon asked. �There�s much broader things you can tax that are going to hit a broader population. It�s about the common guy. They find new ways to take money out of you.�While Chagnon would prefer a broader-based tax, Shumlin, in his speech, touted exactly the opposite. He boasted that he was able to balance the budget without raising broad-based taxes, such as income and sales taxes.Jeb Spaulding, Shumlin�s administration secretary, said a tax on home-heating fuel was considered an rejected as unpalatable to a broad spectrum of Vermonters. At the same time, state officials discovered most other states receive money from break-open tickets.�This is a form of gambling,� Spaulding said. �Vermont is one of the few states not having any portion of it going to the state treasury.�Legislators � those who know all about break-open tickets and those who�d never heard of them until the governor�s speech � will be weighing his proposal in the coming weeks.House Speaker Shap Smith, D-Morristown, remembers selling break-open tickets to raise money for school trips when he was in high school in Lamoille County in the 1980s. They raised a lot of money in a short time, he said. He said he�s not heard many complaints so far about taxing the tickets and he�s not opposed to the idea.House General, Housing and Military Affairs Chairwoman Helen Head, D-South Burlington, said her committee is looking to find out more about how the break-open ticket system works. �A better-understood system could mean both more money for the nonprofit community and more money for the state,� she said.Ways & Means Committee Chairwoman Janet Ancel, D-Calais, said she wants to know if Shumlin�s figures are realistic and what the impact would be on charities, bars and clubs if the state were to tax the tickets.As for whether taxing the tickets is a fair way to raise money, Ancel said the committee weighs such issues according to a line from the state Constitution that is written on a whiteboard in her committee room: �Previous to any law being made to raise a tax, the purpose for which it is to be raised, ought to appear evident to the Legislature to be of more service to community than the money would be, if not collected.�Rep. Jim Condon, D-Colchester, a member of the Ways & Means Committee, said he isn�t sure whether this tax is fair. �It�s tough to tax money from charities to pay for thermal efficiency,� he said.One thing Condon is sure of � if the Legislature does tax the tickets, he wants that money to go to the Education Fund instead of for heating aid, thermal efficiency and renewable energy. He has introduced a bill calling for that.Rep. Tony Klein, D-East Montpelier, a strong supporter of the programs Shumlin wants to fund with the tax, said if the estimates are realistic, there will be a lot of interest in using the money for other things.�There will probably be a feeding frenzy,� Klein said.
Contact Terri Hallenbeck at 651-4887 or thallenbeck@burlingtonfreepress.com. Follow her on Twitter at www.twitter.com/terrivt.
Should Vermont take a 10 percent tax on the tickets, which officials say are unregulated but that charities look to as a lifeblood? The 'common guy' at the Burlington VFW says no.