oversight

Tax Policy: A Profile of the Indian Gaming Industry

Published by the Government Accountability Office on 1997-05-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Committee on
                Ways and Means, House of
                Representatives


May 1997
                TAX POLICY
                A Profile of the Indian
                Gaming Industry




GAO/GGD-97-91
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             General Government Division

             B-275479

             May 5, 1997

             The Honorable Bill Archer
             Chairman, Committee on Ways and Means
             House of Representatives

             Dear Mr. Chairman:

             Indian gaming activities and the revenues generated from them have
             grown substantially since the late 1980s. Recognizing this, Congress, as
             part of its deliberations on the Seven-Year Balanced Budget Reconciliation
             Act of 1995, debated taxing the income earned from gaming activities by
             Indian tribes and also by some tax-exempt organizations. Since the debate,
             you have asked us to provide you with information on the Indian gaming
             industry.

             This report is a follow-up to the preliminary data we provided you in
             August 1996.1 In this report, our objectives are to provide you with (1) an
             updated profile of the Indian gaming industry, (2) information on the
             amount of transfers to the tribes from their gaming facilities, (3) a
             comparison of Indian gaming revenues with the revenues generated by
             other legalized gaming activities, and (4) a summary of the federal tax
             treatment of Indian tribes and tribe members.


             In the late 1970s, Indian tribes began authorizing or conducting various
Background   types of gaming activity with only tribal oversight. In 1987, the Supreme
             Court confirmed that Indian tribes had authority to operate gaming
             establishments on their trust lands without having to comply with state
             laws and regulations.2 To resolve outstanding issues between tribes and
             states and to provide oversight, Congress passed the Indian Gaming
             Regulatory Act of 1988 (IGRA).3

             IGRA established the following three classes of gaming to be regulated by a
             combination of the tribal governments, state governments, Bureau of
             Indian Affairs (BIA)—an agency of the Department of the Interior, and
             National Indian Gaming Commission (NIGC).




             1
              See Profile of Indian Gaming (GAO/GGD-96-148R, Aug. 20, 1996).
             2
              California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987).
             3
              See 25 U.S.C. sections 2701-2721.



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•   Class I gaming consists of social gaming for nominal prizes or ceremonial
    gaming. It is regulated solely by the tribe, and no financial reporting to
    other authorities is required.
•   Class II gaming includes bingo, pull-tabs, and punch-boards. Tribes can
    conduct only class II games that are legal under state law, and these games
    are regulated by the tribes and NIGC.
•   Class III gaming consists of all other forms of gaming, including casino
    games, slot machines, and pari-mutuel betting.4 Class III games are
    regulated as indicated below.

    Tribes are required to obtain state, NIGC, and Department of Interior
    approval to establish and operate class III gaming facilities. IGRA requires
    that tribes and states negotiate a tribal-state compact to balance the
    interests of both the state and the tribe. The Secretary of the Interior is
    authorized to approve any tribal-state compact and has delegated this
    authority to the Assistant Secretary—Indian Affairs, who is responsible for
    BIA. All class II and III gaming operations on Indian lands are required to
    submit copies of their annual financial statement audits to NIGC.5

    The tribal-state compact is an agreement that may include provisions
    concerning standards for the operation and maintenance of the gaming
    facility, the application of laws and regulations of the tribe or the state that
    are related to the licensing and regulation of the gaming activity, and the
    assessment by the state of amounts necessary to defray the costs of
    regulating the gaming activity.

    IGRA  specifies that the tribal ordinance concerning the conduct of class II
    or III gaming on Indian lands within the tribe’s jurisdiction must provide
    that the net revenues from any tribal gaming are not to be used for
    purposes other than to (1) fund tribal government operations or programs,
    (2) provide for the general welfare of the Indian tribe and its members,
    (3) promote tribal economic development, (4) donate to charitable
    organizations, or (5) help fund operations of local government agencies.
    Tribes may distribute a portion of their net revenues directly to tribal
    members, provided that the tribes have a revenue allocation plan approved
    by BIA. This plan is to describe how tribes intend to allocate net revenues
    among various governmental, educational, and charitable projects,
    including direct payments to tribal members.


    4
     Pari-mutuel betting is generally considered to include on-track, off-track, and inter-track betting on
    horse racing, dog racing, and jai-alai.
    5
     See 25 C.F.R. section 571.13 and 25 U.S.C. section 2710(b)(2)(C) (1996).



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                   As of December 31, 1996, 184 tribes were operating 281 gaming facilities.
Results in Brief   For 178 of these facilities, operated by 126 tribes, we obtained and
                   examined 1995 financial statements.6 These 178 facilities reported
                   generating gaming revenues (dollars wagered minus payouts) of about
                   $4.5 billion, with 8 of them accounting for about 40 percent of these
                   revenues. The gaming facilities also reported generating over $300 million
                   in revenues from sales such as food, beverages, and hotel rooms. Net
                   income (total revenues minus expenses) reported for the 178 facilities was
                   about $1.9 billion, representing 38 percent of the $4.9 billion total
                   revenues.

                   According to the financial statements, about $1.6 billion was transferred to
                   106 tribes in 1995.7 Of this $1.6 billion, more than 50 percent went to 10
                   tribes. For 20 tribes, the financial statements did not show any transfers.
                   None of the financial statements indicated how the transfers were used by
                   the tribes.

                   Gaming revenues generated by all class II and class III Indian facilities for
                   which we had financial statements equaled at least 10 percent of the
                   estimated gaming revenues generated by legalized gaming (including
                   casinos, lotteries, pari-mutuel betting, and others) reported by the gaming
                   industry in 1995.

                   We compared class III Indian facility revenues with reported revenues
                   from Atlantic City and Nevada casinos. In the aggregate, 109 class III
                   Indian facilities generated about the same total amount in gaming
                   revenues as the 12 Atlantic City casinos and more than half the gaming
                   revenues of the 213 Nevada casinos. Average gaming revenues for these
                   Indian facilities were significantly less than those of Atlantic City casinos
                   but about equal to the average for the Nevada casinos. In terms of the
                   distribution of gaming revenues among the facilities, class III Indian
                   facilities were similar to Nevada casinos—a small proportion of the
                   facilities accounted for a large share of the aggregate gaming revenues. By
                   contrast, the gaming revenues of the 12 Atlantic City casinos were more
                   equally distributed.



                   6
                   Some facilities were not included in our analyses because they were new and financial statements
                   were not yet required; the financial statements submitted were incomplete; or the financial statements
                   were not filed as of the date we completed our data collection. (See app. I.)
                   7
                    In addition to transfers, some tribes received a total of $91 million from the gaming facilities for items
                   such as taxes and fees, rent and other charges, and cost reimbursements, which are not included in the
                   $1.6 billion.



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              In addition, our analyses revealed that the largest class III Indian facilities
              generated higher operating income (income from gaming and other normal
              operations, such as concessions) as a percentage of total revenues than
              the largest Nevada and all Atlantic City casinos. According to industry
              experts, this difference is partly due to the fact that these Nevada and
              Atlantic City casinos have competition in close proximity and are subject
              to various state taxes and costs that were not generally incurred by these
              Indian facilities.

              IRS has determined that Indian tribes are not subject to federal income tax
              because they are political agencies not included within the meaning of the
              income tax provisions of the Internal Revenue Code. Thus, revenues
              generated from gaming operations of federally recognized Indian tribes are
              not taxable. Indian tribes are not, however, tax-exempt organizations
              within the meaning of provisions of the Code that exempt certain
              categories of organizations from income tax. Individual tribe members are
              subject to federal income tax. Payments of net revenues from gaming
              operations to members of Indian tribes are generally taxable, and the tribe
              is responsible for withholding income taxes from the payments.


              We determined the number of tribes with gaming facilities by reviewing
Scope and     documents provided by NIGC, which identified all tribes with gaming
Methodology   operations as of December 31, 1996. To perform our analyses on revenues,
              costs and expenses, and net income, for example, we obtained 1995
              financial statements that were submitted to NIGC as of November 22, 1996.
              The sample of facilities included in our report consists of the 178 gaming
              facilities represented by these financial statements. The sample is not
              representative of the universe of all Indian gaming facilities. Some
              facilities were not included in our analyses because they were new and not
              yet required to file financial statements, the financial statements submitted
              were incomplete, or the financial statements were not filed as of the date
              we completed our data collection (see app. I). We used Audit and
              Accounting Guide: Audits of Casinos, published by the American Institute
              of Certified Public Accountants, and spoke with industry experts for
              guidance in deciding what data to extract from the financial statements
              and what analyses to perform on these data.

              We also used the financial statements to determine the amount of
              transfers to the tribes. The transfers as described in this report represent
              the amounts in the financial statements allocated to the “tribes.” The
              amounts could have been received by the tribal government or tribal



              Page 4                                      GAO/GGD-97-91 Indian Gaming Industry
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                        members, but we were not able to determine this because the financial
                        statements did not indicate how the transfers were used or who received
                        them.

                        To compare Indian gaming with other legalized gaming activities, we used
                        data reported in International Gaming and Wagering Business and
                        financial statement data submitted to the Nevada and Atlantic City gaming
                        commissions.8

                        To describe the legal issues regarding the taxation of Indian gaming
                        revenues, we reviewed relevant sections of the Internal Revenue Code and
                        the IRS and Department of the Treasury rulings and regulations pertaining
                        to the taxation of Indian tribes. We also interviewed officials from
                        Treasury, IRS, and BIA. (See app. I for more details on our scope and
                        methodology.)

                        We conducted our review from October 1996 through March 1997 in
                        accordance with generally accepted government auditing standards. We
                        obtained comments on a draft of this report from the Internal Revenue
                        Service, the Department of the Interior, and the Chair of NIGC. These
                        comments are discussed at the end of this letter.


                        As shown in figure 1, Indian gaming revenues have grown significantly
Profile of the Indian   since 1988 when IGRA was enacted. IGRA provided the regulatory
Gaming Industry         framework for tribes to establish and operate gaming facilities.




                        8
                          International Gaming and Wagering Business is a trade publication that annually publishes estimates
                        prepared by Christiansen/Cummings Associates, Inc., on the amounts of money wagered and spent on
                        each type of legal gambling activity in the United States.



                        Page 5                                                   GAO/GGD-97-91 Indian Gaming Industry
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Figure 1: Indian Gaming Revenues,
1985-95
                                    Constant dollars (dollars in millions)

                                    5,000

                                                                                                                               4,547



                                    4,000

                                                                                                                       3,514


                                    3,000                                                                      2,842




                                    2,000

                                                                                                      1,628


                                    1,000                                                      806
                                                                                         570
                                                                                369
                                              125      139     148      156
                                        0
                                                                                        90




                                                                                                                 93
                                                      86




                                                                                89




                                                                                                                                 95
                                           85




                                                               87




                                                                                                 91
                                                                        88




                                                                                                          92




                                                                                                                          94
                                                                                      19




                                                                                                               19
                                                    19




                                                                              19




                                                                                                                               19
                                         19




                                                             19




                                                                                               19


                                                                                                        19




                                                                                                                        19
                                                                     19




                                            Year




                                    Note: Conversion to 1995 constant dollars used the Consumer Price Index.

