Compromise Tax Plan Emerges in Pennsylvania

PennsylvaniaWith time running out for legislators in Pennsylvania to find solutions to the budget deficit and local share tax issue, a compromise tax plan has emerged.

The prospects for regulated online poker in Pennsylvania got a boost last night when the news broke the Senate Community, Economic and Recreational Development (CERD) committee was leaning towards a compromise tax plan. According to a series of Tweets sent by Gambling Compliance´s Chris Krafcik, the plan consists of a 16% tax rate for online poker and a 54% tax rate for online slots and table games.

The compromise tax structure – if agreed – would resolve concerns from regulation proponents that high tax rates would make the provision of online poker [geolink href=””]financially unjustifiable[/geolink]. It would also help fill the widening gap in the state´s budget and resolve the [geolink href=””]local share tax issue[/geolink]. However, not everybody is happy with the proposed compromise.

A Quick Recap of the Situation in Pennsylvania

Last month, the House of Representatives approved a bill that will allow online gambling on tablets in the departure lounges of eight Pennsylvania airports. The bill was passed over to the Senate with the intention of the Senate padding it out with further gaming expansion proposals and sending it back. Currently, there are four potential gambling expansion proposals being discussed:

  1. The regulation of online gambling (run by brick and mortar casinos).
  2. The regulation of online gambling (run by the Pennsylvania State Lottery).
  3. The regulation of Video Gaming Terminals (VGTs) in bars and truck stops.
  4. An expansion of existing casino licenses to allow slots in satellite locations.

None of these proposals would have major consequences to the citizens of Pennsylvania. Online gambling is already alive and well in Pennsylvania and it has been estimated that up to 40,000 VGTs are already in existence in the Keystone State´s bars and clubs. The only impact satellite slot parlors may have would be to cannibalize the amount of money collected by VGTs.

Naturally, most casinos are in favor of proposals 1 and 4 because it would be profitable for them. Proponents of regulated gambling are in favor of proposal 1, but not proposal 2 because they would lose their potential affiliate income. Proposal 3 has the [geolink href=””]support of Penn National[/geolink] (because it owns a VGT manufacturing company) and [geolink href=””]Governor Wolf[/geolink]. Proposal 4 probably would not generate enough revenue.

So Far this Week in Pennsylvania …

There has been quite a lot of activity so far this week in Pennsylvania. On Monday the House Gaming Oversight Committee had a hearing in which the merits of VGT regulation were discussed. Ignoring the usual and redundant objections concerning cannibalization, underage gambling and addiction problems (remember, VGTs already exist in abundance throughout Pennsylvania), the advantages of regulation outshone the disadvantages.

Based on revenues generated in Illinois, the state would receive slightly more in tax from the regulation of VGTs than from the regulation of online gambling (assuming a 20% tax rate on online gambling). The committee heard there would also be indirect benefits to local communities that would offset the extra burden placed upon the regulating authority – the Pennsylvania Gaming Control Board.

With the prospect of online gambling proposals being scrapped in favor of VGT regulation, proponents of online gambling regulation (the potential affiliates) and the Poker Players Alliance (PPA) went into overdrive – proponents publishing articles focusing on the case against VGTs, and the PPA summoning another call to arms from its grass-roots support. The PPA´s call to arms drew a cynical response from one respected industry observer:

Compromise Tax Plan Reveals PPA´s True Colors

According to Krafcik, the compromise tax plan would exclude Class 3 casinos from having the option to apply for an online gambling license, and allow the state´s ten remaining brick and mortar casinos to apply for an online poker license and a separate online slots and table games license. The cost of each license would be $5 million, so a casino applying to offer both online poker and online slots/table games would have to pony up $10 million.

However, the compromise tax plan has already raised objections from proponents of online gambling, who have been quick to point out that the Pennsylvanian market could only support two or three online poker operators – resulting in a loss of license fee income compared to the proposals introduced into the House by Representative George Dunbar [geolink href=””]in February[/geolink].

Of more concern to proponents is that a high tax rate on slots and online table games will make the casino games uncompetitive when compared against offshore sites – damaging their affiliate income the revenues generated by online gambling in Pennsylvania and ultimately the amount of taxes paid to the state. Their arguments have been shared by the PPA:

The PPA´s reaction to the proposed compromise makes one wonder whether or not they have an alternate agenda to regulated online poker run by Pennsylvanian casinos at a reasonable tax rate. It is what the organization has been campaigning for over the past few years and, now they potentially have it, it is difficult to understand why they oppose it. That´s at least how it is going to appear to grass roots supporter.

Jacqueline Packett
Jacqueline Packett