Summary

Indian gambling activities and the revenues generated from them have grown substantially since the late 1980s. As part of its effort to achieve a balanced budget, Congress has considered taxing the income earned from gaming activities by Indian tribes and by some tax-exempt organizations. This report provides (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, such as casinos in Nevada and Atlantic City; and (4) a summary of the federal tax treatment of Indian tribes and tribe members.

GAO noted that: (1) as of December 31, 1996, 184 tribes were operating 281 gaming facilities; (2) for 178 of these facilities, operated by 126 tribes, GAO obtained and examined 1995 financial statements; (3) 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; (4) the gaming facilities also reported generating over $300 million in revenues from sales such as food, beverages, and hotel rooms; (5) 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; (6) according to the financial statements, about $1.6 billion was transferred to 106 tribes in 1995; (7) for 20 tribes, the financial statements did not show any transfers; (8) none of the financial statements indicated how the transfers were used by the tribes; (9) gaming revenues generated by all class II and class III Indian facilities for which GAO had financial statements equaled at least 10 percent of the estimated gaming revenues generated by legalized gaming reported by the gaming industry in 1995; (10) 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; (11) 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; (12) 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; (13) by contrast, the gaming revenues of the 12 Atlantic City casinos were more equally distributed; (14) the Internal Revenue Service 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; (15) 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; (16) individual tribe members are subject to federal income tax; and (17) 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.