                                    Source: International Gaming and Wagering Business, selected issues between 1985 and 1995;
                                    and GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                    1996.




More Than Half of                   According to information provided by NIGC, 184 of the 555 Indian tribes
Continental U.S. Tribes             officially recognized by the United States were operating a total of 281
Operated Gaming Facilities          gaming facilities as of December 31, 1996. Of the 184 tribes, 182 were in
                                    the continental United States, representing 55 percent of all continental
                                    U.S. tribes (329). The remaining two tribes were in Alaska. According to




                                    Page 6                                                        GAO/GGD-97-91 Indian Gaming Industry
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NIGC, the 226 tribes in Alaska are generally too remote or too small to
operate gaming facilities.9

An additional 32 tribes had been authorized to operate gaming facilities
but had not opened any as of December 31, 1996, according to NIGC
information. (See fig. 2 for the distribution of Indian gaming facilities in
operation.)




9
 Additionally, it is unclear whether certain lands set aside for Alaska natives under the Alaska Native
Claims Settlement Act meet the IGRA definition of Indian lands on which gaming may be conducted.
(See 43 U.S.C. 1601 et seq.)



Page 7                                                     GAO/GGD-97-91 Indian Gaming Industry
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Figure 2: Distribution of Indian Gaming Facilities




                                  WA
                                  (28)

                                                                       MT
                                  WASHINGTON
                                                                       (6)                           ND                       MN
                                     (20)
                            OR                                                                       (7)
                            (6)                                                                                               (19)                                                                                                                  MAINE
                                                  ID                          MONTANA               NORTH DAKOTA              MINNESOTA

                                                  (7)                          (6)                     (7)                     (19)               WI
                              OREGON                                                                                                                                                                                                    VT
                                                                                                     SD                                           (25)                                                                      NY
                               (8)
                                                                             WY                     (20)                                       WISCONSIN                 MI                                                (4)                 NH
                                                    IDAHO
                                                                             (1)                                                                   (23)                                                                                  CT
                      CA
                                                        (3)                                         SOUTH DAKOTA                                                        (21)
                                  NV                                                                   (10)                                                                                                               NEW YORK
                     (41)                                                                                                                                                                                                                (2)
                                  (4)                                              WYOMING                                      IA                                            MICHIGAN                                            (5)                       CT (2)
                                                                                                      NE                                                                          (17)
                                                                                     (1)                                       (3)                                                                       PENNSYLVANIA
                                                                                                      (1)
                                                                                                                                                                                         OHIO                                    NJ
                                                                                                                                      IOWA                              IN                                 PENNSYLVANIA
                                         NEVADA               UTAH                 CO                   NEBRASKA                                    ILLINOIS                                                                            DE
                                                                                                                                                                                           OHIO                                       NJ
                                          (3)                                      (2)                       (2)                                                                                                    DC
                                                                                                                                                                             IN
                                                                UTAH                                         KS                                          ILLINOIS                                 WV
                                                                                                             (3)                                                                                                      DC
                                                                                         COLORADO                                                                                                         VIRGINIA
                                                                                                                                                                                                    WV
                                                                                           (2)                   KANSAS
                                                                                                                                                                        KENTUCKY
                                                                                                                                                                                                               VIRGINIA
                                                   AZ                                                            (3)
                                                                                                                                                                                                                    NC
                            CALIFORNIA                                        NM                                                                                             KENTUCKY
                                                  (16)                                                        OK                                                    TENNESSEE                                       (2)
                              (22)                                           (13)
                                                                                                              (36)                    ARKANSAS                                                          NO. CAROLINA
                                                                                                                                                                                                       SO.
                                                                                                                                                                     TENNESSEE                      CAROLINA
                                                                                                                                                                                                                    (3)
                                                        ARIZONA                                                    OKLAHOMA                                                                              SO.
                                                                                                                                       ARKANSAS
                                                         (17)                      NEW MEXICO
                                                                                                                       (36)                                                                            CAROLINA
                                                                                                                                                          MS           AL                 GEORGIA
                                                                                    (12)                                                                  (1)          (1)
                                                                                                                                                             MS
                                                                                                                                                                                            GEORGIA
                                                                                                       TX                               LA                   (1)
                                                                                                                                                                        ALABAMA
                                                                                                       (1)                              (3)                                  (1)
                                                                                                                                             LA
                                                                                                        TEXAS
                     AK                                                                                    (1)                               (3)
                     (2)

                                                                                                                                                                                                         FL
                                                                                                                                                                                                         (6)
                                                                                                                                                                                                               FL
                                                                                                                                                                                                           (5)




                                                                             Note 1: Map does not show those operations that were closed by December 31, 1996.

                                                                             Note 2: This information may not agree with NIGC’s records because of differences in
                                                                             methodologies used to identify and count facilities.

                                                                             Source: GAO analysis of NIGC’s list of gaming facilities as of December 31, 1996.




Revenues From Indian                                                         From our analyses of the 178 gaming facilities’ financial statements, we
Gaming Facilities                                                            found that reported gaming revenues were about $4.5 billion and revenues
Exceeded $4 Billion                                                          from other activities, such as food, beverages, and hotel rooms, were over




                                                                             Page 8                                                                                                                      GAO/GGD-97-91 Indian Gaming Industry
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                                          $300 million (see table 1). Median gaming revenues for class II facilities
                                          were about $2.5 million and for class III, about $12.7 million.10

                                          Total net income was about $1.9 billion, with a median of $0.6 million for
                                          class II and $4.9 million for class III facilities. About 90 percent of the
                                          facilities generated net income, and about 10 percent generated net losses.
                                          Most of the facilities were class III, and they accounted for a large majority
                                          of all gaming revenues, total revenues, and net income.


Table 1: 1995 Revenues, Costs and Expenses, and Net Income for Class II and III Indian Gaming Facilities
                                                           Dollars in millions
                                                      Class II    Class III         Total        Percentage of total
Income statement item                                         (N=66)a       (N=112)a        (N=178)a         Class II        Class III      Total
Revenue
  Gaming                                                         $568          $3,979          $4,547               12%               88%    100%
  Otherb                                                            35            306             341               10                90     100
  Total                                                           603           4,285           4,888               12                88     100
Costs and expenses                                                367           2,644           3,011               12                88     100
Net income                                                        236           1,641           1,877               13                87     100
                                          a
                                              The “N” represents number of facilities.
                                          b
                                              Other revenues include, for example, revenues from food, beverages, hotel rooms, and interest.

                                          Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                          1996.



                                          About 40 percent of all gaming revenues were generated by eight of the
                                          class III gaming facilities. Figure 3 shows the distribution of gaming
                                          revenues for the 66 class II Indian facilities represented in our analysis.
                                          More than half of all class II gaming revenues were generated by eight
                                          facilities with gaming revenues of at least $20 million.




                                          10
                                              See appendix I for methodology used to account for class II and class III facilities.



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Figure 3: Distribution of Class II
Facilities’ Gaming Revenues
                                     Gaming revenues (dollars in millions)

                                      600




                                      500




                                      400

                                                                                                             $328.9

                                      300




                                      200


                                                    $119.6                         $119.4
                                      100




                                        0
                                                      N = 50                       N=8                         N=8
                                                     < $10M                   > $10M and < $20M                > $20M

                                                Range of gaming revenues




                                     Note: The “N” represents the number of facilities.

                                     Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                     1996.




                                     Figure 4 shows the distribution of gaming revenues for the 112 class III
                                     Indian facilities represented in our analysis. Almost half of the gaming
                                     revenues were generated by eight facilities with gaming revenues of at
                                     least $100 million each.




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Figure 4: Distribution of Class III
Facilities’ Gaming Revenues
                                      Gaming revenues (dollars in millions)

                                      4,000




                                      3,000




                                      2,000                                                                          $1,849.1




                                      1,000
                                                                                     $710.2          $755.1

                                                                    $447.7
                                                   $217

                                           0
                                                   N = 41           N = 32            N = 21          N =10             N=8
                                                  < $10M           > $10M and        > $20M and     > $50M and         > $100M
                                                                   < $20M            < $50M         < $100M
                                                Range of gaming revenues




                                      Note: The “N” represents the number of facilities.

                                      Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                      1996.




Net Income Accounted for              In total, net income of Indian gaming facilities (class II and III) was about
38 Percent of Total                   38 percent of total reported revenues. Net income as a percent of total
Reported Revenues                     revenues was about the same for class II and class III facilities (see fig. 5).11




                                      11
                                        Figures 5 and 6 are based on total revenues, because net income includes more than gaming
                                      revenues.



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Figure 5: Costs and Expenses and Net Income Margins

         Class II facilities                                     Class III facilities


                                    Net income                                                   Net income




       39%              61%                                     38%             62%




                                  Costs and                                                      Costs and
                                  expenses                                                       expenses
    N = 66 gaming facilities                               N = 112 gaming facilities




                                        Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                        1996.




                                        In addition, the net income of about half of the Indian gaming facilities
                                        was at least 30 percent of their total revenues (see fig. 6).




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Figure 6: Facilities and Net Income
Margins
                                      Number of facilities

                                      180


                                      160


                                      140


                                      120


                                      100                                                                                    97


                                           80


                                           60
                                                   45
                                           40                                            36


                                           20


                                           0
                                                  < 20%                            > 20% and <30%                            > 30%

                                                Net income margin




                                      Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                      1996.




Most Tribes Received                  Of the 126 tribes included in our analysis, 106 reported receiving about
Transfers From Gaming                 $1.6 billion in transfers from their gaming facilities, as shown in figure 7.
Facilities                            These 106 tribes operated 149 gaming facilities.12 Ten of the tribes
                                      reported receiving transfers of at least $50 million each and accounted for
                                      more than half of the total transferred. The financial statements of 20 of
                                      the 126 tribes did not show transfers from their gaming facilities.



                                      12
                                        In addition to transfers, some tribes received a total of $91 million from the gaming facilities for such
                                      items as taxes and fees, rent and other charges, and cost reimbursements, which are not included in
                                      the $1.6 billion.



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Figure 7: Distribution of Funds
Reportedly Transferred to 106 Tribes
                                       Dollars transferred (in millions)


                                       1,600


                                       1,400


                                       1,200


                                       1,000
                                                                                                                       $900

                                         800


                                         600


                                         400
                                                                                                 $286
                                                      $203                   $197
                                         200


                                            0
                                                      N = 73                N = 14                N=9                   N = 10
                                                     < $10M           > $10M and <$20M      > $20M and <$50M           > $50M

                                                   Range of dollars transferred




                                       Note: The “N” represents the number of tribes.

