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High Stakes

Iowa lawmakers have finally settled a tax war between the state's riverboat casinos and its racetracks ["The Way We Tax," February 2003]. For years, Iowa taxed slot machines onboard riverboats at 20 percent, while it taxed racetrack slots at 36 percent. The racetracks sued in 1998, arguing that it was unfair to treat some one-armed bandits differently than others.

The case wound up in the U.S. Supreme Court last year. The high court sided with Iowa, essentially saying that the legislature can tax slots however it wants to. But the justices referred the case back to the state Supreme Court, which agreed with the racetracks' argument. The state court's January opinion threw the budget into turmoil. Not only would Iowa owe the racetracks a tax refund of $113 million but the state would also lose about $35 million a year going forward.

The crisis made lawmakers willing to negotiate a truce--and willing to accept more gambling in Iowa. The racetracks agreed to forgo their tax refund. In exchange, they got a lower tax rate--24 percent--as well as the right to add table games to their casino offerings. Riverboats saw their taxes rise to 22 percent. But they also got something in return: the ability to stay moored to the dock, where gamblers can come and go (or not go, the casinos hope) as they please.

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Christopher Swope

Christopher Swope was GOVERNING's executive editor.

Twitter: @governing


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