Share
Pennsylvania casinos are out for justice.
A group of casino operators has asked the Supreme Court of Pennsylvania to declare the state’s 48%-54% (often referred to as “50%”) slot machine tax unconstitutional.
The casino operators aren’t asking the court to eliminate taxes; rather, they’re looking for some equality, as unlicensed gaming facilities (gas stations, laundromats, etc.) pay no taxes on revenue they earn from slots-style “skill” machines.
The move comes weeks after the PA Supreme Court agreed to review the legality of skill games.
Key takeaways
- A group of PA casinos has asked the Supreme Court of Pennsylvania to declare the state’s ~50% slots tax rate unconstitutional.
- The legal action is based on the fact that casinos are taxed on slots revenue and unlicensed gaming facilities are not.
- The casinos argue that the disparity in taxation violates the state constitution’s Uniformity Clause.
PA casinos argue that disparity in tax rates breaks constitutional rule
The Pennsylvania Constitution has a section called the “Uniformity Clause.” The clause says that it’s illegal for the state to tax two different entities within the same “class of subjects” at two different tax rates.
The state can not tax two casinos at different rates; the tax rate has to be uniform.
The clause was established hundreds of years ago to protect businesses against biased taxation. The clause works the other way, too; it prohibits the state from giving a casino a lower tax rate than its peers just because, say, the governor won a huge jackpot at that casino.
How does all this fit into the casino’s plea before the state supreme court? According to an AP News article, the casinos are arguing that, while they’re paying roughly 50% of their slots revenue, unlicensed facilities pay no taxes on their slots revenue.
Consequently, they argue that the differing tax rates between the same class of companies (locations offering slot machines) violate the Uniformity Act.
Why don’t unlicensed facilities pay taxes on slots revenue?
Unlicensed gaming locations have been a controversial subject in Pennsylvania. The Gaming Act of 2017 expanded the definition of a slot machine to a matching that uses a wager, a potential payout, and chance as the main factor in winning.
Unlicensed facilities feature skill and hybrid machines that courts have ruled are different from slot machines. The casinos argued that the skill and hybrid games found in unlicensed locations meet all three criteria even though skill is a part of the player experience.
Why? Because even though skill is a part of the game, whether a player wins or loses is still based largely on chance, the casinos argued.
Additionally, the “skill” portion of a skill or hybrid game is often optional or only available when the player loses a bet. Therefore, the complaint noted, the “skill” part of skill and hybrid games isn’t prevalent enough to make them different from a typical slot machine.
Pennsylvania casinos argued that skill and hybrid machines should pay taxes like slot machines because they are slot machines.
However, unlicensed facilities have been able to evade taxes because multiple courts in the state have ruled that skill games are not slot machines. Also, courts have ruled skill games aren’t subject to the Gaming Act’s tax rules because they are unlicensed machines and the Gaming Act applies only to licensed machines.
Because the state has allowed unlicensed facilities’ skill games to flourish without regulation, casinos argued that the state is losing out on more than $1 billion in tax revenue each year.
What’s next for the PA casino lawsuit?
Right now, the 10 PA casinos that filed a complaint to the Supreme Court will have to wait. The court will let the casinos know if they’ll take up the case and, if so when the hearing date will be.
In the meantime, the casinos will hope their arguments are strong enough to earn a hearing before the state’s highest court. The key to the casinos’ success will be how the state supreme court interprets the definition of a slot machine.
If it believes that skill and hybrid games are slot machines because the skill component of their framework isn’t prevalent enough, then the court could find that their tax rate should be the same as traditional slot machines.
It’s possible that the court could rule in favor of the casinos. The court would then ask the Pennsylvania Gaming Control Board and others involved to decide on a new tax rate that adheres to the Uniformity Act.
