Casino Tax Issue could Thwart PA iGaming Regulation

PennsylvaniaA recent ruling on the “local share tax” that casinos pay on their slot machine revenues could thwart efforts to regulate online gambling in Pennsylvania.

In most locations around the world, the presence of a brick-and-mortar casino is a good thing. It brings visitors to the area, who spend money on hotel accommodation, local services, and food and drink. This in turn creates jobs and benefits the local community as a whole.

In 2004, Pennsylvania legislators decided that the benefits generated by the presence of a casino were not enough for the local economies. They passed an Act requiring casinos to pay 2% of their slot machine revenues (or a minimum of $10 million) as a “local share tax”.

The local share tax generates around $140 million per year in tax revenues for municipalities and counties statewide. Or it did until last month, when the Supreme Court ruled that the tax was unconstitutional and ordered that the legislature come up with a fix within 120 days or scrap the tax altogether.

Municipalities Look to Online Gambling for New Revenue Stream

In some municipalities, the local share tax contributes up to 10% of their income. Municipal leaders have said that – if the casino tax is scrapped – local taxes are going to have to rise substantially. They have called on the state legislature to act quickly or introduce alternative revenue streams – many looking at the proposals to regulate online gambling as a way out of the predicament.

However, the current proposals to regulate online gambling have been designed to fill a $100 million hole in the state budget. If the license fees and taxes charged on Gross Gaming Revenue are raised to accommodate the abolition of the local share tax, many potential online operators are likely to reconsider their support for the gambling reform bill (HB 2150) [geolink href=””]passed in June[/geolink] by the House of Representatives.

Pennsylvania´s Senators are yet to discuss the gambling reform bill in the limited amount of time available to them before the end of the current legislative session. Concerns have been raised in Harrisburg about the lack of player protection in the bill, whether the proposals will generate enough tax revenues, and the expansion of gambling in general. Many are reluctant to support unpopular policies during election year and would prefer to kick the can down the road into next year´s session.

Let the Sales Pitches Commence

In addition to making a $100 million budget proposal fill a (now) $240 million hole in tax revenues, Senators are also coming under pressure from municipalities who have previously not benefitted from the local share tax, but who feel they ought to have. Senator Kim Ward – who represents the casino-free Westmoreland County – was quick to seize the opportunity to pitch for tax revenues, claiming that her area should be considered for local share revenues as it is bordered by three counties that have casinos.

Senator Ward´s argument is that citizens in Westmoreland County suffer from the same gambling-related social problems as areas in which casinos are located, but the county does not receive any financial support to help deal with the problems. However, Senator John Blake commented that the current share distribution between municipalities should be maintained, and that to change the system now would make reaching a solution more difficult.

The problem with Senator Blake´s assessment of the situation is that Senator Ward is the chair of the Senate Community, Economic and Recreational Development Committee. Any decision about “fixing” the local share tax has to pass through her committee – as do the proposals contained within the gambling reform bill (HB 2150). In election year, Senator Ward will likely want to use her position to benefit her constituents – or at least be seen to be trying.

Meanwhile the Legislative Countdown Continues

Senate Majority Leader Jay Costa has commented that he is open to the idea of resolving the local share tax issue with amendments to the gambling reform bill but, with only a handful of days remaining in the current legislative calendar, there are significant obstacles that would have to be overcome for this to happen. If the Senate is unable to agree on amendments to the gambling reform bill, the local share tax issue will be dealt with separately – and with a higher priority. This would leave the prospects for regulated online gambling in Pennsylvania pretty remote for 2016.

Jacqueline Packett
Jacqueline Packett