State senators advance compromise bill to increase tax revenue, oversight of now common ‘skill’ games

LINCOLN — A bill to increase taxes on so-called “skill” video gaming machines that are now common in convenience stores and bars easily advanced Monday from first-round debate.

Legislative Bill 685 was introduced in the Nebraska Legislature amid a rapid increase in the games and a desire to harness some of their proceeds for property tax relief.

The skill games look and operate much like video slot machines in casinos, but they require some “skill” to win. Thus, they are regulated differently from slot machines, which are considered games of chance.

But state problem gambling officials say the skill games are just as addictive, and harmful, as regular slot machines.

Nebraska has seen a 60% increase in skill game machines across the state over the past year.

More than 5,800 licensed skill games can now be found at 1,611 locations, according to state registration figures. Machines are in truck stops, gas stations, convenience and grocery stores, service clubs and even a “de facto” casino.

An initial proposal from State Sen. John Lowe of Kearney ran into pushback from operators of the devices, who called it heavy-handed and likely to put them out of business.

So Lowe came back with a compromise that he said responded to some of the criticism.

Among the provisions in LB 685 advanced on a 31-0 vote on Monday were:

• Distributor would pay an annual fee of $100 for each machine up to a maximum of $5,000 for large distributors.
• Owners would still pay $250 per machine annually, which is the current fee.
• A 5% tax on the proceeds from each skill game would be paid to the state, of which 40% would be used for property tax relief, 25% split between the county and city in which the machine is located, and 10% used for tourism promotion. Initially, a tax of 20% had been proposed, which is the same rate paid by casino video slots.
• Businesses that have skill games would be required to derive 60% of their revenue from sources other than the games. That is an attempt to prevent defacto casinos that are filled with the machines. Veterans and fraternal clubs would be exempt from that requirement, and their machines would not be subject to taxes.

Elmwood Sen. Rob Clements, who has introduced a bill this year to repeal the state’s inheritance tax, said LB 685 might provide some replacement revenue for counties — which currently get more than $60 million a year in inheritance tax revenue.

A fiscal note based on the initially proposed 20% tax estimated revenue of about $2.2 million a year for counties and cities. A fiscal estimate on a 5% tax was not immediately available. Such estimates are typically not made until after an amendment is adopted, as happened Monday.

— Nebraska Examiner reporter Zach Wendling contributed to this story.