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 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. We obtained comments on a draft of this report from the Internal Revenue Service, the Department of the Interior, and the Chair of NIGC. More Than Half of Continental U.S. Tribes Operated Gaming Facilities

According to information provided by NIGC, 184 of the 555 Indian tribes officially recognized by the United States were operating a total of 281 gaming facilities as of December 31, 1996. Revenues From Indian Gaming Facilities Exceeded $4 Billion

From our analyses of the 178 gaming facilities’ financial statements, we found that reported gaming revenues were about $4.5 billion and revenues from other activities, such as food, beverages, and hotel rooms, were over $300 million (see table 1). About 90 percent of the facilities generated net income, and about 10 percent generated net losses. These 106 tribes operated 149 gaming facilities. Comparison of Indian Gaming With Other U.S. Legalized Gaming

		Indian Gaming Revenues Represented at Least 10 Percent of the U.S. Market in 1995

Table 2 shows that Indian gaming revenues (class II and III) were at least 10 percent of the revenues estimated to have been generated by legal gaming in 1995 and compares Indian gaming to other legalized gaming. In addition, the average gaming revenues generated by class III Indian facilities and Nevada casinos were similar. 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. Atlantic City casinos are not shown because their gaming revenues were more equally distributed. Operating Income as a Percentage of Total Revenues of Large Class III Indian Facilities Was Almost Twice That of Large Nevada and Atlantic City Casinos

Operating income as a percentage of total revenues for large class III Indian facilities was almost twice as much as that of large Nevada and Atlantic City casinos. 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. State-chartered Tribal Corporations Are Subject to Federal Income Tax. Payment of Other Federal Taxes. Because the payments are per capita distributions of gaming proceeds, they are generally subject to taxation when distributed. Objectives, Scope, and Methodology

	Objectives

Our objectives in this report were to provide (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. For this time frame, NIGC had financial statements from 126 tribes representing 178 facilities. Gaming Revenues

Dollars wagered minus payouts. Net Income

Total revenues minus all costs and expenses.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided an updated profile of the Indian gaming industry, focusing on: (1) the amount of transfers to the tribes from their gaming facilities; (2) a comparison of Indian gaming revenues with the revenues generated by other legalized gaming activities; and (3) the federal tax treatment of Indian tribes and tribe members.

What GAO Found

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.