On April 26, 2007, Rep. Barney Frank (D-MA) introduced H.R. 2046, the “Internet Gambling Regulation and Enforcement Act of 2007,” that provides for the licensing and regulation of lawful Internet gambling by the Director of the Financial Crimes Enforcement Network of the U.S. Department of the Treasury. On June 7, 2007, Rep. Jim McDermott (D-WA) introduced H.R. 2607, a companion bill to H.R. 2046 that would impose a fee on companies licensed to provide online gambling services in the United States.

PricewaterhouseCoopers LLP (“PwC”) was retained by Alston & Bird, counsel to the UC Group, to estimate the federal revenue effect of the H.R. 2046 and H.R. 2607. UC Group is an online payment services provider that does not operate in the U.S. market. PwC has not taken any position in favor or against adoption of the legislative proposal, and has not been retained to provide any advocacy services in connection with the proposal.

The revenue analysis is based on available data, conversations with industry experts, and our professional judgment. The conclusions rely on projections of future events and behavioral responses that inherently are uncertain. The revenue analysis is intended to provide Congress with information that may be useful in the official scoring of the legislation’s revenue effects.

The Frank bill (H.R. 2046) would create a regulatory and licensing regime for online gambling. The McDermott bill (H.R. 2607) would impose a two-percent licensing fee on deposits received by licensed operators. The analysis in this report takes into account certain clarifications and modifications to the bill, including the following:

1. Internet gambling licensees would be required to be incorporated in the United States, and senior management and computer equipment would be required to be located in the United States.

2. The wagering and occupational taxes applicable to land-based gambling would apply to licensees.

3. The administrative rules applicable to the wagering tax would apply, mutatis mutandis, to the license fee, including penalties and interest for under payment, late payment, and failure to file.

4. Separate and more comprehensive income tax withholding and reporting rules would apply to proceeds arising from bets or wagers made with licensees.

5. Congress would authorize states to impose indirect taxes on licensees with respect to wagers placed from within their jurisdictions, whether or not the licensee has nexus with the particular state.

The revenue analysis is based in part on projections by Global Betting and Gambling Consultants (“GBGC”) of U.S. online gambling revenues under present law and under H.R. 2046, assuming no opt outs by states or sports leagues. GBGC is a UK consulting firm that tracks online and land-based gambling on a global basis. GBGC collects data from a variety of sources including filings of public companies, relationships with certain private companies, and monitoring of website traffic.

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Author Contact Info: PricewaterhouseCoopers