                                       Source: GAO analysis of 1995 financial statements that were filed with NIGC as of November 22,
                                       1996.




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Comparison of Indian
Gaming With Other
U.S. Legalized Gaming

Indian Gaming Revenues           Table 2 shows that Indian gaming revenues (class II and III) were at least
Represented at Least 10          10 percent of the revenues estimated to have been generated by legal
Percent of the U.S. Market       gaming in 1995 and compares Indian gaming to other legalized gaming.
                                 Because our sample of financial statements did not cover all existing
in 1995                          Indian facilities, the 10 percent market share could be higher.

Table 2: Gaming Revenue Market
Shares, 1995                     Type of gaming                                                              Percentage of total
                                 Casinos (does not include Indian)                                                                  40%
                                 Lotteries                                                                                          34
                                 Indian gaming (class II and III)                                                                   10
                                 Pari-mutuels                                                                                        8
                                 Charitable games                                                                                    3
                                 Charitable bingo                                                                                    2
                                 Card rooms and bookmaking                                                                           2
                                          a
                                 Total                                                                                         100
                                 a
                                     Total does not sum to 100 because of rounding.

                                 Source: The percentage of Indian gaming was based on GAO’s analysis of class II and III 1995
                                 financial statements that were filed with NIGC as of November 22, 1996. The percentages of other
                                 legalized gaming were calculated from estimates reported in International Gaming and Wagering
                                 Business, Vol. 17, No. 8, August 1996.



                                 Table 3 gives a breakdown of the casino segment of the gaming industry,
                                 including class III Indian gaming.




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Table 3: Casino Gaming Revenue
Shares, 1995                     Casinos                                                                    Percentage of total
                                 Nevada/New Jersey slot machines                                                                   32%
                                 Riverboats                                                                                        21
                                 Indian gaming (class III)                                                                         18
                                 Nevada/New Jersey table games                                                                     18
                                 Noncasino devices                                                                                  6
                                 Other land-based casinos                                                                           2
                                 Deepwater cruise ships                                                                             1
                                 Cruises-to-nowhere                                                                                 1
                                 Other commercial gambling                                                                          1
                                 Total                                                                                        100
                                 Source: The percentage of Indian gaming was based on GAO’s analysis of class III 1995 financial
                                 statements that were filed with NIGC as of November 22, 1996. The percentages of casino
                                 gaming were calculated from estimates reported in International Gaming and Wagering Business,
                                 Vol. 17, No. 8, August 1996.




Class III Indian Gaming          In total, gaming revenues generated by class III Indian facilities and
and Nevada and Atlantic          Atlantic City casinos in 1995 were similar, as shown in table 4. In addition,
City Casinos                     the average gaming revenues generated by class III Indian facilities and
                                 Nevada casinos were similar. The comparisons are for facilities and
                                 casinos with at least $1 million in gaming revenues because that was how
                                 data were reported for Nevada.




                                 Page 16                                                GAO/GGD-97-91 Indian Gaming Industry
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Table 4: Reported Indian, Nevada, and Atlantic City Gaming Revenues, 1995a
Dollars in thousands
Income statement item                                                             Indian class III                Nevada       Atlantic City
Gaming revenues                                                                         $3,976,892             $7,030,994        $3,627,820
                b
Other revenues                                                                             290,210              4,016,239           350,812
Total revenuesc                                                                         $4,267,102           $11,047,234          3,978,632
Gaming revenues as a percentage of total                                                         93                       64                91
Average gaming revenues                                                                    $36,485                $33,009          $302,318
Number of facilities                                                                           109                       213                12
                                           a
                                               For facilities and casinos with $1 million and more in gaming revenues.
                                           b
                                            Other revenues include, for example, revenues from food, beverages, and hotel rooms; interest
                                           was excluded.
                                           c
                                               Total may not sum because of rounding.

                                           Source: GAO analysis of class III 1995 financial statements that were filed with NIGC as of
                                           November 22, 1996; Nevada Gaming Abstract, December 1995, with financial data as of June 30,
                                           1995; and financial statement analyses prepared by the New Jersey Casino Control Commission,
                                           March 7, 1996, for financial data as of June 30, 1995.



                                           A small proportion of both class III Indian facilities and Nevada casinos
                                           generated significant amounts in gaming revenues and accounted for a
                                           large share of their respective aggregate gaming revenues (see fig. 8).
                                           Specifically, 13 percent of Indian class III facilities generated 59 percent of
                                           the Indian gaming revenues. Atlantic City casinos are not shown because
                                           their gaming revenues were more equally distributed. For example,
                                           50 percent of the casinos generated about 59 percent of the gaming
                                           revenues.




                                           Page 17                                                     GAO/GGD-97-91 Indian Gaming Industry
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Figure 8: Reported Class III Indian
Facilities and Nevada Casinos With
Gaming Revenues of $72 Million and    Percent of total facilities/gaming revenues
More
                                      100




                                       80




                                       60                                                            59%



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                                       40
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                                            Facilities                                            Gaming revenues

                                             Legend
                                                    Indian
                                            AAAA
                                            AAAA    Nevada
                                            AAAA




                                      Note: The Nevada casinos in this analysis are limited to those casinos reported by the Nevada
                                      Gaming Abstract as generating gaming revenues of $72 million and more. Nevada may have
                                      other casinos with gaming revenues of $72 million and more, but because of limitations in the way
                                      the data were reported, we were not able to determine such casinos.

                                      Source: GAO analysis of class III 1995 financial statements that were filed with NIGC as of
                                      November 22, 1996; and Nevada Gaming Abstract, December 1995, with financial data as of
                                      June 30, 1995.




                                      Page 18                                                 GAO/GGD-97-91 Indian Gaming Industry
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Operating Income as a                    Operating income as a percentage of total revenues for large class III
Percentage of Total                      Indian facilities was almost twice as much as that of large Nevada and
Revenues of Large Class III              Atlantic City casinos. Table 5 shows the results of our analysis of
                                         operating income for class III Indian facilities and for Nevada and Atlantic
Indian Facilities Was                    City casinos with gaming revenues of $72 million and more.13 Operating
Almost Twice That of                     income is a common measure used by industry experts to analyze and
Large Nevada and Atlantic                compare the profitability of businesses. It discounts the effects of capital
City Casinos                             structure and other nonoperating incomes and expenses that are not
                                         directly related to the performance of the business operations. (See the
                                         glossary for further details.)


Table 5: Reported Operating Income of Facilities and Casinos With Gaming Revenues of $72 Million and More, 1995
                                                       Dollars in millions
                                             Class III     Nevada         Atlantic City Percentage of total revenues
Income statement item                          (N=14)a       (N=19)a,b                  (N=12)a   Class III      Nevada           Atlantic City
Revenue
  Gaming                                        $2,354         $3,086                   $3,628          94%             58%                   91%
       c
  Other                                            141           2,250                     351           6              42                         9
  Totald                                         2,496           5,336                   3,979         100            100                    100
Costs and expenses                               1,307           4,196                   2,996          52              79                    75
Operating income                                 1,189           1,141                     982          48              21                    25
                                         a
                                             The “N” represents number of facilities.
                                         b
                                          The Nevada casinos in this analysis are limited to those casinos reported by the Nevada Gaming
                                         Abstract as generating gaming revenues of $72 million and more. Nevada may have other
                                         casinos with gaming revenues of $72 million and more, but because of limitations in the way the
                                         data were reported, we were not able to determine such casinos.
                                         c
                                           Other revenues include, for example, revenues from food, beverages, and hotel rooms; interest
                                         was excluded.
                                         d
                                             Totals may not sum because of rounding.

                                         Source: GAO analysis of class III 1995 financial statements that were filed with NIGC as of
                                         November 22, 1996; Nevada Gaming Abstract, December 1995, with financial data as of June 30,
                                         1995; and financial statement analyses prepared by the New Jersey Casino Control Commission,
                                         March 7, 1996, for financial data as of June 30, 1995.



                                         According to industry experts, the difference in operating income margin
                                         (operating income as a percentage of total revenues) between these 14
                                         class III facilities and these Nevada and Atlantic City casinos is explained,

                                         13
                                           To make reasonable comparisons of operating income among class III Indian facilities and Nevada
                                         and Atlantic City casinos, we included only those facilities reported as generating $72 million or more
                                         in gaming revenues. The highest category included in the Nevada Gaming Abstract was gaming
                                         revenues of $72 million and more, and all Atlantic City casinos generated more than $72 million in
                                         gaming revenues.



                                         Page 19                                                    GAO/GGD-97-91 Indian Gaming Industry
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                       in part, by the different operational environments of the facilities.
                       Specifically, the operating income shown in table 5 for Nevada and
                       Atlantic City casinos was reduced by expenses that were not generally
                       incurred at these Indian facilities, such as state gaming taxes and other
                       state requirements. For example, Atlantic City casinos are subject to an
                       8-percent tax on their gaming revenues. Further, these Nevada and
                       Atlantic City casinos have more competition in close proximity than the 14
                       class III Indian facilities.

                       Another possible explanation for the differences in operating income was
                       the nature of the tribes’ relationships with their gaming facilities: Some
                       tribes provided goods and services to the gaming facilities free of charge
                       or at a low cost, which would have reduced their operating expenses.



Federal Tax
Treatment of Indians
and Indian Tribes

Overview               Although no statutory provision exempts Indian tribes from income
                       taxation, IRS has concluded that federally recognized Indian tribes and
                       their federally chartered corporations are not subject to federal income
                       tax.14 With respect to tribes, IRS based its conclusion on the determination
                       that the tribes are political agencies that Congress did not intend to
                       include within the meaning of the income tax provisions of the Internal
                       Revenue Code. Indian tribes are not, however, tax-exempt organizations
                       within the meaning of the provisions of the Code that exempt certain
                       categories of organizations from income tax. With respect to the tribes’
                       federally chartered corporations, IRS takes the view that no taxable entity
                       separate from the tribes exists. IRS has also found that individual tribe
                       members are U.S. citizens and are subject to federal income tax unless a
                       specific exemption can be found in a treaty or statute.

                       IRShas found, however, that Indian tribal governments have no inherent
                       exemption from federal excise taxes and, absent a specific statutory
                       exemption, must purchase taxable articles or services on a tax-paid basis
                       and must pay tax on their sale or use of taxable articles or services.

                       14
                        Four revenue rulings address the federal income tax status of Indian tribal governments. See Rev.
                       Rul. 67-284, 1967-2 C.B. 55; Rev. Rul. 81-295, 1981-2 C.B. 15; Rev. Rul. 94-16, 1994-1 C.B. 19; and Rev.
                       Rul. 94-65, 1994-2 C.B. 14. A revenue ruling is an official interpretation by IRS that indicates its official
                       policy on an issue or a line of reasoning.



                       Page 20                                                       GAO/GGD-97-91 Indian Gaming Industry
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                         Section 7871 of the Code, enacted in 1982, provides an exemption from
                         certain excise taxes. In addition, Indian tribes that are employers must pay
                         federal employment taxes on wages paid to employees.

