Memo Gambling Regulation
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CITY OF HOPKINS
MEMORANDUM
To:
Hopkins City Council
From:
Jim Genellie
Date:
September 7, 1995
Subject:
Gambling Regulation
Councilmember Hesch has raised a number of issues regarding the regulation of lawful gambling.
(see attachment) I will attempt to address each issue that she has raised:
Quarterly Financial Statements
This suggestion could be implemented based upon the state requirement that a licensed
organization must report to the Gambling Control Board and to its membership monthlyl on its
gross receipts, expenses, profits, and expenditure of profits from lawful gambling. (M,S, 349.19,
Subd. 5)
Demographic information provided yearly on number of staff
This suggestion could also be implemented based upon state requirements for Compensation
reports. A licensed organization must submit to the board once each year a compensation report
that specifies for the year being reported:
1 - each job category for which the organization pays compensation;
2 - each compensation rate paid in each category; and
3 - the number of employees being paid each compensation rate during the year. (M. S.
349.168, Subd. 9)
This reports is only required quarterly in the case of an organization with a Class C
license, which is a license for bingo only or bingo and pull-tabs if the gross receipts do not exceed
$50,000 per year; or for an organization which does not report more than $1,000 in gross receipts
in any calendar quarter.
. Semi-annual charitable giving statements (categorized by type and location)
Again, the state requires a similar report called a Net profit report. Each licensed organization
must report monthly to the board each expenditure and contribution of net profits2 from lawful
gambling. The reports must provide for each expenditure or contribution:
1 - the name, address, and telephone number of the recipient of the expenditure or
contribution;
2 - the amount of the expenditure or contribution;
3 - a brief description of how the expenditure or contribution meets the lawful purpose
criteria. (M.S. 349.154, Subd. 2)
Minimum of 80% to local trade area.
The City may, by ordinance, require that a licensed organization, conducting lawful gambling
within its jurisdiction, expend all or a portion of its expenditures for lawful purposes within the
city's "trade area". Such an ordinance must define the city's trade area and must specify the
percentage of lawful purpose expenditures which must be expended within the trade area, A
trade area must include each city contiguous to the defining city. (M.S. 349.213, Subd. Ib)
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Possibly remove local business requirement and require proposal as to how big a percent of
net proceeds will go to local trade area. License will go to those showing most local
philanthropy. Renew license based on reaching proposed targets (Similar to Celebration for
Life philosophy at Foundation)
The requirement that a licensed organization be located in Hopkins is found in Legislative Policy
#4-D, Section 2,02:
An applicant for a license shall be a registered Minnesota nonprofit corporation or
an organization which is designated as exempt from the payment of income taxes
by the Internal Revenue Code and whose principal location or office is within the
City of Hopkins .
Basing licensing on meeting targets is not addressed by the state statutes controlling lawful
gambling. This issue would have to be researched by the City Attorney,
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2 "Net profit" means gross profit less reasonable sums actually expended for allowable
expenses.. (M.S. 349,12, Subd. 27)
. Loosen requirements to state requirements for length of time in operation and number of
members (how is "member" defined by state)
1 - The organization must have been in existence for the most recent three years preceding the
license application as a registered Minnesota nonprofit corporation. (Hopkins requires
five years)
2 - The organization at the time oflicensing must have at least 15 active members.3 (Hopkins
requires 30 members)
Require some form of evaluation on effectiveness of maj or donations
Currently the only limitation on giving is that it must meet the lawful purpose guidelines set out in
M.S. 349.12, Subd. 25. This is another issue that the City Attorney would have to investigate,
i.e. can the city deny a license to an organization based upon the nature of its donations.
Can we grant annual instead of two-year licenses?
The city does not actually grant licenses for lawful gambling. The Gambling Control Board grants
the licenses and the licenses are for two years.
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M,S. 349.213, Subd. la: "A city has the authority to adopt more stringent regulation oflawful
gambling within its jurisdiction, including the prohibition of lawful gambling.... The authority
granted by this subdivision does not include the authority to require a license or permit to conduct
gambling by organizations... "
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"Active membertl means a member who has paid all dues to the organization, who is 18
years of age or older, who has equal voting rights with all other members, who has equal
opportunity to be an elected officer, who has equal right and responsibilities of attendance at the
regularly scheduled meetings of the organization, whose name and membership origination date
appear with the member's knowledge and consent on a list ofrnembers of the organization, and
who has been a member of the organization for at least six months. (M,S. 349.12, Subd. 2)
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LAWFUL GAMBLING REGULATION
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Charitable gambling in Minnesota is controlled by the Gambling Control Board.
