SECTION V TAX ON WAGERING — 0919 Publ 3908 (PDF)

Definitions

This section explains the application of excise tax on wagering (wagering tax and occupational tax) on tribal gaming operations conducting certain games, such as bingo games, pull-tabs, raffles and tip boards.

Tribes that conduct gaming activities should be aware that wagering tax and occupational tax might apply based on the gaming activities that are offered. The facts and circumstances of the types of wagering conducted, as well as the benefits derived, may have a bearing on whether the wagers are subject to tax.

There are two types of wagering tax: wagering tax imposed on the gross amount of a wager, and an occupational tax imposed on persons engaged in receiving taxable wagers. In general, the tax on wagering applies to:

Wagers placed on a sports event or contest with a person engaged in the business of accepting wagers.
Wagers placed in a wagering pool on a sports event or contest, if the pool is conducted for profit.
Wagers placed in a lottery conducted for profit (other than a state-conducted lottery).

Note: Pull-tabs, raffles and tip jar games generally are taxable lotteries. Bingo (not instant bingo) is specifically excluded from the wagering tax. Keno may be excluded from the wagering tax. The general rule is if a Keno game is live, meaning all players are present and winnings are paid before the beginning of the next game, it is not subject to the gaming excise tax. Generally, with Keno games over 20, the player may leave and collect his winnings later (usually up to one year). This type of Keno game is subject to the wagering tax. Contact the Indian Tribal Governments specialist in your area with questions on the wagering tax to a specific game.

The gross amount of the wager upon which tax is imposed is the amount risked by the bettor, including any charge or fee incident to placing the wager. The taxable amount, for purposes of the excise tax, does not depend on the amount that a bettor may win in the wager.

The law specifically exempts certain wagers from the wagering tax (gaming exemptions related to games conducted by a state or state agencies are beyond the scope of this publication). Exemptions relevant to Indian tribal government gaming include wagers placed:

With a pari-mutuel wagering enterprise, including horse racing, dog racing and jai alai, licensed under state law;
In a coin-operated device, such as slot machines, pinball machines or video games (including electronic pull-tab machines); and
Through drawings conducted by an organization exempt from tax under IRC Sections 501 and 521, as long as the net proceeds of the drawing do not benefit a private shareholder or individual.

See Form 730, Monthly Tax Return for Wagers.

Wagering Excise Tax

The wagering tax is imposed on gross wagers received before any payout of prizes or other expense.

Example: The wagering tax applies to an organization selling pull-tabs. The tax applies to the gross sales per box. If a box of $1 pull-tabs contains 2,400 cards and the entire box is sold, the tax is computed on $2,400.

Gaming Tax Law and Bank Secrecy Act Issues

Rate of Tax

The tax rate depends upon whether the wager is authorized under the law of the state in which it is accepted:

If the wager is authorized under the law of the state in which it is accepted, the rate of tax is 0.25% of the the wager. Thus, if the gross wagers are $1,000, the tax is $2.50 ($1,000 x .0025).
If a wager is not authorized under the law of the state in which it is accepted, the rate of tax is 2% of the wager. Thus, if the gross wagers are $1,000, the tax is $20 ($1,000 x .02).

Filing IRS Form 730, Monthly Tax Return for Wagers

To report and file taxable wagers, you must file Form 730. This is a monthly return that must be filed by the last day of the month following the month you report taxable wagers. Once you begin filing, Form 730 must be filed each month until a final return is filed, even if you receive no wagers in a month. These returns will report a liability of zero for the month. If you stop accepting wagers, you must file a final Form 730. Check the “Final Return” box on the form. The instructions to Form 730 provide additional filing information. A tribe may be subject to a penalty for failure to file the form and for failure to pay the tax.

Occupational Tax

The occupational tax is imposed on those who receive wagers that are subject to tax. The tax applies to persons receiving taxable wagers, whether they receive compensation or are volunteers.

Persons required to pay tax must register certain information with the IRS. This includes both principals (persons in the business of accepting taxable wagers on their own behalf) and agents (persons who accept taxable wagers on behalf of a principal). Both principals and agents must file Form 11-C, Occupational Tax and Registration Return for Wagering, to register and to pay the occupational tax before they accept wagers and annually thereafter (presently due on July 1). An employer identification number (EIN) must be used on Form 11-C, not a Social Security number. If a principal or agent does not have an EIN, they must apply for one by:

• Visiting www.irs.gov/ein and applying online;

Calling 800-829-4933; or

• Mailing a completed Form SS-4, Application for Employer Identification Number, to the IRS. Attach a copy of the SS-4 to the Form 11-C when the Form 11-C is filed.

Example: A tribe sells pull-tabs and arranges for 10 people to receive wagers from the public on the tribe’s behalf. The tribe also employs a secretary and a bookkeeper. The tribe and each of the 10 people are liable for the occupational tax. They must each file Form 11-C and pay the occupational tax. The secretary and bookkeeper are not liable for the tax unless they also accept wagers for the tribe.

Tax Amount

You must pay the occupational tax if you accept taxable wagers for yourself or another person. There are two amounts of occupational tax ($50 or $500). One or the other applies depending on whether the wagers you accept are authorized by the laws of the state in which you accept the wager.

If yes, then the amount of the occupational tax is $50 per year per person.
For all other wagers, the amount of the tax is $500 per year per person.

Gaming Tax Law and Bank Secrecy Act Issues

Example: A tribe sells pull-tabs at its tribally-owned gas stations through paid employees of the tribe. In the state where the tribe is located, the sale of pull-tabs must be conducted by volunteer labor. The tribe is liable for the wagering tax at a rate of 2%. Because it is liable for the tax, the tribe is also subject to the occupational tax at the amount of $500 per person selling pull-tabs.

The tribe is subject to the 2% rate and $500 amount because the wager is not authorized under the law of the state in which it is accepted. State law only allows the sale of pull-tabs by volunteer labor, and this tribe uses paid cashiers to sell the pull-tabs.

Gaming Tax Law and Bank Secrecy Act Issues