                         A provision included as part of the House-passed Seven-Year Balanced
                         Budget Reconciliation Act of 1995 would have made the tribes subject,
                         under section 511(a) of the Code, to the unrelated business income tax on
                         revenues from class II and class III gaming.15 The unrelated business
                         income tax currently applies to the income from the business activities of
                         tax-exempt organizations that are not substantially related to the
                         organizations’ exempt function. The proposed tax would have been the
                         first explicit federal income tax applied to an Indian tribe.16 A
                         memorandum prepared by the Congressional Research Service, dated
                         October 10, 1995, concluded that the proposal did not seem to be invalid
                         on any constitutional ground.17


Historical Perspective   Before enactment of the Indian Reorganization Act of 1934 (IRA),
                         congressional policy had been directed toward the assimilation of Indian
                         tribes and the allotment of Indian lands to individual tribe members.18 IRA
                         ended the practice of allotment as it applied to tribally owned lands.19 The



                         15
                          H.R. 2491, 104th Cong., section 13631 (1995). The provision was dropped in conference; see H.R.
                         Conf. Rep. No. 104-350 at 141 Cong. Rec. H12841, 12874.
                         16
                           See, however, section 7871(a)(5) of the Code, which provides that an Indian tribal government shall
                         be treated as a state for purposes of section 511(a)(2)(B), which applies the unrelated business income
                         tax to colleges and universities owned or operated by state governments.
                         17
                           The memorandum also concluded that taxing tribal gaming proceeds, despite the fact that state
                         lottery revenues are untaxed, does not implicate any constitutional right that the tribes have to being
                         treated on a par with states. The memorandum noted that because of the long history of treaty-making
                         with Indian tribes, there is the possibility that an individual tribe may be able to invoke particular
                         provisions of a treaty or statute and convince the federal courts that these provisions insulated the
                         tribe against such a tax. The memorandum cautioned that a court looking at such an issue would not
                         be likely to set aside general tax legislation as unconstitutional, but would consider whether
                         abrogating the particular treaty implicated a vested property interest to which there is a right to
                         compensation. The memorandum concluded, however, that the prospect of such a treaty provision
                         seems very unlikely.

                         In legal memoranda commissioned by the Mashantucket Pequot Tribe, a contrary view has been
                         expressed. These include a memorandum prepared by Douglas Endreson, Sonosky, Chambers, Sachse
                         & Endreson, Oct. 26, 1995, 95 TNT 233-40. The memorandum concludes that the proposed tax would
                         be unconstitutional. The memorandum also maintains that the tax would abrogate certain
                         treaty-protected rights to self-government.
                         18
                           Act of June 18, 1934, ch. 576, 48 Stat. 984 (codified as amended at 25 U.S.C. 461 et seq.).
                         19
                            David Getches, Charles F. Wilkinson, and Robert A. Williams, Federal Indian Law (St. Paul, Minn.:
                         West Publishing Company, 1993), p. 216.



                         Page 21                                                      GAO/GGD-97-91 Indian Gaming Industry
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act was designed to further tribal self-government by providing for tribal
organization.

IRAsection 16 provided that any tribe may adopt a constitution and bylaws,
and it established a procedure for ratification by tribal members and
approval by the Secretary of the Interior.20 Section 16 also provided that
the constitution adopted by the tribe vested certain rights and powers in
the tribe, including the right to prevent the sale and disposition of tribal
lands and the right to negotiate with federal, state, and local governments.

Section 17 provided for the formation of a business corporation and
established procedures for petition and ratification.21 Thus, IRA allowed for
a dual mechanism by which the governmental affairs of an Indian tribe are
conducted under a constitution and bylaws adopted under IRA section 16
and the commercial matters are handled by a business corporation
organized under section 17.

IRA section 16 provided that “In addition to all powers vested in any Indian
tribe by existing law, the constitution shall also vest in such tribe or its
tribal council [a list of powers].” An early opinion of the Solicitor for the
Department of the Interior considered the issue of what powers are
incorporated in the constitution and bylaws of an Indian tribe by this
reference to “powers vested in any Indian tribe or tribal council.”22 The
opinion concluded that the vested powers are those powers of local
self-government that have never been terminated by law or waived by
treaty, including the power to: (1) adopt a form of government, create
offices, and prescribe the duties thereof; (2) regulate the domestic
relations of tribal members; (3) levy dues, fees, or taxes upon tribal
members; and (4) regulate the use and disposition of all property within
the jurisdiction of the tribe.

The opinion noted that the list was based on general legislation and
judicial decisions of general application and was subject to modification
with respect to particular tribes, in light of particular powers granted or
particular restrictions imposed by special legislation.




20
  25 U.S.C. 476 (1996).
21
  25 U.S.C. 477 (1996).
22
 Opinion dated Oct. 25, 1934, Decisions of the Department of the Interior, Vol. 55, p. 14, cited in GCM
26556.



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                             In an early General Counsel Memorandum, IRS found that these
                             conclusions were

                             “a striking indication on the part of Congress and the executive department of the
                             Government charged with administering various Indian laws that Indian tribes as such have
                             been recognized as political agencies and have never lost their inherent powers of limited
                             sovereignty . . . [and that] an Indian tribe, as such, is not a taxable entity within the purview
                             of the income tax provisions of the Internal Revenue Code.”23


                             This principle forms the basis for the IRS policy on the income tax status of
                             Indian tribes, as set forth in the series of revenue rulings. IRS has
                             determined, however, that although Indian tribes are governments, they
                             are not political subdivisions of the United States, individual states, or
                             territories for purposes of the Code provisions that apply special tax
                             treatment to these governmental units. These include the state exemptions
                             from excise taxes, the income tax exemption for interest on municipal
                             bonds, and the deduction of charitable contributions to governmental
                             units for estate tax purposes.24 In 1982, Congress enacted the Indian Tribal
                             Tax Status Act (Tribal Tax Act), treating tribal governments as states for a
                             number of specified tax provisions, including provisions relating to
                             tax-exempt bonds, charitable contribution deductions, and certain excise
                             tax provisions.25 The treatment is generally available in transactions in
                             which tribes exercise essential governmental functions.


Summary of Taxation of       The following sections outline the federal income tax treatment that
Indian Business Activities   applies to the various structures that generally can be used by tribes to
                             carry out business activities. IGRA provides that unless a tribe elects to
                             license individual owners, the tribe must have the sole proprietary interest
                             and responsibility for the conduct of the gaming activity. Thus, gaming
                             operations must generally be operated by an entity owned by the tribe, or
                             as an arm of the tribe itself. Payments to tribe members and the
                             application of other federal taxes are also discussed.

                             23
                               See GCM 26556 (Dec. 20, 1949). In GCM 38853 (May 17, 1982), the Chief Counsel’s office noted that
                             “historically, the IRS has taken the position that the income tax statutes do not purport to tax the
                             political entity embodied in the concept of an Indian tribe and no attempt has been made to tax the
                             tribe with respect to tribal income,” and indicated that the position of the office was that “in the
                             absence of express legislation, no modification should be made to the taxability of Indian tribes on
                             tribal income.”
                             24
                               See Rev. Rul. 74-179, 1974-1 C.B. 279; Rev. Rul. 68-231, 1968-1 C.B. 48; and Rev. Rul. 58-610, 1958-2
                             C.B. 815. IRS determined that because Indian tribes do not derive their powers of self-government
                             from the United States or the states, they are not political subdivisions within the meaning of these
                             provisions.
                             25
                               Pub. L. No. 97-473, 96 Stat. 2607 (codified at I.R.C. section 7871).



                             Page 23                                                       GAO/GGD-97-91 Indian Gaming Industry
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Federally Recognized Indian Tribes Are Exempt From Federal
Income Taxation. According to IRS, federally recognized Indian tribes are
not subject to federal income taxation.26 Rev. Rul. 67-284 states that
“income tax statutes do not tax Indian tribes. The tribe is not a taxable
entity.” Any income earned by the tribe is not subject to income tax,
regardless of whether the business activity is inside or outside of
Indian-owned lands.

The Senate Finance Committee Report on legislation that later became the
Tribal Tax Act recognized IRS’ position that sections 1 and 11 of the
Internal Revenue Code do not reach Indian tribes as set forth in Rev. Rul.
67-284 and stated that the proposed legislation did not amend this
treatment.27

Federally Chartered Tribal Corporations Are Not Subject to
Federal Income Taxation. IRS has determined that federally chartered
tribal corporations organized under IRA section 17 are not subject to
federal income taxation, regardless of where the income is earned. In Rev.
Rul. 81-295, IRS found that a federally chartered Indian tribal corporation
has the same tax status as the tribe and is not taxable. The revenue ruling
described a particular federally chartered Indian tribe. The tribe was
formally organized under a constitution and bylaws pursuant to IRA section
16. In addition, at the time of formal organization, the tribal members had
ratified a corporate charter as permitted by IRA section 17. The Secretary
of the Interior had approved the tribe’s constitution and bylaws and the
corporation’s charter. This principle was affirmed in Rev. Rul. 94-16.

Further, in Rev. Rul. 94-65, IRS concluded that a tribal corporation
organized under the Oklahoma Indian Welfare Act section 3 is not subject
to federal income taxation on the income earned in the conduct of
commercial business in or outside of Indian-owned lands.28

State-chartered Tribal Corporations Are Subject to Federal
Income Tax. IRS has determined that a corporation organized by an Indian
tribe under state law is subject to federal income tax regardless of the
location of the activities that generate the income. In Rev. Rul. 94-16, IRS
reasoned that a corporation organized by an Indian tribe under state law is


26
 BIA publishes a list of federally acknowledged Indian tribes in the Federal Register. See 25 C.F.R.
section 83.5(a) (1996 ed.).
27
  S. Rept. 97-646, at 8 (1982) reprinted in 1982 U.S.C.C.A.N. 4580, 4586.
28
  25 U.S.C. 503.



Page 24                                                      GAO/GGD-97-91 Indian Gaming Industry
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not the same as an Indian tribal corporation organized under IRA section 17
and does not share the same tax status as the tribe for federal income tax
purposes.

Wholly-owned Tribal Law Corporations Generally Have Not Been
Subject to Administrative Attempts to Impose Income Taxes.
Although IRS has addressed the tax status of federally recognized Indian
tribes and federally chartered corporations, it has not issued a published
ruling on the tax status of wholly-owned corporations chartered under
tribal law. Many Indian tribal governments have organized wholly-owned
tribal corporations to conduct business operations rather than obtain a
state or federal charter. Although IRS has not issued published rulings, IRS
officials are not aware of any administrative attempt to date to impose
federal income taxes on wholly-owned tribal corporations.