(Minnesota Statute 349) Licenses authorizing organizations 1 to conduct lawful
gambling may be issued by the Board to organizations meeting the following
qualifications:
1 - The organization must have been in existence for the most recent three years
preceding the license application as a registered Minnesota nonprofit
corporation, (Hopkins requires five years)
2 - The organization at the time of licensing must have at least 15 active members.2
(Hopkins requires 30 members)
3 - The organization must not be in existence solely for the purpose of conducting
gambling.
4 - The organization must not have as an officer of the governing body any person
who, within the 5 years before the issuance of the license, has been convicted in
a Federal or State court of a felony or a gross misdemeanor or who has ever
been convicted of a crime involving gambling or who has had a license issued
by the Board or Director revoked for violation of the law or Board rule.
5 - The organization has identified in its license application the lawful purposes on
which it proposes to expend net profits from lawful gambling. (M.S. 349.12,
Subd. 25 defines "lawful purpose")
6 - The organization has identified on its license application a gambling manager
and certified that the manager is qualified.
The term of the license is two years. Licenses may be renewed. The Gambling Control
Board shall not renew a license unless it determines that the organization is
compliance with all laws and rules covering lawful gambling and is not delinquent in
filing tax returns or paying taxes.
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"Organization" means any fraternal, religious, veterans, or other nonprofit organization.. (M.S.
349.12, Subd. 28)
2 "Active member" means a member who has paid all dues to the organization, who is 18 years of
age or older, who has equal voting rights with all other members, who has equal opportunity to be an
elected officer, who has equal right and responsibilities of attendance at the regularly scheduled
meetings of the organization, whose name and membership origination date appear with the member's
knowledge and consent on a list of members of the organization, and who has been a member of the
organization for at least six months. (M.S. 349.12, Subd. 2)
. A licensed organization may not conduct lawful gambling at any site unless it has first
obtained from the Board a premises permit for the site, or in the case of bingo, a bingo
hall license. The Gambling Control Board in turn may not issue or renew a premises
permit or bingo hall license unless the licensed organization submits a resolution from
the City Council approving the premises permit or bingo hall license. A resolution must
have been adopted within 60 days of the date of application for the new or renewed
permit or license.
Other:
Expenditure restrictions. Gross profits3 from lawful gambling may be expended only for
lawful purposes or allowable expenses4 as authorized by the membership of the
conducting organization at a monthly meeting of the organization's membership.
Provided that no more than 50% of the gross profit may be expended for allowable
expenses related to lawful gambling.
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Net profit reports. Each licensed organization must report monthly to the board each
expenditure and contribution of net profitsS from lawful gambling. The reports must
provide for each expenditure or contribution:
1 - the name, address, and telephone number of the recipient of the expenditure or
contribution;
2 - the amount of the expendjture or contribution;
3 - a brief description of how the expenditure or contribution meets the lawful
purpose criteria. (M.S. 349.154, Subd. 2)
Compensation report. A licensed organization must submit to the board once each year
a compensation report that specifies for the year being reported:
1 - each job category for which the organization pays compensation;
2 - each compensation rate paid in each category; and
3 - the number of employees being paid each compensation rate during the year.
(M.S. 349.168, Subd. 9)
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3 "Gross profit" means the gross receipts collected from lawful gambling, less reasonable sums
necessarily and actually expended for prizes.. (M.S. 349.12, Subd. 20)
"Allowable expense" means the percentage of the total cost incurred by the organization in the
purchase of any good, service, or other item which corresponds to the proportion of the total actual use
of the good, service, or other item that is directly related to conduct of lawful gambling. Allowable
expense includes the advertising of the conduct of lawful gambling. (M.S. 349.12, Subd. 3a)
5 "Net profit" means gross profit less reasonable sums actually expended for allowable expenses..
(M.S. 349.12, Subd. 27)
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CONTROL OF THE DISTRIBUTION OF GAMBLING PROCEEDS BY A CITY
COUNCIL
1 - The City Council may institute a local gambling tax. The tax may be imposed
only if the amount to be received by the City is necessary to cover the cost
incurred by the City to regulate lawful gambling. The tax imposed may not
exceed 3% of the gross receipts of a licensed organization from all lawful
gambling, less prizes actually paid out by the organization. A city may not use
this money for any purpose other than for the purpose of regulating lawful
gambling. A tax imposed is in lieu of all other local taxes and local investigation
fees on lawful gambling. (M.S. 297E. 02)
2 - The City can require that licensed organizations contribute 10% of their net
profits derived from lawful gambling to a fund, administered and regulated by the
City, for disbursement by the City for any lawful purpose. (M.S. 349.213. Subd.
