PA Sen. Costa Introduces His Gaming Reform Bill, And It Comes With A Big Price Tag For The Industry

Third PA Online Gambling Bill Widens Divisions Over Tax Rates, License Fees

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A third online gambling bill has emerged in the Keystone State.

Four Democratic state senators in Pennsylvania, led by Senate Minority Leader Jay Costa, introduced an online gambling and gaming reform bill, Senate Bill 524.

Costa first floated this proposal in co-sponsorship memoranda in January. Three other state senators answered the call:

  • Sen. Wayne Fontana
  • Sen. Vincent Hughes
  • Sen. Judy Schwank

In addition to Costa’s bill, four Republican state senators introduced companion legislation to the House of Representatives gaming reform bill earlier this month. Legislation is also expected to be introduced by Republican leadership in the PA Senate.

Inside the newest online gambling bill in PA

Like its predecessors (the identical SB 477 and HB 392), SB 524 is a comprehensive bill that tackles a number of gaming reforms.

SB 524:

  • Legalizes and regulates online gambling.
  • Legalizes and regulates daily fantasy sports.
  • Reinstates the local share tax for host and surrounding communities.
  • Allows for multi-state progressive slot machines.
  • Authorizes skill-based and hybrid slot machines.
  • Permits tablet gaming at certain airports.
  • Eliminates the casino amenity requirement currently in place at Category 3 casinos in exchange for a one-time fee.

Most of the policies in Costa’s bill line up with the language in the other bills.

But SB 524 diverges in four key ways:

  • SB 524 legalizes online lottery.
  • The bill imposes a higher tax rate on daily fantasy sports and online gambling – 25 percent as opposed to 14 percent.
  • Costa’s proposal calls for a higher licensing fee of $10 million vs. $8 million.
  • SB 524 also charges a loftier rate for industry vendors – $5 million rather than $2 million.

The tax rate sticking point

The differing views of the Pennsylvania House of Representatives and Pennsylvania Senate when it comes to setting an online gambling tax rate has been one of the key issues holding up online gambling legislation.

The House’s 14 percent tax rate lines up with legislation in other states (the New Jersey online gambling tax rate is 15 percent). Industry data also points to this rate as the ideal that allows jurisdictions to generate revenue without handcuffing the industry.

The Senate’s more ambitious tax proposals are seen as nonstarters for the industry. In addition to Costa’s newly-suggested 25 percent rate, a Senate bill from 2016 called for a 54 percent tax rate.

A compromise on the proper tax rate for online gambling and DFS will have to be found in order for online gambling and daily fantasy sports legislation to move forward. The end result has to be no higher than 20 percent.

Several industry sources I’ve spoken with have indicated that 10-15 percent is the sweet spot, while a 20 percent tax rate would likely be insurmountable. A tax rate of 25 percent or higher would kill the industry before it even got started.

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- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
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