Payment of Other Federal Taxes. IRS has determined that Indian tribal
governments have no inherent exemption from excise taxes, but section
7871 of the Code provides them with a limited exemption. In Rev. Rul.
94-82, 1994-2 C.B. 412, IRS cited Confederated Tribes of the Warm Springs
Reservation v. Kurtz, in which the court found that an Indian tribe did not
fit within the excise tax exemption for “any State, any political subdivision
of a State, or the District of Columbia.”29 The court reasoned that since the
tribe did not derive authority from the state, the state government
exemption is not applicable to the tribe.

Section 7871 specifically provides that a tribal government is to be treated
as a state for purposes of certain excise taxes if the transaction involves
the exercise of an essential governmental function. Consequently, Indian
tribes performing essential governmental functions share the same excise
tax exemptions as states for many excise taxes. However, both Indian
tribes and states are subject to wagering excise taxes. The states are,
however, exempt from excise taxes on lotteries.

Payments to Tribal Members Are Taxable. No provision of the
Internal Revenue Code exempts individual Indians from the payment of
federal income tax; thus, exemptions must be based on a treaty or an act
of Congress.30 In some cases, a tribal member may receive general welfare


29
  691 F.2d 878 (9th Cir. 1982).
30
   Squire v. Capoeman, 351 U.S. 1 (1956). Subsequent federal appeals court cases have interpreted
Squire v. Capoeman to mean that a tax exemption must be based on some particular language in a
treaty or statute and that an exemption may not be based on policy alone. United States v. Anderson,
625 F.2d 910, 913, cert. denied. 450 U.S. 920 (1980).



Page 25                                                  GAO/GGD-97-91 Indian Gaming Industry
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payments from the tribe. Although amounts paid for general welfare may
not be taxable, payments made pro rata to all tribal members are evidence
that the payments are not based on need and, thus, probably will not
qualify for the general welfare exclusion.31

The Indian Gaming Regulatory Act of 1988 provided that the net revenues
from any tribal gaming are not to be used for purposes other than to
(1) fund tribal government operations or programs, (2) provide for the
general welfare of the Indian tribe and its members, (3) promote tribal
economic development, (4) donate to charitable organizations, or (5) help
fund operations of local government agencies.32

IGRA also provided that net revenues from gaming may be used to make per
capita payments to members of the Indian tribe, but only if the tribe has
prepared a revenue allocation plan to allocate revenues to uses authorized
by IGRA. The plan must be approved by the Secretary of the Interior as
adequate, particularly with respect to the funding of tribal government
operations or programs and promoting tribal economic development. IGRA
also required that the interests of minors and other legally incompetent
persons entitled to receive any of the payments be protected and
preserved. Because the payments are per capita distributions of gaming
proceeds, they are generally subject to taxation when distributed.
Additionally, IGRA itself provides that the per capita payments are subject
to federal taxation, and the act requires that tribes notify their members of
the tax liability when payments are made.

Section 3402(r) of the Internal Revenue Code provides that every person
making a payment to a member of an Indian tribe from the net revenues
from class II or class III gaming activity must withhold income taxes from
the payment. The withholding is capped at 31 percent. Tribal governments
must report the total amount of taxable per capita payments made to each
tribal member on Form 1099-Misc. Tribal governments are to report any
federal income tax withheld on per capita payments on Form 945, Annual
Return of Withheld Federal Income Tax, and make any necessary federal
tax deposits.




31
  IRS policy has long provided for exclusion of public assistance payments or social welfare payments
from income. These payments may include food stamps, housing assistance benefits, and Medicare
benefits.
32
  25 U.S.C. 2710(b)(2) (1996).



Page 26                                                  GAO/GGD-97-91 Indian Gaming Industry
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                  We provided a draft of this report to the Internal Revenue Service,
Agency Comments   Department of the Interior, and National Indian Gaming Commission. IRS’
                  Office of Chief Counsel generally agreed with our presentation of the
                  federal tax treatment of Indian tribes and their members and provided
                  some technical comments. We have incorporated those comments where
                  appropriate. Interior’s Director of Audit and Evaluation provided a
                  technical comment regarding the authority to approve class III gaming and
                  tribal-state compacts, which we incorporated.

                  NIGC provided a number of technical comments that we incorporated as
                  appropriate. Two of the comments warrant further discussion. First, the
                  NIGC Acting Chair indicated that our number of tribes and facilities did not
                  agree with NIGC’s records. In an April 18, 1997, meeting with NIGC officials,
                  we discussed the number of tribes and facilities and made changes to the
                  report where appropriate. However, our final figures and list of facilities
                  are not the same as NIGC’s because of differences in the methodology used
                  to identify and count facilities. NIGC officials acknowledged the differences
                  in methodology and agreed with our final figures and list of facilities.

                  Second, the NIGC Acting Chair also indicated that we should not include
                  state gaming taxes and other payments to the state as examples of
                  expenses incurred by Atlantic City and Nevada casinos but not by Indian
                  gaming facilities. She stated that some tribal-state compacts may include
                  payments from either the tribe or the gaming facility to states. We told NIGC
                  officials that information provided by industry specialists and in the
                  financial statements of the gaming facilities included in our analysis of
                  operating income showed no payments of taxes or other fees to the state.
                  We also explained to NIGC officials that this information is not meant to
                  indicate that tribes or their gaming facilities pay no taxes or fees to states
                  but to explain some of the differences in the operating income between
                  Indian gaming facilities and Atlantic City and Nevada casinos. NIGC
                  officials accepted this explanation.

                  Interior’s Assistant Secretary—Indian Affairs provided additional written
                  comments. The Department agreed with our presentation of the federal
                  tax treatment of Indian tribes and their members. It suggested that our
                  report should also compare revenues of Indian gaming facilities with
                  revenues of the various states lotteries. The letter stated that it is Interior’s
                  position that tribes are governments, like states, and that it is therefore
                  more appropriate to compare the gaming revenues of governmental
                  entities rather than to compare gaming revenues of Indian tribes with
                  those of privately owned casinos. We compared revenues from class III



                  Page 27                                       GAO/GGD-97-91 Indian Gaming Industry
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gaming (primarily table games and slot machines) with revenues from like
gaming activities in Atlantic City and Nevada casinos. We did not compare
Indian gaming revenues with state lottery revenues because Indian gaming
does not include lotteries; therefore, such a comparison would be
inappropriate.


As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to the Ranking
Minority Member, House Ways and Means Committee; the Senate Finance
Committee Chairman and Ranking Minority Member; the Commissioner of
Internal Revenue; the Secretary of the Interior; the Chair of the National
Indian Gaming Commission; and to other interested parties. We will also
make copies available to others upon request.

Major contributors to this report are listed in appendix III. If you have any
questions or we can be of further assistance, please call me at
(202) 512-9110.

Sincerely yours,




Lynda D. Willis
Director, Tax Policy
  and Administration Issues




Page 28                                     GAO/GGD-97-91 Indian Gaming Industry
Page 29   GAO/GGD-97-91 Indian Gaming Industry
Contents



Letter                                                                                                1


Appendix I                                                                                           32

Objectives, Scope,
and Methodology
Appendix II                                                                                          38

Tribes and Known
Gaming Operations as
of December 31, 1996
Appendix III                                                                                         46

Major Contributors to
This Report
Glossary                                                                                             47


Tables                  Table 1: 1995 Revenues, Costs and Expenses, and Net Income for                9
                          Class II and III Indian Gaming Facilities
                        Table 2: Gaming Revenue Market Shares, 1995                                  15
                        Table 3: Casino Gaming Revenue Shares, 1995                                  16
                        Table 4: Reported Indian, Nevada, and Atlantic City Gaming                   17
                          Revenues, 1995
                        Table 5: Reported Operating Income of Facilities and Casinos                 19
                          With Gaming Revenues of $72 Million and More, 1995
                        Table I.1: 1995 Financial Statement Filing Status of Facilities as of        33
                          December 31, 1996

Figures                 Figure 1: Indian Gaming Revenues, 1985-95                                     6
                        Figure 2: Distribution of Indian Gaming Facilities                            8
                        Figure 3: Distribution of Class II Facilities’ Gaming Revenues               10
                        Figure 4: Distribution of Class III Facilities’ Gaming Revenues              11
                        Figure 5: Costs and Expenses and Net Income Margins                          12
                        Figure 6: Facilities and Net Income Margins                                  13
                        Figure 7: Distribution of Funds Reportedly Transferred to 106                14
                          Tribes




                        Page 30                                     GAO/GGD-97-91 Indian Gaming Industry
Contents




Figure 8: Reported Class III Indian Facilities and Nevada Casinos          18
  With Gaming Revenues of $72 Million and More
Figure I.1: Flow of Transfers From the Gaming Facility to the              35
  Tribe




Abbreviations

BIA        Bureau of Indian Affairs
IGRA       Indian Gaming Regulatory Act of 1988
IRA        Indian Reorganization Act of 1934
IRS        Internal Revenue Service
NIGC       National Indian Gaming Commission


Page 31                                   GAO/GGD-97-91 Indian Gaming Industry
Appendix I

Objectives, Scope, and Methodology


                        Our objectives in this report were to provide (1) an updated profile of the
Objectives              Indian gaming industry, (2) information on the amount of transfers to the
                        tribes from their gaming facilities, (3) a comparison of Indian gaming
                        revenues with the revenues generated by other legalized gaming activities,
                        and (4) a summary of the federal tax treatment of Indian tribes and tribe
                        members.



Scope and
Methodology

Profile of the Indian   To determine the number of tribes with gaming facilities, we reviewed
Gaming Industry         documents provided by NIGC identifying all tribes with gaming operations
                        as of December 31, 1996. This information included only class II and class
                        III gaming facilities. Information on the number of tribes with class I
                        facilities was not readily available because class I gaming consists of
                        social gaming for nominal prizes or ceremonial gaming, which is regulated
                        solely by the tribes.

                        To develop a comprehensive list of tribes and gaming facilities, NIGC
                        contacted all tribes except for those in Alaska, where it contacted only the
                        tribes that were known to be attempting to open gaming facilities.
                        According to NIGC, most of the 226 tribes in Alaska are not operating
                        gaming facilities, primarily because of the remoteness and small size of the
                        tribes’ membership.1 (A list of tribes and their known gaming facilities as
                        of December 31, 1996, appears in app. II.)

                        IGRA categorizes gaming activities as class II or class III. For purposes of
                        our analysis, however, we categorized facilities based on whether they had
                        approved tribal ordinances and tribal-state compacts. We categorized
                        gaming facilities without compacts as class II facilities, even though they
                        may operate class III games. We treated gaming facilities with class III
                        games and compacts in place, per BIA listing of compacts as of
                        December 14, 1995, as class III facilities. NICG told us that in several
                        states, tribes and states may no longer have valid compacts in place.

                        To perform our analyses on revenues, costs and expenses, and net income,
                        for example, we used data contained in 1995 financial statements that

                        1
                         Additionally, it is unclear whether certain lands set aside for Alaska natives under the Alaska Native
                        Claims Settlement Act meet the IGRA definition of Indian lands on which gaming may be conducted.
                        (See 43 U.S.C. 1601 et seq.)



