Tax Deductions on Gambling Losses Under Threat in California, Tribal Casinos Expected to Fight Back

California State Assemblyman Adam Gray (D-Merced) wants to put an end to tax-deductible gambling losses.

Under current federal and state law, gamblers can claim deductions on gambling losses, provided these are itemized on tax returns and do not exceed the amount of income from gambling reported.

But Gray believes the law is a “sin subsidy for the rich,” mainly benefiting wealthy customers at California’s tribal casinos. He wants an estimated $300 million deducted by gamblers each year to be diverted into programs that ensure Californians have healthy drinking water.

Gray is sponsoring a bill called the Inland California Healthy Communities Act that would close what he describes as a “loophole” that “benefits fewer than 150,000 people, primarily millionaires and billionaires.”

If Congress wants to pay to subsidize gamblers that’s their business, but we have families in California who cannot safely drink the water in their homes or get in to see a doctor,” Gray explained.

Of course, the bill only covers state taxes paid by California residents. Federal gambling tax-reporting regulations, to which California currently conforms, would remain in place.

Bad Beat for Poker Players?

Gray does not explain in his news release announcing the bill why the existing tax regulations benefit only the rich, but it’s likely he’s referencing VIP players who are able to take advantage of luxury comps while breaking just above even at high-stakes games.

But many professional gamblers — especially poker players — maintain a modest income by grinding small margins at California’s casinos and card clubs, and their livelihoods would be jeopardized by the bill.

The right of those who strive to make a living through gambling to have equal tax status with salaried individuals or businesses has been hard-fought for by the likes of Poker Hall-of-Famer Billy Baxter, whose federal tax refund case of 1986 established that gambling winnings should be classified as “earned income.”

Tribes Will Block Bill

Meanwhile, the bill will face fierce opposition from California’s powerful Native American casinos — for whom it will be bad for business — and the lawmakers who represent them.

The state’s tribal operators have collectively contributed billions of dollars to the state’s general fund, as well as their host communities, which affords them a great deal political power, as Gray knows only too well.

But the tribes have wilfully delayed the process to legalize these markets, mainly because they fear their hard-fought exclusivity on casino gaming will be eroded by commercial interests.

“Although seemingly popular, elimination of this deduction will have consequences –primarily on tribal governments – which we have not had the opportunity to adequately analyze given the absence of any meaningful consultation with Indian tribes,” California’s Tribal Alliance of Sovereign Indian Nations said in a statement to The San Diego Metropolitan.