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The proposed tax rate has been the primary point of discord at two recent hearings held by the Community, Economic & Recreational Development Committee, with opponents reasoning that there’s no way they could operate profitably if the rate was instituted.
Given the struggles faced by ring-fenced online poker operations in Europe, they may be on to something.
If SB 900 were to be passed into law untouched, Pennsylvania would own one of the highest tax rates on Internet gambling gross gambling revenue in the world.
Even at rates that are less than half of what SB 900 is selling, European countries that have regulated online poker are struggling to remain afloat:
Pennsylvania’s online poker operation will hold a key similarity to those outlined above in that it will be ring-fenced, at least at inception. Only Pennsylvania’s population (12.8 million) is significantly smaller than any of the aforementioned nations.
What that means is that until Pennsylvania forges an interstate iGaming compact with another state or network of states, operators will be severely restricted in their ability to grow. To partially offset this built-in disadvantage, legislators must facilitate growth via other means.
The most obvious way to do this is to follow the example set by New Jersey, where Internet gaming taxes were set at a reasonable 17.5%.
SB 900 cosponsor Senator Robert Tomlinson has communicated fears that lower iGaming tax rates will compel casinos to redirect traffic from their brick and mortar venues to their online properties.
Nothing could be further from the truth:
If anything, high taxation will result in online operators instituting a series of cost-cutting measures, which will likely include:
What results is that fewer Pennsylvania residents will be aware of regulated online gaming, and of the ones that are, many will be turned off by the lack of player incentives.
For each online player lost, it’s one less opportunity for land-based casinos to inexpensively add a player to their database. Multiply that by several hundred thousand signups and it becomes apparent how much Pennsylvania’s online gambling industry has to lose due to misguided fears.
Most certainly. One of the most appalling arguments in favor of SB 900’s proposed tax rate is that it would match the rate imposed on land-based casinos.
Not exactly. Only Pennsylvania’s slot terminals are subject to a 54% tax rate. The tax rate on table games, including poker, is a more digestible 16%.
A strong starting point would be for legislators to acknowledge that land-based casinos actually pay closer to 45%* in taxes, and to amend SB 900 accordingly.
At least then, legislators are one step closer to bridging the gap between the tax rate proposed by SB 900 and that offered by Representative John Payne’s HB 649 (14%).
When the dust settles, the hope is that the tax rate on Internet gaming revenue will be under 25% – which in my estimation, is the highest rate the industry can reasonably sustain.
*This assumes that slot terminals account for 75% of annual casino revenue, which based on recent statistics, appears accurate.
Photo by GotCredit used under license CC BY 2.0.