Developments:

2018 Law Passed Revising Legal Terms for Internet Sweepstakes Cafes

With the passage of HB 1234 during the 2018 legislative session, state legislators - including Colorado’s new Speaker of the House KC Becker - clarified laws governing simulated gambling activity. This new law updated definitions and amended the statute clarifying the Colorado Constitution’s definition of a slot machine as a machine where money is paid to play a game and a prize.

Read the entire bill: https://leg.colorado.gov/bills/hb18-1234

Law 18-10.5-102

In 2015, the state of Colorado passed a law in response to the internet sweepstake cafes in Colorado.

The law states:

(1) The general assembly finds, determines, and declares that:

(a) Recently, certain individuals and companies have developed electronic machines, systems, and devices to enable gambling through pretextual sweepstakes relationships predicated on the sale of internet services, telephone cards, and other products at business locations that are or may be commonly known as internet sweepstakes cafes. These machines, systems, and devices, as more fully described in this article, appear designed to evade the existing constitutional and statutory regulations on gambling activity in Colorado and therefore are declared to be contrary to the public policy of this state.

(b) The gambling occurring at internet sweepstakes cafes has none of the protections that are afforded to players at legal gaming sites in Colorado. This absence of uniform regulation and ongoing, governmental oversight presents a danger to consumers throughout the state of Colorado. These sites comply with none of the regulatory requirements, such as surveillance and tracking of wagers and payouts, to assure consumers that gambling is being conducted fairly and honestly. The general assembly finds that these dangers are profound, putting at risk the financial resources of vulnerable persons and customers who are used to wagering based on clear regulatory standards and who have official lines of authority to which they may appeal when there are questionable or illegal practices used by a licensed gaming operator.

(c) The proliferation of internet sweepstakes cafes presents an increasing risk to consumers, particularly as these sweepstakes cafes have spread to sites throughout the state and are capable of operating without facing adverse consequences for their illegal, unfair, or unregulated acts;

(d) The diversion of consumer dollars to these untaxed gambling activities not only presents the opportunity for theft but also undermines state and local programs that are funded by revenue derived from legalized gambling, including parks and recreation, historic preservation, and the state's general fund;

(e) There is no adequate local or federal regulation of internet sweepstakes cafes, and the ability of the owners of those facilities to operate in any community in the state or to move their operations from one part of the state to another without notifying any regulatory body makes this an issue of statewide concern, appropriate for action by the general assembly;

(f) The voters of Colorado have carefully chosen the forms of gambling to which to give their approval and the conditions under which those forms of gambling may be conducted. At no time has the question of legalization of internet sweepstakes cafes been presented to the voters of this state. Without a vote of the people, the state of Colorado cannot permit the operation of unauthorized, unregulated, and unsupervised gambling or lotteries in violation of section 2 or 9 of article XVIII of the Colorado constitution.

How much money do casinos bring in for Colorado and where does the money go?

• In 2017, legal casinos, state-wide, paid $117,400,965 in gaming taxes. This money has been used to fund state historical restoration projects, community colleges, mitigate the impacts of state and local governments caused by gaming, and finance on-going regulation of the gaming industry.
  
  
• Since the opening of casinos in 1992, gaming taxes have accumulated to $2,210,020,648.
  See the tax break down here.

• Internet sweepstakes cafés, or gambling arcades, are not required to pay state gaming taxes. All monies earned by the cafés, go straight into the owner’s pockets. Internet cafes are estimated to earn more than $10 billion a year nationwide.

Where is gambling legal in Colorado?

• Gambling is only allowed in the towns of Black Hawk, Central City, and Cripple Creek.

• Gambling is illegal per the Colorado constitution outside of Black Hawk, Central City, and Cripple Creek. Internet cafes and gambling arcades are not regulated by local zoning ordinances, so in many communities they may locate in any retail or commercial district.

How many people are employed by casinos?

• As of July 1, 2016, legal casinos in Colorado employed 8,902 people, stimulating the local economy and job market.
  
  
• Café or gambling arcade owners and managers are neither licensed nor subject to criminal background checks. Police reports show that areas with illegal gambling have higher incidents of crime. Proceeds from illegal gambling are sometimes used to fund organized crime and human trafficking.

What is Amendment 50 and how does it relate to gaming taxes?

• Amendment 50 gave the electorate in Black Hawk, Central City, and Cripple Creek the option to approve 24-hour gaming, adding craps and/or roulette, and raising the maximum wager limit up to $100 (it was formally $5).
  
  
• Additional state revenues acquired by these changes are to be distributed to community colleges and to the gaming towns and counties.
  
  
• Amendment 50 requires voter approval for any increase in gaming tax rates beyond the rates and levels in place as of July 1, 2018.
  
  
• Cafés or gambling arcades do not face any zoning restrictions, so they can be located anywhere. Internet sweepstakes cafes have sprung up on storefronts, gas stations, and convenience stores. They are carefully designed to avoid state antigambling laws and gambling licensing restrictions.
  
  
• Café and gambling arcade owners do not pay state gaming taxes, so no revenue is redistributed into the community.

Are casinos required to offer any information to customers about compulsive gambling?

• Yes, Colorado casinos are required to provide customers with information about compulsive gambling along with counseling options.
  
  
• There is no such requirement for cafés or gambling arcades .

What is the age requirement in Colorado gaming establishments?

• State law requires persons to be at least 21 years old to gamble or be in a gambling area of a casino.
  
  
• Cafés and gambling arcades are not required to exclude underage gamblers.

What is the payout percentage?

• The payout is 80-100% over the life of the machine.
  
  
• There is no public agency holding these cafes or gambling arcades accountable. They are not required to pay you your winnings on the day that you win them as there is no regulation of tracking payouts. In addition, consumers who feel they have been cheated have no recourse. In fact, one customer contacted his city councilman because he did not know where else to turn.

What is the procedure for filling taxes based on winnings?

• Casino staff will assist customers with large winnings with the necessary IRS form and also notify the IRS of the jackpot amount. For smaller winnings, it is the responsibility of the taxpayer to include casino winnings on personal tax forms as taxable income.
  
  
• The results of café and arcade gambling are not reported publicly and there is no regulation that tracks payouts.

Who needs a gaming license and what level background check is required?

• Colorado law defines “gaming employees” as “dealers; change and counting room personnel; cashiers; floormen; cage personnel; slot machine repairmen or mechanics; persons who accept or transport gaming revenues; security personnel; shift or pit bosses; floor managers; supervisors; slot machine and slot booth personnel.”
  
  However, the Colorado Gaming Commission can require other types of employees to be licensed, as well.
  
  The level of background check varies based on the type of license. Those applying for higher distinction licenses will undergo a more comprehensive background search, than those applying for a Support license.
  
  
• Owners of cafés and gambling arcades aren’t licensed by any public agency and are therefore not subject to a criminal background check or investigation of their business integrity.

What public entity oversees gaming and fairness to customers?

• Legal casinos - The Colorado Gaming Commission.
  
  
• Cafés and gambling arcades - no one.