Relating to setoff requirements concerning certain winnings on wagers

Description

House File 2623 requires that all winnings reported on Internal Revenue Service (IRS) Form W-2G be applied to the full amount of debt owed by the individual who wins money on a wager at a racetrack, excursion gambling boat, or gambling structure. The Bill also amends provisions pertaining to qualified sponsoring organizations licensed to conduct or operate gambling games by providing that the inclusion of a member of the city council or a member of the county board of supervisors as an ex officio member of the board of directors is at the option of the city or county. The Bill prohibits participants in an Internet fantasy sports contest from making any payments by credit card.

Background

Iowa Code section 8A.504 permits the Department of Administrative Services to recover delinquent payments owed to State and political subdivisions by withholding payments that would otherwise be paid to individuals and vendors. The Department then applies the moneys toward the debt the individual owes to the State of Iowa or local governments, after charging a $7 administrative fee for costs incurred to the agency requesting placement of the debt into the setoff program. The administrative fee, which is deducted from the gross proceeds collected through the program, covers salaries, supplies, equipment, and system modification and development costs, and indirect costs such as office space, security, and utility costs. Some of the debt types recovered are child support, court fees and restitution, State individual income taxes, and fees for traffic citations.

Under Iowa Code sections 99D.28 and 99F.19, a debtor who wins money on a wager at a racetrack, excursion gambling boat, or gambling structure in the State is subject to a setoff from those winnings in the amount of debt owed if the winnings are equal to or greater than $1,200. However, the requirements to file IRS Form W-2G correspond to several winning threshold amounts and wager types, and the Bill requires debtors to be subject to the setoff if the winnings are required to be reported on the form.

Gambling winnings are required to be reported on the form if:

1. The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine.

2. The winnings (reduced by the wager) are $1,500 or more from a keno game. 3. The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament.

4. The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:

a. $600 or more; and b. At least 300 times the amount of the wager.

5. The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).

State tax receipts from sports wagering for FY 2020, as deposited into the Sports Wagering Receipts Fund, are estimated at $1.8 million. As this is the first year of legal sports wagering and fantasy sports in the State, debt has not yet been recovered from this form of wagering winnings.

The following tables show the amount of debt recovered through the setoff procedure at Iowa casinos in FY 2019. Other State agencies recovering debt include Iowa Workforce Development, the Department of Inspections and Appeals, the judicial districts, the Department of Commerce, and the Attorney General.

Table 1 — Setoff Debt Recovered by Entity in FY 2019 Table 2 — Setoff Debt Recovered by Other State Agencies and Political Subdivisions in FY 2019

Assumptions

• Approximately $4.6 million in setoff funds, or 9.0% of funds collected through the setoff program, is collected by the 19 licensed Iowa casinos.
• Iowa casinos are responsible for checking claimants’ winnings money on wagers at the facility against the State debt database.
• State General Fund revenue, in addition to city and county revenue, could increase as the setoff threshold is removed and sports wagering winnings are added to the debt collection pool.
• The amount of debt recovered from wagering winnings and placed in the setoff program cannot be less than $50.

Fiscal Impact

While the fiscal impact cannot be estimated at this time, the Bill is expected to increase collections through the State setoff program as sports wagering winnings are included and the number of taxable gambling events, and the eligible amount won from those taxable events, is expanded. There is no estimated fiscal impact as a result of language in the Bill pertaining to qualified sponsoring organizations.Entity Debt Recovered Judicial Branch 1,668,315$ Department of Revenue 1,433,430 Department of Human Services 1,061,163 Other State Agencies/Political Subdivisions 373,827 4,536,735$Entity Debt Recovered Other State Agencies 149,378$ Cities 105,551 Community Colleges 68,361 Municipal Utilities 26,651 Universities 23,282 Housing Authorities 604 373,827$

Sources

• Department of Administrative Services
• Iowa Racing and Gaming Commission
• Iowa Gaming Association