PA Supreme Court Decision May Force Senate Action On Online Gambling

Oct.04, 2016 11:50:AM
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    PA online gambling pressure

A recent ruling by the Pennsylvania Supreme Court could force the state Senate’s hand when it comes to the online gambling bill it’s been avoiding for the past several months.

On Wednesday, the court ruled that part of a Pennsylvania gambling law is unconstitutional, on the grounds that the language creates differing tax rates for different casinos. The lawsuit was filed by Mount Airy Casino.

Presently, the law imposes a four percent local tax on gross gaming revenue from slot machines (two percent local and two percent to the county) that goes directly to counties and municipalities hosting or in close proximity to casinos. This local tax is on top of the base tax rate casinos pay to the state.

The gist of the ruling is that because the local tax is tied to the size of the property, it’s unconstitutional. Pennsylvania casinos (excepting Philadelphia casinos and the state’s two resort casinos) are required to pay either two percent of their slot revenue or $10 million to local municipalities, whichever is greater.

Since no casino has reached $500 million in slot revenue in a given year every casino has simply paid the $10 million.

Effectively, with everyone paying the same $10 million tax, a casino generating $400 million in revenue over the course of the year has a local tax rate of 2.5 percent, while a casino generating $100 million in slot revenue pays a local and county tax rate of 10 percent.

Ruling could lead to tax increases

Legislative action is required or the local tax will simply sunset, costing towns, cities, and counties across the state tens of millions of dollars.

As North Strabane Township Manager Frank Siffrinn told reporters, “If you lose $2.7 million a year, it’s definitely going to have an impact.” If municipalities lose this revenue the likely outcome is local tax increases and/or reductions in services.

Timeline to act

The Pennsylvania Supreme Court gave the state legislature 120 days to fix the state’s gaming code. But in reality, they need to get this done by the end of October. The Senate will only be in session for six days in October (17-19 and 24-26) before adjourning for the rest of year.

It should be noted the legislature can, and almost certainly will, add session days to the legislative calendar if it’s not fixed before the Senate is set to adjourn on Oct. 26.

Passage of a bill legalizing and regulating online gambling in 2016 faces the same narrow window, and failure to pass the gaming expansion bill is also expected to bring about tax increases. This makes the gaming bill the perfect vehicle to fix the tax language.

How the gaming reform bill fits in

Unlike the gaming reform bill, the 120-day window (a deadline that expires in late January) imposed by the court cannot be kicked down the road. This gives the House (which has been applying pressure on the Senate to pass the gaming bill) even more ammunition to get the Senate to act on the package that the former body passed earlier this summer.

As House Majority Leader Dave Reed put it, “This [the Supreme Court decision] adds a new wrinkle, but it’s probably an opportunity to maybe bring gaming as a whole to a head and resolve both issues at the same time.”

Upshot

The tax issue must be tackled this fall, and the simplest way to resolve it is through an amendment to the gaming bill already under consideration.

It would be strange for the legislature to amend the 2004 gaming act to fix the tax language when another gaming bill that was already passed by the House is waiting in the wings.

   
Steve Ruddock
Steve Ruddock - Steve covers nearly every angle of online poker in his job as a full-time freelance online gaming writer, with a focus on the regulated markets in New Jersey and Nevada for USPoker.
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