Supreme Court Ruling a boost for PA Online Gambling Regulation

In 2004, Pennsylvania lawmakers decided to amend the gambling laws to legalize slot machines. However, they instituted a variable tax rate, based on the size of each casino. Now, a Supreme Court says the tax rates are unconstitutional. It could cost the state $50 million in revenue, and the best way to make up for it could be to host legal online casinos.

PA has been debating a piece of legislation that would provide online gambling regulation, as well as permit slot machines in bars, off-track betting sites and the state’s 6 international airports. The bill has been stagnant so far due to constant opposition from numerous sides, but with the need to generate even more revenue to cover the budget deficit, lawmakers will surely be taking a closer look at it.

On Wednesday, the Pennsylvania Supreme Court ruled that the municipal taxation of slot machine revenue, outside of Philadelphia, is a direct violation to the constitution. The problem is that the municipal tax rates are variable, depending on the size of each casino.

PA’s Slot Tax Laws In A Nutshell

Current law stipulates that most casinos outside of Philadelphia must pay a minimum $10 million tax to their host municipality. That doesn’t apply to Sugar House Casino – the only operator in Philadelphia. The smaller casinos that do pay the $10m aren’t generating enough slots revenue to cover that amount on their own, causing 9 casinos to pay a total of $48.5 million out of pocket in the last fiscal year.

The laws’ tax structure also divides casinos into two classes – those who generate annual slots revenue of $500 million or more, and those who don’t. Therefore larger casinos could pay a 2% slots tax to their municipalities, while the smaller ones pay the minimum $10 million.

In the last year, this structure caused a variable tax rate that resulted in a near 10% tax for Presque Isle Downs and 8.8% for Mount Airy Casino, while Philadelphia’s Sugar House – not subject to the $10m minimum – paid just 3.7%.

Four Months To Figure It Out

The court ordered the PA General Assembly to revise the taxation laws in the 2004 amendment that legalized slot machines in the first place, and they only have four months to get it done. It’s been estimated that Pennsylvania’s coffers could come up around $50 million lighter each year.

The state is clearly desperate to bring in more tax dollars, and there’s only so may ways to do it. The idea of hosting legal online casinos via state regulation was already a big topic in this regard, and now that the deficit is growing, rather than shrinking, chances are legislators will waste no time bringing the measure back to the table.

Analysts have stated that a legal framework for online gambling regulation could bring in $100 million in the first year, with much of that coming from a throng of first-time license fees. The majority of the state’s casinos are on board with the idea, hoping to capitalize on the potential revenue of operating legal online casinos. But not all of them.

Sands Bethlehem, under the wing of Las Vegas Sands Corp, owned by anti-online gambling crusader Sheldon Adelson, is staunchly opposed to it. Most of the state’s casinos are also opposed to the idea of putting slot machines in bars and off-track betting sites, for fear of losing customers at their gambling resorts.