By Mark Belko
April 5, 2016
Pennsylvania casinos could be taxed for the “free play” they award to customers under Gov. Tom Wolf’s proposed budget — a plan that a top gambling industry executive decried Monday as comparable to taxing grocery store coupons.
Geoff Freeman, president and CEO of the American Gaming Association, an industry trade group, said the proposed 8 percent tax would be penny wise and pound foolish, forcing casinos to cut back on the promotional play they offer and reducing revenues to the state.
“The idea of taxing free play makes little or no sense,” he said. “It is counterproductive. It will cost the Commonwealth of Pennsylvania in terms of tax revenue and will steal dollars away from reinvesting in properties.”
Promotional credits typically are awarded by casinos to slot machine players. Gamblers who sign up for a casino player’s card, for example, may get $20 worth of free play. They may receive similar offers through the mail.
The idea is to use the promotional credits to bring customers into the casino in hopes that they will spend beyond the amount of free play they have been awarded.
“Casinos don’t make money off free play. They make money off the spending that is expected to be generated by free play,” said Michael Pollock, managing director of Spectrum Gaming Group, an industry consultant.
In Pennsylvania last year, casinos spent $621.9 million on promotional credits, according to the state gaming control board. Casinos are able to subtract the amount they spend on free play from their gross revenue on slot machines before it is taxed at 55 percent by the state.
If Mr. Wolf’s proposal had been in effect last year, it would have generated an additional $49.7 million for the state.
Locally, The Meadows Racetrack and Casino in Washington County awarded $64.7 million in free play in 2015, which was the third highest of the state’s 12 casinos. Rivers Casino on the North Shore dished out $54.5 million, the fifth highest.
While a solid majority of states that have gambling tax such promotional credits in some form, Pennsylvania would be the first to start without one and then add it, Mr. Freeman said.
In response, casinos likely would cut back on the promotional credits they offer, which in turn could result in revenue declines, he said.
“Taxing free play is a punitive approach at a time when partnerships are needed,” said Mr. Freeman, who was in Pittsburgh Monday to tout the economic impact of gambling locally and throughout the state.
He also maintained that the tax would hurt Pennsylvania casinos competitively. Ohio does not tax promotional credits, although West Virginia, Maryland and New York do in some form.
“When you pursue these kinds of tax proposals, you drive customers to alternative venues,” he said.
Mr. Pollock agreed that casinos likely would cut back on promotional spending should the tax be enacted. That could affect the amount of slot machine revenue the venues generate, he noted.
“Casinos, like any other business to some degree, manage to the tax. By that, I mean it becomes a very real part of the calculus when operators are determining their promotional strategy, how much to whom and under what circumstances,” he said.
Jeffrey Sheridan, Mr. Wolf’s spokesman, said the proposed tax is needed to help tame a deficit estimated at $2 billion or more. Mr. Wolf also has lobbied for an increase in the personal income tax and a severance tax on natural gas.
“[The promotional credit tax] is a piece of a larger sustainable revenue package designed to fix the deficit. If we don’t fix the deficit, we’re going to have to make drastic cuts to areas like education and human services,” Mr. Sheridan said.
Mr. Wolf, he added, is “willing to sit down and have a conversation about what a final package would look like.”
The use of promotional credits has grown drastically since the first casinos opened a decade ago.
In fiscal year 2007-08, it amounted to 7 percent of all gross terminal revenue, according to Mr. Sheridan. By fiscal year 2014-15, it totaled 26.6 percent. It climbed as high as 28.1 percent the previous fiscal year.
Original article: http://www.post-gazette.com/business/development/2016/04/05/Pennsylvania-casinos-could-face-new-tax-under-governor-s-proposal/stories/201604050061