Blog Goodwin Gaming July 01, 2013

Racing Director Tries to Rein In New Withholding Provisions During Massachusetts Gaming …

On June 27, 2013, the Massachusetts Gaming Commission (MGC) held its 70th public meeting. Highlights from the meeting included:

Investigations and Enforcement

Karen Wells, Director of the Investigations and Enforcement Division, and John Ziemba, Ombudsman, discussed Phase 1 site determination and Qualifier deadlines. Ms. Wells and Mr. Ziemba expressed their view that the Category 2 applicants without site designations (including Penn National Gaming, Inc., and Mass Gaming and Entertainment, LLC)  are operating in good faith to find locations expeditiously. Commission members agreed that there is no need to implement an additional site determination deadline; the Oct. 4, Category 2 application deadline with its accompanying prerequisites, has sufficiently put applicants on notice to plan their site selections accordingly.

Commission members also considered whether it is necessary to implement a deadline for applicants to change or add a Qualifier. Commissioner Crosby emphasized that it takes significant time and resources to conduct background checks. Accordingly, he proposed that any material changes in applicant Qualifiers after Sept. 4  (roughly four months before the awarding of Category 2 licenses) would need to be reviewed and approved by the Commission on a case by case basis. Commissioner Stebbins emphasized, and others agreed, that the MGC should stress to applicants that significant last-minute changes in Qualifiers could jeopardize their ability to get a license.

General Counsel, Catherine Blue, reported on the ongoing suitability assessment process.  She said it will be important to examine all applicants’ business practices and track records in other states as well as in foreign countries. Ms. Blue conceded that it is more difficult to ascertain information about business practices in international jurisdictions, but the Commission seems committed to examining the overall integrity and transparency of all applicants through a holistic process that will include a personal interview. The MGC recognizes the importance of selecting an entity that can garner public trust.

All RFA-1 applicants are being vetted by the Commission’s Investigations and Enforcement Bureau which will complete its suitability recommendations over the next two months. Applicants that are deemed suitable will be eligible to submit RFA-2, site specific applications.


The meeting was dominated by debate on the new tax withholding threshold for pari-mutuel winnings under the MA Gaming Act.  Discussion on this topic continued long enough to require the MGC break for lunch before resuming its agenda later in the afternoon.

Jennifer Durenberger, Director of the Racing Division, provided an extensive update on various issues within the racing space, particularly the effect of current Massachusetts tax withholding requirements on the pari-mutuel industry. In a memo she presented to the Commission, Durenberger expressed concern that the tax withholding threshold under the 2011 MA Expanded Gaming Act could have a chilling effect on the Commonwealth’s racing industry, and potentially on the State’s gaming industry at large.

Currently, under 26 U.S.C. § 3402(q), racetrack licensees are required to issue W2G forms and withhold federal income tax from pari-mutuel winnings of $5,000 or more if the payout is at least 300 times the amount of wager. But under the MA Gaming Act, the withholding threshold was lowered to proceeds of $600 or more, regardless of wager odds. Additionally, the federal scheme allows itemized deductions for losses up to the amount of winnings whereas in Massachusetts, with limited exceptions, a winner can only deduct the amount of the winning wager.

Durenberger cited New Hampshire as a cautionary example of how tax withholding policies can have a chilling impact on the pari-mutuel gaming industry. New Hampshire enacted a 10% withholding tax which caused  simulcast account holders to take their business elsewhere.

According to Durenberger, not only will the lower withholding threshold make pari-mutuel gaming less attractive to customers, it will also cause the number of point-of-redemption tax transactions to rise, straining the resources of racetrack licensees

Durenberger suggested that the Commission consider supporting “An Act Relative to Wagering Taxation”, an amendment currently pending before the MA Senate Ways and Means Committee which would restore the pre-2011 threshold tax withholdings and mirror the equivalent federal statute. 26 U.S.C. § 3402(q).