                        Page 32                                                    GAO/GGD-97-91 Indian Gaming Industry
                                      Appendix I
                                      Objectives, Scope, and Methodology




                                      were submitted to NIGC as of November 22, 1996.2 This was the date on
                                      which we ended our data gathering to begin our analyses. For this time
                                      frame, NIGC had financial statements from 126 tribes representing 178
                                      facilities. The financial statements of 174 of these facilities were
                                      independently audited, and the majority received unqualified opinions.3
                                      We also verified our listings of financial statements received with NIGC
                                      officials to ensure that we had received all of them. (See app. II, footnote
                                      a.)

                                      The sample of facilities included in our report consists of the 178 gaming
                                      facilities represented by these financial statements. The sample is not
                                      representative of the universe of all Indian gaming facilities. Table I.1
                                      represents the 1995 financial statement submission status of all gaming
                                      facilities existing as of December 31, 1996, according to information
                                      provided by NIGC.4 We verified this information with NIGC officials to clarify
                                      questions and inconsistencies. We do not know the characteristics of
                                      those gaming facilities for which we did not analyze the financial
                                      statements. We did not determine why some tribes did not submit financial
                                      statements beyond what is indicated in table I.1 because such an analysis,
                                      although important for compliance purposes, was outside the scope of this
                                      report.

Table I.1: 1995 Financial Statement
Filing Status of Facilities as of     Filing status                                                                     Number of facilities
December 31, 1996                     Filed and included in our analysis                                                                        178
                                      Filed but not included in our analysis because financial
                                      statements were incomplete or submitted after the
                                      completion of our data gathering                                                                          30
                                      Did not file or received filing extensions                                                                44
                                      Not required to file because they were not operating for
                                      one year as of 1995 or were opened in 1996                                                                36
                                      Included in our analysis but closed by December 31, 1996                                                   (7)
                                      Total known gaming facilities as of December 31, 1996                                                     281
                                      Source: GAO analysis of Indian gaming operations and financial statement submissions, based
                                      on information from and discussions with NIGC officials.


                                      2
                                       The financial statements we analyzed had different fiscal year ending dates, but we considered a
                                      financial statement to be a 1995 statement if its fiscal year ended in 1995.
                                      3
                                       An unqualified opinion on the financial statements generally means that the auditor concludes the
                                      financial statements and accompanying notes present fairly, in all material respects, the assets,
                                      liabilities, and net position of the entity at the end of the period; and the net costs, changes in net
                                      position, and cash flows for the period then ended are in conformity with the entity’s basis of
                                      accounting or generally accepted accounting principles.
                                      4
                                       NIGC updates the status of gaming facilities and financial statement submissions quarterly. The
                                      quarter ending on December 31, 1996, was the closest quarter to November 22, 1996, the date we
                                      completed our data collection.


                                      Page 33                                                      GAO/GGD-97-91 Indian Gaming Industry
                          Appendix I
                          Objectives, Scope, and Methodology




                          For those facilities included in our analyses, we extracted information that
                          allowed us to determine gaming revenues, total revenues, costs and
                          expenses, operating income, and net income. We used Audit and
                          Accounting Guide: Audits of Casinos, published by the American Institute
                          of Certified Public Accountants, and spoke with industry experts for
                          guidance in deciding which data to extract from the financial statements
                          and what analyses to perform on these data. (See the glossary for the
                          accounting terms we used throughout this report.)

                          Our analyses do not include data from the balance sheet or statement of
                          cash flows, such as assets, liabilities, equity, or debt payments, because
                          this information was not reported consistently by the different facilities.


Transfers to the Tribes   To determine the amount of transfers to the tribes, we analyzed
                          information contained in the financial statements. The transfers as
                          described in this report represent the amounts in the financial statements
                          allocated to the tribes. IGRA provides that net revenues from tribal gaming
                          must be devoted to certain uses, including funding tribal government
                          operations. Net revenues is defined as gross gaming revenues minus prizes
                          and gaming-related operating expenses, not including management fees. In
                          figure I.1, we depict, in general, how the transfers flow from the gaming
                          facility to the tribe as indicated in the financial statements.




                          Page 34                                     GAO/GGD-97-91 Indian Gaming Industry
                                         Appendix I
                                         Objectives, Scope, and Methodology




Figure I.1: Flow of Transfers From the
Gaming Facility to the Tribe
                                                 Gaming
                                                revenues



                                                   Plus




                                                  Other
                                                revenues



                                                   Equals



                                                                                                                         Retained
                                                                          Cost                      Net                  earnings
                                                  Total      Minus                                            Plus
                                                                          and        Equals       income                   as of
                                                revenues
                                                                        expenses                                         beginning
                                                                                                                          of year

                                                                                                                          Equals




                                                                                                                        Distributable
                                                                                                                          earnings



                                                                                                                          Minus




                                                                                                                        Transfers
                                                                                                                           to
                                                                                                                          tribe



                                                                                                                          Equals



                                                                                                                         Retained
                                                                                                                         earnings
                                                                                                                           as of
                                                                                                                         year end



                                         Note: This flowchart has been simplified to represent, in general, the revenue flow across all
                                         financial statements. Other revenues include, for example, revenues from food, beverages, hotel
                                         rooms, and interest.

                                         Source: GAO analysis of 1995 financial statements.




                                         As noted in the Background section of this report, IGRA limits how these
                                         transfers can be used. The transfers as described in this report represent
                                         the amounts in the financial statements allocated to the “tribes.” The




                                         Page 35                                                 GAO/GGD-97-91 Indian Gaming Industry
                           Appendix I
                           Objectives, Scope, and Methodology




                           amounts could have been received by tribal government or tribal
                           members, but we were not able to determine this because the financial
                           statements did not indicate how the transfers were used or who received
                           them. In addition, to determine the economic impact of gaming on the
                           tribes, several factors would need to be considered, such as poverty levels
                           and other revenues generated by the tribes; we did not address these
                           factors because they were beyond the scope of this report. We obtained
                           information on the amount of items, such as taxes and fees, rent and other
                           charges, and cost reimbursements, from the financial statements to the
                           extent such amounts were reported.


Comparison of Indian and   To compare Indian gaming revenues with the gaming revenues of other
Non-Indian Gaming          legalized gaming, we used data reported in International Gaming and
Revenues                   Wagering Business and financial statement data submitted to the Nevada
                           and Atlantic City gaming commissions. We obtained the financial data on
                           Nevada casinos from Nevada Gaming Abstract, a report prepared by the
                           Nevada State Gaming Control Board for fiscal year data as of June 30,
                           1995. The information presented in the Abstract comes from unaudited
                           standard financial statements that licensees whose gaming revenues are
                           $1 million or more are required to file. We obtained the Atlantic City
                           financial data from unaudited standard financial statements that all New
                           Jersey casinos are required to file and from financial analyses prepared by
                           the New Jersey Casino Control Commission as of June 30, 1995. We did
                           not independently verify the data included in these reports.

                           We used data published in International Gaming and Wagering Business to
                           determine the gaming revenue shares of legalized gaming as a whole and
                           also the casino segment in particular. The legalized gaming categories we
                           included are those used in this publication. We substituted the amounts of
                           Indian gaming revenues for the amounts used in this publication only for
                           consistency with our analyses in the rest of our report. The amounts
                           published for Indian gaming, however, were similar to the amounts we
                           determined from the financial statements.

                           We used the financial data of Nevada and Atlantic City casinos only to
                           compare class III facilities. Class III facilities relied primarily on casino
                           games and slot machines, and this was also the case for Nevada and
                           Atlantic City casinos. We included only facilities with gaming revenues of
                           $1 million and more because the Nevada financial data were aggregated
                           and included only facilities with these gaming revenues. To make valid
                           comparisons of revenues among the Indian facilities and casinos, we



                           Page 36                                     GAO/GGD-97-91 Indian Gaming Industry
                             Appendix I
                             Objectives, Scope, and Methodology




                             subtracted the amount of promotional allowances (free food, hotel rooms,
                             and so on given to customers as incentives) from “other revenues” for
                             those facilities and casinos that reported such amounts as “revenues.”

                             We used operating income to compare the results of these operations
                             because operating income is a common measure used by industry experts
                             to analyze and compare the profitability of businesses. It discounts the
                             effects of capital structure and other nonoperating incomes and expenses
                             that are not directly related to the performance of business operations.


Summary of Legal Issues      To describe the legal issues regarding the taxation of Indian gaming
Pertaining to the Taxation   revenues, we reviewed relevant sections of the Internal Revenue Code and
of Indian Tribes             the IRS and Department of the Treasury rulings and regulations pertaining
                             to the taxation of Indian tribes. We also interviewed officials from
                             Treasury, IRS, and BIA.




                             Page 37                                  GAO/GGD-97-91 Indian Gaming Industry
Appendix II

Tribes and Known Gaming Operations as of
December 31, 1996a


State         Tribe                                               Name of operation
Alabama       Poarch Band of Creek Indians                        Creek Bingo Palace*
Alaska        Klawock Cooperative Association                     Klawock Cooperative Association (Gaming Division)*
              Metlakatla Indian Community                         Metlacatla Indian Community Bingo
Arizona       Ak Chin Indian Community                            Harrah’s Ak-Chin Casino*
              Cocopah Indian Tribe                                Cocopah Bingo and Casino*
              Colorado River Indian Tribes                        Blue Water Casino*
              Fort McDowell Mohave-Apache Indian Community        Fort McDowell Gaming Center*
              Fort Mojave Indian Tribe                            Spirit Mountain Casino*
              Gila River Indian Community                         Lone Butte Casino*
                                                                  Wild Horse Casino*
              Kaibab Band of Paiute Indians                       Pipe Spring Resort & Casino**
              Pascua Yaqui Tribe of Arizona                       Casino of the Sun*
              Quechan Indian Tribe                                Quechan Bingo/Casino
              San Carlos Apache Tribe                             Apache Gold Casino*
              Tohono O’odham Nation                               Tohono O’odham Gaming Authority-Desert Diamond
                                                                  Casino*
              Tonto Apache Tribe                                  Tonto Apache Mazatzal Casino*
              White Mountain Apache Tribe                         Hon-dah Casino*
              Yavapai Apache Tribe                                Cliff Castle Casino*
              Yavapai-Prescott Indian Tribe                       Yavapai-Prescott Class II Gaming*
                                                                  Yavapai-Prescott Class III Gaming*
California    Agua Caliente Band of Cahuilla Indians              Spa Casino*
              Auberry Big Sandy Rancheria                         Mono Wind Casino
              Barona Band of Mission Indians                      Barona Casino*
              Big Pine Paiute Tribe of the Owens Valley           Sierra Springs Casino
              Big Valley Rancheria of Pomo Indians                Konocti Vista Casino and Bingo*
              Bishop Paiute Tribe                                 Paiute Palace Casino*
              Bridgeport Indian Reservation                       Kiba Casino**
              Cabazon Band of Mission Indians                     Cabazon Simulcast Wagering Corporation*
                                                                  Fantasy Springs Casino*
              Cahto Tribe of the Laytonville Rancheria            Cahto Casino
              Cahuilla Band of Mission Indians                    Cahuilla Creek Restaurant and Casino
              Chemehuevi Indian Tribe                             Havasu Landing Resort
              Chicken Ranch Rancheria                             Chicken Ranch Bingo*
              Coast Indian Community of the Resighini Rancheria   Coast Indian Gaming Facility
              Colusa Rancheria                                    Colusa Casino & Bingo Enterprise Fund*
              Coyote Valley Band of Pomo Indians                  Shodakai Coyote Valley Casino
              Elk Valley Rancheria                                Elk Valley Casino
                                                                                                                (continued)


