California Online Poker Bill: Who Gets Taxed, and How Much?

As the media analyzes the two online poker bills under review by California lawmakers, a central question has emerged: If one of the two bills should become law, who gets taxed, and how much?

“It’s not a question that will likely make a huge difference in the state’s looming budget deficit,” writes Malcolm Maclachlan for California’s Capitol Weekly. “But for individual tribal members, it could mean a big difference in income.

“For many tribal members, casino incomes aren’t subject to taxation by the state — but only if the person is a tribal member living on their own tribe’s reservation and the casino is also located there.”

To put it in simple terms: If the casino is located elsewhere — like, in cyberspace — could the tribes still be taxed?

Because, after all, if they’re not taxed, then what’s the point of the bill in the first place? Since it was originally designed to earn money for the state, it’s logical to assume the state will want to find a way to tax the companies — most likely tribes — that ultimately run online gambling in California.

Well-known gambling authority I. Nelson Rose “countered that there is an example of tribes hosting Internet servers: the Kahnawake Mohawks in Quebec,” the article continues.

“The tribe established the Kahnawake Gaming Commission in 1996. A decade later, they bought a pair of poker technology companies, Absolute Poker and Ultimate Bet. This and other investments left the tribe with a significant stake in the worldwide online poker market – worth an estimated $18 billion in 2008.”

As California struggles with whether to fully legalize and regulate online poker — and how to tax it in the process — the ultimate solution could likely arise from its ability (or inability) to tax tribal online gambling.

“What is most likely is that the tribes would work out some deal to pay a share of revenue to the state, Rose said, while also making sure that payments to tribal members were not taxed by the state.”

“Neither bill has language that would definitely settle the tax issue, though Correa’s SB 40 appears to lean against taxing this revenue for tribes.”