1 a)
3 - The City may, by ordinance, require that a licensed organization, conducting
lawful gambling within its jurisdiction, expend all or a portion of its expenditures
for lawful purposes within the city's "trade area". Such an ordinance must define
the city's trade area and must specify the percentage of lawful purpose
expenditures which must be expended within the trade area. A trade area must
include each city contiguous to the defining city. (M.S. 349.213, Subd. 1 b)
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LOCAL REGULATION
1 - The city has the authority to adopt more stringent regulation of lawful gambling
within its jurisdiction, including the prohibition of lawful gambling.
2 - The city may not require an organization to make specific expenditures of more
than 10% of its net profits derived from lawful gambling. (See #2 above)
3 - The city may not require an organization conducting lawful gambling within its
jurisdiction to make an expenditure to the city as a condition to operate within
that city.
4 - A more stringent regulation or prohibition of lawful gambling adopted by a city
must apply equally to all forms of lawful gambling within a jurisdiction of the
political subdivision.
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. Minnesota Statutes, Section 349.12
Subd. 25. Lawful purpose. (a) "Lawful purpose" means one or more of the following:
(1) any expenditure by or contribution to a 501 (c)(3) organization, provided that the organization
and expenditure or contribution are in conformity with standards prescribed by the board under
section 349.154;
(2) a contribution to an individual or family suffering from poverty, homelessness, or physical or
mental disability, which is used to relieve the effects of that poverty, homelessness, or disability;
(3) a contribution to an individual for treatment for delayed post traumatic stress syndrome or a
contribution to a recognized program for the treatment of compulsive gambling on behalf of an
individual who is a compulsive gambler;
(4) a contribution to or expenditure on a public or private nonprofit educational institution
registered with or accredited by this state or any other state;
(5) a contribution to a scholarship fund for defraying the cost of education to individuals where
the funds are awarded through an open and fair selection process;
(6) activities by an organization or a government entity which recognize humanitarian or military
service to the United States, the state of Minnesota, or a community, subject to rules of the
board, provided that the rules must not include mileage reimbursements in the computation of
the per occasion reimbursement limit and must impose no aggregate annual limit on the amount
of reasonable and necessary expenditures made to support:
(i) members of a military marching or colorguard unit for activities conducted within the state;
or
(ii) members of an organization solely for services performed by the members at funeral
services;
(7) recreational, community, and athletic facilities and activities intended primarily for persons
under age 21, provided that such facilities and activities do not discriminate on the basis of
gender and the organization complies with section 349.154;
(8) payment of local taxes authorized under this chapter, taxes imposed by the United States on
receipts from lawful gambling, the taxes imposed by section 297E.02, subdivisions 1, 4, 5, and 6,
and the tax imposed on unrelated business income by section 290.05, subdivision 3;
(9) payment of real estate taxes and assessments on permitted gambling premises wholly owned
by the licensed organization paying the taxes, not to exceed:
(i) the amount which an organization may expend under board rule on rent for premises used
for bingo; or
(ii) $15,000 per year for premises used for other forms of lawful gambling;
(10) a contribution to the United States, this state or any of its political subdivisions, or any
agency or instrumentality thereof other than a direct contribution to a law enforcement or
prosecutorial agency;
(11) a contribution to or expendIture by a nonprofit organization which is a church or body of
communicants gathered in common membership for mutual support and edification in piety,
worship, or religious observances;
(12) payment of one-half of the reasonable costs of an audit required in section 297E.06,
subdivision 4;
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(13) a contribution to or expenditure on a wildlife management project that benefits the public at
large, provided that the state agency with authority over that wildlife management project
approves the project before the contribution or expenditure is made; or
(14) expenditures, approved by the commissioner of natural resources, by an organization for
grooming and maintaining snowmobile trails that are ( 1 ) grant~in-aid trails established under
section 116J.406, or (2) other trails open to public use, including purchase or lease of equipment
for this purpose.