                                         Page 38                                       GAO/GGD-97-91 Indian Gaming Industry
                                          Appendix II
                                          Tribes and Known Gaming Operations as of
                                          December 31, 1996a




State         Tribe                                                     Name of operation
              Hoopa Valley Tribe                                        Lucky Bear Casino
              Hopland Reservation                                       Hopland Casino
              Jackson Rancheria Band of Miwuk Indians                   Jackson Indian Bingo and Casino*
              Lake Miwok Indian Nation of the Middletown Rancheria      Twin Pine Casino*
              Mooretown Rancheria                                       Mooretown Rancheria Casino
              Morongo Band of Mission Indians                           Casino Morongo*
              Pit River Tribe                                           Pit River Casino
              Redding Rancheria Tribe                                   Win-River Casino*
              Robinson Rancheria of Pomo Indians                        Robinson Rancheria Bingo and Casino*
              Rumsey Indian Rancheria                                   Cache Creek Indian Bingo and Casino*
              San Manuel Band of Mission Indians                        San Manuel Mission Indian Casino
              Santa Rosa Rancheria                                      The Palace Bingo*
              Santa Ynez Band of Mission Indians                        Santa Ynez Indian Casino*
              Sherwood Valley Rancheria                                 Black Hart Casino
              Smith River Rancheria                                     Smith River Lucky 7 Casino
              Soboba Band of Mission Indians                            Soboba Casino
              Susanville Indian Rancheria                               Northern Lights Casino
              Sycuan Band of Mission Indians                            Sycuan Gaming Center
              Table Mountain Rancheria                                  Table Mountain Rancheria Casino and Bingo*
              Temecula Band of Luiseno Mission Indians                  Pechanga Entertainment Center*
              Trinidad Rancheria                                        Cher-Ae Heights Bingo and Casino*
              Tule River Tribe of the Tule River Indian Reservation     Eagle Mountain Casino
              Twenty Nine Palms Band of Mission Indians                 Spotlight 29 Casino*
              Tyme Maidu Tribe of the Berry Creek Rancheria             Berry Creek Rancheria Gaming
              Viejas Band of Mission Indians                            Viejas Casino and Turf Club
Colorado      Southern Ute Indian Tribe                                 Sky Ute Lodge and Casino*
              Ute Mountain Ute Tribe                                    Ute Mountain Casino*
Connecticut   Mashantucket Pequot Tribe                                 Foxwoods Resort Casino*
              Mohegan Tribe of Indians                                  Mohegan Sun Casino
Florida       Miccosukee Tribe of Indians of Florida                    Miccosukee Indian Bingo*
              Seminole Tribe of Florida                                 Brighton Seminole Bingo
                                                                        Hollywood Seminole Gaming*
                                                                        Seminole Bingo of Tampa*
                                                                        Seminole Bingo Palace*
                                                                        Seminole Gaming Palace - Immokalee*
Idaho         Coeur d’Alene Tribe                                       Coeur d’Alene Tribal Bingo/Casino*
              Kootenai Tribe of Idaho                                   Kootenai River Inn and Casino*
              Nez Perce Tribe                                           Clear River Casino
                                                                        Its-Ye-Ye Bingo
                                                                                                                     (continued)


                                          Page 39                                           GAO/GGD-97-91 Indian Gaming Industry
                                       Appendix II
                                       Tribes and Known Gaming Operations as of
                                       December 31, 1996a




State       Tribe                                                    Name of operation
            Shoshone-Bannock Tribes                                  Bannock Peak
                                                                     Gaming Enterprise Fund*
                                                                     Oregon Trail Outpost
Iowa        Omaha Tribe of Nebraska                                  Casino Omaha*
            Sac & Fox Tribe of Mississippi in Iowa                   Meskwaki Bingo and Casino*
            Winnebago Tribe of Nebraska                              WinnaVegas Casino*
Kansas      Iowa Tribe of Kansas and Nebraska                        Bingo Party Games*
            Kickapoo Nation in Kansas                                Golden Eagle Casino
            Prairie Band Potawatomi                                  Prairie Band of Potawatomi Indian Gaming Trust*
Louisiana   Chitimacha Tribe of Louisiana                            Cypress Bayou Casino*
            Coushatta Tribe of Louisiana                             Grand Casino Coushatta*
            Tunica-Biloxi Indian Tribe of Louisiana                  Grand Casino Avoyelles*
Michigan    Bay Mills Indian Community                               Bay Mills Casino*
                                                                     Kings Club Casino*
            Grand Traverse Band of Ottawa/Chippewa Indians           Leelanau Sands Casino*
                                                                     Super Gaming Palace*
                                                                     Turtle Creek Casino
            Hannahville Indian Community                             Chip-in Casino/Motel*
            Keweenaw Bay Indian Community                            Big Bucks Casino
                                                                     Ojibwa Casino Resort*
                                                                     Ojibwa Casino Resort-Marquette
                                                                     Senior’s Bingo*
                                                                     Youth Bingo*
            Lac Vieux Desert Band of Lake Superior Chippewa          Lac Vieux Desert Casino*
            Indians
            Saginaw Chippewa Indian Tribe                            Soaring Eagle Casino*
            Sault Ste. Marie Tribe of Chippewa Indians               Kewadin Casino-Christmas*
                                                                     Kewadin Casino-Hessel*
                                                                     Kewadin Casino-Manistique*
                                                                     Kewadin Casino-St. Ignace*
                                                                     Kewadin Casino-Sault Ste. Marie*
                                                                     Midjim Convenience Store Pulltabs I
                                                                     Midjim Convenience Store Pulltabs II
                                                                     Vegas Kewadin Bingo
Minnesota   Bois Forte Band of Chippewas                             Fortune Bay Casino*
            Fond du Lac Reservation Business Committee               Black Bear Casino*
                                                                     Fond-du-Luth Casino*
            Grand Portage Band of Chippewa Indians                   Grand Portage Casino*
            Leech Lake Band of Chippewa Indians                      Che-We Casino
                                                                                                                  (continued)


                                       Page 40                                           GAO/GGD-97-91 Indian Gaming Industry
                                           Appendix II
                                           Tribes and Known Gaming Operations as of
                                           December 31, 1996a




State         Tribe                                                      Name of operation
                                                                         Leech Lake Palace Bingo*
                                                                         Northern Lights Gaming Emporium*
              Lower Sioux Indian Community                               Jackpot Junction Casino*
              Mille Lacs Band of Chippewa Indians                        Grand Casino Hinckley*
                                                                         Grand Casino Mille Lacs*
              Prairie Island Indian Community                            Treasure Island Casino and Bingo*
              Red Lake Band of Chippewa Indians                          Lake of the Woods Casino*
                                                                         Red Lake Casino*
                                                                         River Road Casino*
              Shakopee Mdewakanton Sioux Community                       Little Six Bingo*
                                                                         Mystic Lake*
              Upper Sioux Community                                      Firefly Creek Casino*
              White Earth Band of Chippewa Indians                       Golden Eagle Bingo
                                                                         Shooting Star Casino*
Mississippi   Mississippi Band of Choctaw Indians                        Silver Star Hotel and Casino*
Montana       Assiniboine and Sioux Tribes of the Fort Peck Reservation Silverwolf Casino*
              Blackfeet Tribe of Indians                                 Blackfeet Bingo
              Chippewa Cree Tribe of the Rocky Boy’s Reservation         4 C’s Cafe & Casino
                                                                         Chippewa PowWow Bingo
              Crow Indian Tribe                                          Little Bighorn Casino*
              Northern Cheyenne Tribe                                    Northern Cheyenne Social Club
Nebraska      Santee Sioux Tribe of Nebraska                             Ohiya Casino
Nevada        Fort Mojave Indian Tribe                                   Avi Casino Enterprise, Inc.
              Las Vegas Paiute Tribe                                     Las Vegas Paiute Resort
              Moapa Band of Paiutes                                      Moapa Tribal Enterprises I
                                                                         Moapa Tribal Enterprises II
New Mexico    Jicarilla Apache Tribe                                     Apache Nugget Casino
                                                                         Vigil Family Enterprises
              Mescalero Apache Tribe                                     Inn of the Mountain Gods**
              Pueblo of Acoma                                            Sky City Casino*
              Pueblo of Isleta                                           Isleta Gaming Palace*
              Pueblo of Pojoaque                                         Cities of Gold Casino*
                                                                         Cities of Gold Sports Bar
                                                                         Pueblo of Pojoaque Casino*
              Pueblo of Sandia                                           Casino Sandia*
              Pueblo of Santa Ana                                        Santa Ana Star Casino*
              Pueblo of Taos                                             Taos Slot Room
              Pueblo of Tesuque                                          Camel Rock Casino
              San Felipe Pueblo                                          San Felipe Casino Hollywood*
                                                                                                                      (continued)


                                           Page 41                                           GAO/GGD-97-91 Indian Gaming Industry
                                             Appendix II
                                             Tribes and Known Gaming Operations as of
                                             December 31, 1996a




