By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government and web shop industry are at odds over how the sector’s ‘retroactive taxes’ are to be calculated, with the proposed method seen as “inconsistent” with both the Gaming Act and international norms.

Tribune Business sources intimately involved in the two sides’ discussions disclosed that the main problem stems from how the Gaming Board is defining ‘gross revenue’ in relation to the web shops.

As part of the transition to a legalised web shop industry, all operators received forms from the Gaming Board asking them to disclose financial information necessary to determine their six-year ‘retroactive’ tax liabilities.

The forms asked operators to disclose their ‘gross revenues’ and ‘gross profits’, and this newspaper’s sources said the Government/Gaming Board plans to calculate due ‘past taxes’ as a percentage of these figures.

However, they argued that this would contravene established international norms when it came to gaming industry taxes, as the Government would effectively be taxing players’ wagers - not the web shop operator’s gross revenues.

Multiple Tribune Business sources explained that the worldwide gaming industry was taxed on ‘adjusted gross revenues’, which is the difference between a player’s wager (sum bet) less the winnings he/she takes home.

The difference is the revenue upon which the web shop operator gains an economic benefit from, effectively representing his gross revenue.

As an example, a player can wager $100, engage in gambling activity that generates sums up to $5,000 but, in the end, only walk away with $20 in winnings. The web shop operators are thus arguing that it is the $100-$20 difference, $80, that represents their ‘adjusted gross revenue’ and what they should be taxed on, not the $100.

Section 85 in the Gaming Act, which deals with the ‘transitional provisions’ to achieve a legalised web shop industry, speaks to ‘adjusted gross revenue’ and the calculation method outlined above by this newspaper.

Tribune Business sources said that, as a result, the Government/Gaming Board plans to tax ‘gross revenues’ (player wagers) effectively contradicted their own Act.

“They used a definition of gross revenues that is inconsistent with the legislation,” one source told Tribune Business of the Gaming Board’s ‘disclosure’ forms.

“If you look in the US and other leading jurisdictions, they call it gross gambling revenues - the wager minus the [house’s] revenue.”

Tribune Business was told that the Government and web shop industry, together with their advisers, had met to discuss this issue and attempt to resolve it.

The industry is now awaiting the Christie administration’s promised response, yet time could be running out.

Tribune Business has seen some of the ‘Demand Letters’ issued to web shop operators by the Gaming Board, where they have been given deadlines as early as January’s end to pay the disputed ‘back taxes’ or agree a payment plan.

“Persons have been asked to pay sums in excess of what they should be paying,” one source revealed. “Taxed revenue means adjusted gross revenue.

“They wrote demand letters asking them to pay on the gross revenue. They’d be out of business if they go down that road. It makes absolutely no sense.”

All contacts spoken to by Tribune Business did so on condition of anonymity. No one would speak ‘on the record’, or give permission to use their name, due to the sensitivity of the talks.

Obie Wilchcombe, minister of tourism, could not be reached for comment yesterday, while Verdant Scott, the Gaming Board’s secretary, did not return Tribune Business’s call seeking comment despite detailed information on the nature of the inquiry being left with his office.

Tribune Business, though, can also reveal that the disclosure forms issued by the Gaming Board were inconsistent themselves, demanding different information from different web shop operators.

“The liability notices that the Government sent out,” one source said, “for some of the operators it was based on the gross, and for some it was based on the net. For some it was based on the net for casinos, and gross for lotteries.

“There were these inconsistencies, and not a common approach.”

And the problems with the Gaming Act’s so-called transitional provisions do not stop there. The legislation’s Section 85 calls for the web shops to pay six years’ worth of retroactive Business Licence fees, based on turnover and gross profits.

This, Tribune Business was told, has created two issues because:

• The gaming industry is exempt from Business Licence fees

• Freeport-based web shops are exempt from the Government’s Business Licences (at least until August 4 this year) because of the Hawksbill Creek Agreement’s provisions.

“The position of the operators is that if taxes are to be retroactive for six years, it cannot be on gross turnover,” a source familiar with the situation told Tribune Business. “Gaming is exempt from Business Licences.

“The operators appreciate the Government wants to collect due revenue, and desperately needs the revenue, but any assessment has to be fair, rationale and in accordance with the law.”

The source also confirmed that Freeport-based web shops believed they should be exempt from the ‘retroactive’ Business Licence fees because of the Hawksbill Creek Agreement ‘exemption’.

Tribune Business’s contacts confirmed that the web shop industry was now awaiting the response from the Government/Gaming Board to its concerns.

Given that it is in both sides’ interest for the web shop ‘legalisation’ process to be completed, the differences are likely to be resolved - it is just a question of how, and how fast.

The Government is understood to have told the web shops that the matter “ought not to be a deal breaker”, and one source said: “These are simple matters. Read the legislation, and understand what you have to do.”