Proposed Tax on Pennsylvania Casinos Would Widen Budget Deficit

February 24, 2016

Washington, DC – A new proposal by Pennsylvania Governor Tom Wolf to bridge the state budget gap would cause tax revenues received from the Keystone State’s 12 casinos to decrease, according to a letter sent to Gov. Wolf from the American Gaming Association (AGA) today. AGA represents a majority of casino operators in Pennsylvania.

Earlier this month, the Governor proposed a new tax on promotional credit marketing programs, an important tool for casinos that incentivize customers to increase their real-money wagering, spur increased visitation and empower casinos to respond to market conditions, customers’ preferences and the broader economic environment. Promotional credit marketing programs in casinos are no different than grocery store coupons, which are widely used to attract more customers to purchase and consume more goods.

“While we appreciate the difficult budget deficit facing Pennsylvania, taxing promotional credits would likely lead to a decrease in tax revenue from casinos – the exact opposite of the intended result,” wrote Sara Rayme, AGA’s senior vice president of public affairs. “Taxing Pennsylvania casinos’ promotional credit programs will be an economic deterrent to casinos offering such incentives, and consequently, result in a decrease in patron play and lower tax revenues generated for state and local governments.”

If adopted, Pennsylvania’s policy shift on promotional tax credits would be unprecedented.

“No state has regressed from a policy of tax-free promotional credits to a subsequent policy of taxing them,” Rayme wrote. “Pennsylvania’s neighboring states are among those that have recognized the important role of this casino marketing tool and have refrained from imposing taxes on promotional credits. These states recognize that with competition among gaming states at an all-time high, casino operators must adapt and implement innovative business practices to effectively attract and engage customers.”

Every state that touches Pennsylvania – Ohio, West Virginia, Maryland, Delaware, New Jersey and New York – competes with the state for gaming dollars. AGA noted that imposing such a tax would only boost revenues from casinos for neighboring states.

“Increased taxes discourage reinvestment and prevent Pennsylvania casinos from meeting consumer demand, which, as we have seen in other states, leads patrons to seek these the latest gaming products in markets outside of the state. This would hurt Pennsylvania’s burgeoning casino industry and jeopardize jobs and millions in tax revenues,” Rayme wrote.

Further, not taxing promotional credit leads to greater economic benefits for the state. A 2015 study by Ekay Economic Consultants that analyzed taxation of promotional credits in Colorado, where the $6.9 million collected in taxes on promotional credits in 2014 resulted in a total statewide impact economic impact of $11.9 million. If casinos had retained the $6.9 million and spent it to either issue additional credits or to upgrade existing properties, the economic impact would have more than tripled to as much as $35.2 million.

“Pennsylvania’s 12 casinos already pay among the highest taxes of any casinos in the country. Yet few companies contribute to the Pennsylvania economy as gaming companies do. Each year, casinos in Pennsylvania provide more than $6 billion in economic impact, support more than 33,000 jobs and generate $2.4 billion in tax revenue when the significant ripple effect is considered,” Rayme wrote. “However, in order to maintain and build on these contributions, it behooves state legislators and regulators to view gaming companies as partners with the state and to seek progressive gaming policies. The tax treatment of promotional credits is just one of these important policies.”

In Pennsylvania, AGA represents Mohegan Sun Casino, Parx Casino, Harrah’s Casino in Chester, Hollywood Casino at Penn National Race Course, Sands Bethlehem, Rivers Casino in Pittsburgh, SugarHouse Casino and Lady Luck Casino Nemacolin in Farmington.

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Christopher Browne