(b) Notwithstanding paragraph (a), "lawful purpose" does not include:
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(1) any expenditure made or incurred for the purpose of influencing the nomination or election of
a candidate for public office or for the purpose of promoting or defeating a ballot question;
(2) any activity intended to influence an election or a governmental decision making process;
(3) the erection, acquisition, improvement, expansion, repair, or maintenance of real property or
capital assets owned or leased by an organization, unless the board has first specifically
authorized the expenditures after finding that (i) the real property or capital assets will be used
exclusively for one or more of the purposes in paragraph (a); (ii) with respect to expenditures for
repair or maintenance only, that the property is or will be used extensively as a meeting place or
event location by other nonprofit organizations or community or service groups and that no rental
fee is charged for the use; (iii) with respect to expenditures, including a mortgage payment or
other debt service payment, for erection or acquisition only, that the erection or acquisition is
necessary to replace with a comparable building, a building owned by the organization and
destroyed or made uninhabitable by fire or natural disaster, provided that the expenditure may
be only for that part of the replacement cost not reimbursed by insurance; or (iv) with respect to
expenditures, including a mortgage payment or other debt service payment, for erection or
acquisition only, that the erection or acquisition is necessary to replace with a comparable
building a building owned by the organization that was acquired from the organization by eminent
domain or sold by the organization to a purchaser that the organization reasonably believed
would otherwise have acquired the building by eminent domain. provided that the expenditure
may be only for that part of the replacement cost that exceeds the compensation received by the
organization for the building being replaced:
(4) an expenditure by an organization which is a contribution to a parent organization,
foundation, or affiliate of the contributing organization, if the parent organization, foundation, or
affiliate has provided to the contributing organization within one year of the contribution any
money, grants, property, or other thing of value;
(5) a contribution by a licensed organization to another licensed organization unless the board
has specifically authorized the contribution. The board must authorize such a contribution when
requested to do so by the contributing organization unless it makes an affirmative finding that the
contribution will not be used by the recipient organization for one or more of the purposes in
paragraph (a); or
(6) a contribution to a statutory or home rule charter city, county, or town by a licensed
organization with the knowledge that the governmental unit intends to use the contribution for a
pension or retirement fund.
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POLICY 4-D
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LA WFUL GAMBLING
1. PURPOSE
1.01 The purpose oftms policy is to establish a gambling policy for lawful gambling in the City
of Hopkins.
2. REGULA TIONS
2.01 Except as otherwise enumerated herein, the provisions of Minnesota Statute Chapter 349
relating to the definition of terms, licensing and restrictions of gambling are adopted and
made a part of the statement of policy promulgated by the City of Hopkins as if set out in
full
2.02 An applicant for a license shall be a registered Minnesota nonprofit corporation or an
organization which is designated as exempt from the payment of income taxes by the
Internal Revenue Code and whose principal location or office is within the City of
Hopkins.
. 2.03 The organization defined in Section 2.02 must be engaged in its activities for the benefit of
the community within the City of Hopkins for at least five years on a perpetual,
continuous, uninterrupted basis and have at least 30 active members.
2.04 Gambling allowed by the city shall be carried on only within premises owned, occupied or
leased by the organization except such activities permissible under M.S. 349.166.
2.05 More than one organization, as defined in Section 2.02, may conduct gambling within a
single owned, occupied or leased premise. More than one organization may jointly
conduct a lawful gambling game at one location. However, two or more organizations
shall not separately conduct the same game at the same time at one location.
2.06 The operation of gambling devices and the conduct of bingo and raffles licensed or
approved pursuant to the authority granted to the City of Hopkins shall be carried on
under the supervision of a gambling manager designated by the organization. The
gambling manager shall be responsible for the operation of the gambling activity and the
receipts and profits generated from the operation.
2,07 The gambling manager shall be an active member of the organization issued the license
and shall qualify under state law.
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2.08 Participants in raffles, paddlewheels, pull tabs and tip boards shall be restricted to
individuals who have attained the legal drinking age. This restriction only applies to
premises where liquor, wine, beer or 3.2 beer is served, Where intoxicating beverages are
not served the age shall be eighteen.
2.09 Organizations wishing to renew a gambling license must provide the City with a financial
audit of its lawful gambling activities and funds for the previous two years. The audit(s)
must be performed by an independent accountant licensed by the state of Minnesota.
In addition, such organizations must provide the City with information on all expenditures
of lawful gambling funds during the previous two years. Such information must include at
a minimum the name of the recipient, the amount ofthe expenditure or contribution, and a
brief description of how the expenditure or contribution meets the definition of "lawful
purposes" as defined in M.S. 349.12,
2.10 A fee of $100.00 shall be charged to all licensed organizations submitting a Premises
Permit Renewal Application for approval by the City.
Established 8/18/87
Revised 4/19/94
City of Hopkins
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