State            Tribe                                                      Name of operation
                 San Juan Pueblo                                            Ohkay Casino*
New York         Oneida Nation of New York                                  Turning Stone Casino
                 Seneca Nation of Indians                                   Bingo Allegany*
                                                                            Bingo Cattaraugus*
                 St. Regis Mohawk Tribe                                     Mohawk Bingo Palace*
                                                                            Tribal Bingo**
North Carolina   Eastern Band of Cherokee Indians                           Tribal Bingo*
                                                                            Tribal Casino*
                                                                            TeePee Village Casino**
North Dakota     Devils Lake Sioux Tribe                                    Spirit Lake Casinos
                 Sisseton-Wahpeton Sioux Tribe                              Dakota Magic Casino & Resort
                 Standing Rock Sioux Tribe                                  Fort Yates Pow Wow Committee
                                                                            Prairie Knights Casino*
                 Three Affiliated Tribes of the Fort Berthold Reservation   4 Bears Casino and Lodge*
                 Turtle Mountain Band of Chippewa Indians                   Turtle Mountain Chippewa Big Casino*
                                                                            Turtle Mountain Chippewa Mini Casino*
Oklahoma         Absentee-Shawnee Tribe of Oklahoma                         Thunderbird Entertainment Center
                 Apache Tribe of Oklahoma                                   Na-I-Sha Games
                 Cherokee Nation of Oklahoma                                Cherokee Nation Outpost-Catoosa*
                                                                            Cherokee Nation Outpost-Roland*
                                                                            Cherokee Nation Outpost-West Siloam Springs*
                                                                            Loyal Shawnee Bingo
                 Cheyenne and Arapaho Tribes of Oklahoma                    Cheyenne and Arapaho Bingo-Clinton
                                                                            Cheyenne and Arapaho Bingo-Watonga
                                                                            Lucky Star Bingo*
                 Chickasaw Nation of Oklahoma                               Ada Gaming Center*
                                                                            Goldsby Gaming Center*
                                                                            Sulphur Gaming Center
                                                                            Thackerville Gaming Center*
                 Choctaw Nation of Oklahoma                                 Choctaw High Stakes Bingo-Arrowhead*
                                                                            Choctaw High Stakes Bingo-Durant*
                                                                            Choctaw High Stakes Bingo-Idabel*
                                                                            Choctaw High Stakes Bingo-Pocola*
                 Citizen Band Potawatomi Indians of Oklahoma                Potawatomi Tribal Gaming*
                 Comanche Indian Tribe                                      Comanche Nation Games*
                 Delaware Tribe of Western Oklahoma                         Delaware Tribal Games**
                 Eastern Shawnee Tribe of Oklahoma                          Eastern Shawnee Tribe of Oklahoma Bingo Operations*
                 Iowa Tribe of Oklahoma                                     Bingo Enterprise Fund*
                 Kaw Nation of Oklahoma                                     Kaw Bingo*
                                                                                                                         (continued)


                                             Page 42                                            GAO/GGD-97-91 Indian Gaming Industry
                                          Appendix II
                                          Tribes and Known Gaming Operations as of
                                          December 31, 1996a




State          Tribe                                                    Name of operation
               Kiowa Tribe of Oklahoma                                  Kiowa Bingo
               Muscogee (Creek) Nation                                  Bristow Indian Community Bingo*
                                                                        Checotah Muskogee Indian Community Bingo*
                                                                        Eufaula Indian Community Bingo*
                                                                        Muscogee Bingo*
                                                                        Okmulgee Bingo*
                                                                        Tulsa Bingo*
               Ponca Tribe of Oklahoma                                  Ponca Tribal Bingo
               Sac & Fox Nation of Oklahoma                             Foxfire Bingo Casino, Inc.
               Seminole Nation of Oklahoma                              Seminole Nation Bingo*
                                                                        Wewoka Trading Post Gaming Center*
               Seneca-Cayuga Tribe of Oklahoma                          Seneca-Cayuga Bingo
               Thlopthlocco Tribal Town                                 Thlopthlocco Bingo
               United Keetoowah Band of Cherokee Indians                Keetoowah Bingo
Oregon         Confederated Tribes of the Grande Ronde Indian           Spirit Mountain Gaming, Inc.*
               Community
               Confederated Tribes of the Siletz Indians of Oregon      Chinook Winds*
               Confederated Tribes of the Umatilla Indian Reservation   Wildhorse Gaming Resort*
               Confederated Tribes of the Warm Springs Reservation of   Indian Head Gaming Center*
               Oregon
               Coquille Indian Tribe                                    The Mill Casino
               Cow Creek Band of Umpqua Indians                         Gaming Operations*
South Dakota   Cheyenne River Sioux Tribe                               Cheyenne River Sioux Tribe Bingo
               Crow Creek Sioux Tribe                                   Crow Creek Bingo Hall
                                                                        Lode Star Casino
               Flandreau Santee Sioux Tribe                             Royal River Casino*
               Lower Brule Sioux Tribe                                  Brule Horseman Association
                                                                        Brule Sioux Booster Club
                                                                        Golden Buffalo Casino*
                                                                        Kul Wicasa Elderly Bingo
                                                                        Lakota Care Bingo
                                                                        Lakota Family Dance Club
                                                                        Lower Brule Health Club
                                                                        Lower Brule Youth Activities
               Oglala Sioux Tribe                                       Children’s Village Bingo
                                                                        Prairie Wind Casino*
               Rosebud Sioux Tribe                                      Rosebud Casino*
               Sisseton-Wahpeton Sioux Tribe                            Dakota Sioux Casino*
                                                                        Veterans Memorial Recreation Center*
                                                                                                                    (continued)


                                          Page 43                                          GAO/GGD-97-91 Indian Gaming Industry
                                         Appendix II
                                         Tribes and Known Gaming Operations as of
                                         December 31, 1996a




State        Tribe                                                     Name of operation
             Standing Rock Sioux Tribe                                 Bear Soldier Jackpot Bingo*
                                                                       Grand River Casino
             Yankton Sioux Tribe                                       Fort Randall Casino/Hotel*
Texas        Kickapoo Traditional Tribe of Texas                       Lucky Eagle Casino
Washington   Confederated Tribes of the Chehalis Reservation           Chehalis Tribal Lucky Eagle Casino*
             Confederated Tribes of the Colville Reservation           Mill Bay Casino
                                                                       Coulee Dam Casino*
                                                                       Okanogan Casino/Bingo*
             Jamestown S’Klallam Tribe                                 Seven Cedars Casino*
             Lower Elwha S’Klallam Tribe                               Lower Elwha Bingo**
             Lummi Nation                                              Lummi Casino*
             Makah Indian Tribe of the Makah Indian Reservation        Makah Bingo*
             Muckleshoot Indian Tribe                                  Muckleshoot Indian Bingo*
                                                                       Muckleshoot Indian Casino*
             Nooksack Indian Tribe                                     Nooksack River Casino*
             Port Gamble S’Klallam Tribe                               Little Boston Bingo
             Puyallup Tribe of Indians                                 BJ’s Enterprises, Inc.
                                                                       Puyallup Tribe Bingo Palace*
             Spokane Tribe of Indians                                  Brigman’s Casino
                                                                       Double-Eagle Casino
                                                                       Kieffer’s Store
                                                                       Lile Chief’s Casino
                                                                       Pappy’s Corner
                                                                       Snack’n Chat
                                                                       Spokane Indian Bingo
                                                                       Two Rivers Casino
                                                                       Wooden Nickel Casino
             Squaxin Island Tribe                                      Little Creek Casino
             Suquamish Tribe                                           Port Madison Enterprises-Bingo Operations Division*
                                                                       Port Madison Enterprises-Suquamish Clearwater Casino
             Swinomish Indian Tribal Community                         Swinomish Casino & Bingo*
             Tulalip Tribes of Washington                              Tulalip Casino*
             Upper Skagit Indian Tribe                                 Harrah’s Skagit Valley Casino
Wisconsin    Bad River Band of Lake Superior Chippewa Indians          Bad River Casino
             Forest County Potawatomi Community                        Northern Lights Casino*
                                                                       Potawatomi Bingo*
             Ho-Chunk Nation                                           Ho-Chunk Bingo*
                                                                       Ho-Chunk Casino*
                                                                       Majestic Pines Bingo*
                                                                                                                      (continued)


                                         Page 44                                             GAO/GGD-97-91 Indian Gaming Industry
                                    Appendix II
                                    Tribes and Known Gaming Operations as of
                                    December 31, 1996a




State     Tribe                                                          Name of operation
                                                                         Majestic Pines Casino*
                                                                         Rainbow Bingo*
                                                                         Rainbow Casino*
          Lac Courte Oreilles Band of Lake Superior Chippewas            Lac Courte Oreilles Casino*
          Lac du Flambeau Band of Lake Superior Chippewa                 Lake of the Torches Casino*
          Indians
                                                                         Bingo Enterprise Fund*
          Menominee Indian Tribe of Wisconsin                            Crystal Palace Casino*
                                                                         Menominee Nation Casino*
                                                                         Menominee Tribal Bingo*
          Oneida Tribe of Indians of Wisconsin                           Class II Gaming Operations*
          Red Cliff Band of Lake Superior Chippewas                      Isle Vista Casino*
          Sokaogon Chippewa Community                                    Grand Royale
                                                                         Mole Lake Bingo
                                                                         Regency Resort
          St. Croix Chippewa Indians of Wisconsin                        Hole in the Wall Casino*
                                                                         Little Hartel Casino
                                                                         Sand Lake Bingo
                                                                         St. Croix Casino*
          Stockbridge-Munsee Community                                   Mohican North Star Casino*
Wyoming   Northern Arapaho Tribe of the Wind River Indian                789 Bingo
          Reservation

                                    a
                                      A single asterisk denotes the facilities included in our analyses (178), the names of which were
                                    taken from the financial statements submitted to NIGC. Other facility names were obtained from
                                    other NIGC data. A double asterisk denotes the facilities included in our analyses that were not
                                    operating on December 31, 1996.

                                    Note: This information may not agree with NIGC’s records because of differences in the
                                    methodologies used to identify and count facilities.

                                    Source: GAO analysis of 1995 financial statements filed with NIGC and NIGC lists of gaming
                                    facilities.




                                    Page 45                                                   GAO/GGD-97-91 Indian Gaming Industry
Appendix III

Major Contributors to This Report


                     Harriet Ganson, Assistant Director, Tax Policy and
General Government     Administration Issues
Division             Nilsa I. Perez, Assignment Manager
                     Keith Steck, Evaluator
                     Bryon Gordon, Evaluator
                     Pam Pavord, Evaluator



                     Rachel DeMarcus, Assistant General Counsel
Office of General
Counsel
                     Doris Hynes, Evaluator
Kansas City Field
Office




                     Page 46                                  GAO/GGD-97-91 Indian Gaming Industry
Glossary


Costs and Expenses   Payroll, management fees, depreciation, amortization, the interest portion
                     of debt payments, and others. Under generally accepted accounting
                     principles, the principal portion of the debt payments is not an expense
                     and thus is not included in costs and expenses.


Gaming Revenues      Dollars wagered minus payouts.

Net Income           Total revenues minus all costs and expenses.

Net Revenues         IGRA defines “net revenues” as gross gaming revenues minus prizes and
                     gaming-related operating expenses, not including management fees.


Operating Income     Revenues minus costs and expenses that were related to the primary
                     business activities, such as salaries, advertisements, rents, and other
                     expenses. It did not include revenues or expenses that were not related to
                     the primary business activities, such as interest income; gains on sales of
                     assets; and depreciation, amortization, and interest expenses.


Other Revenues       Sales such as food, beverages, and hotel rooms.

Total Revenues       Sum of gaming revenues and other revenues.




(268761)             Page 47                                    GAO/GGD-97-91 Indian Gaming Industry
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