Federal Way seeks lower gambling tax after PJ Pockets Casino closes

The closure of PJ Pockets Casino has prompted Federal Way to seek a lower gambling tax.

The casino, located at South 324th Street and Pacific Highway, closed May 3 and laid off all 85 employees, said co-owner Steve Griffiths. The casino had been tightening expenses the past couple of years amid the economic downturn, Griffiths said.

"People are cutting back on their discretionary expenditures," said Griffiths. "I think it's going to be tough to sell PJ Pockets."

Federal Way's high gambling tax played a role in the casino's closure, Griffiths said. The City of Federal Way takes 20 percent of the casino's gross gambling receipts. The casino is considered a cardroom, and Federal Way leverages the maximum tax allowed. The average tax for similar cardrooms is about 9.9 percent, according to the Washington State Gambling Commission.

A total of 80 licensed cardrooms reported $25,534,116 to the local jurisdictions in gambling taxes for fiscal year ending June 2009, according to the commission.

In Federal Way, 18 establishments contribute to the gambling tax revenue, which was budgeted at about $1.1 million for 2010, said city manager Brian Wilson. PJ Pockets is the largest contributor to this revenue stream.

In 1998, Federal Way raised the tax from 11 percent to 20 percent in order to halt the proliferation of gambling activities and establishments, Wilson said. This month, Wilson will make a recommendation to the Federal Way City Council to drop the gambling tax from 20 percent to 10 percent for cardrooms, and drop the tax on pull-tabs from 5 percent to 4 percent.

"I'm aware that our gambling tax is very high and it was high by design," said Wilson, who will address the issue at the Finance, Economic Development and Regional Affairs Committee (FEDRAC) meeting on May 25. The city council could enact an emergency ordinance as soon as the second week in June, Wilson said.

"I'm pleased we might have a solution here," Wilson said.

For PJ Pockets, a lower gambling tax could change the casino's fate.

"Based on those efforts, we are in serious consideration of reopening," Griffiths said. "We still have a process to go through ... Maybe there's a happy ending to the story."

Some businesses such as Time Out Tavern sell pull-tabs, which are gaming tickets that pay cash to winners. Time Out owner John Foley said the city has been good to his establishment, but the current 5 percent tax is unfair when considering gambling-related costs, such as prize payouts and labor. Those costs come out of his net receipts. Foley said that 3 percent would be a more fair tax for similar businesses with pull-tabs.

"I just want to shed some light on this taxation," he said, adding that a lower tax could free up more money for employee benefits. "The employees are affected by this tax."

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