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Rep. Scott Petri, chairman of the House Gaming Oversight Committee, told Online Poker Report that he doesn’t buy the argument that online gambling needs to be taxed at a lesser rate than brick and mortar in order for the industry to thrive.
“If a casino has employees and spends $700 million to operate, I don’t believe online can’t be successful at those rates,” Petri said in a phone interview. “They may not want to pay it. It may be more appetizing to place their capital in other states. But lowering the rate for online effectively will be penalizing casinos for having accepted the previous rate.”
Petri, a member of the PA House of Representatives since 2003, contended that this isn’t the first time Pennsylvania lawmakers have heard the argument from perspective gambling operators that tax rates could be set too high for the industry to be successful.
The same argument was made in 2004 when the state passed the Pennsylvania Race Horse Development and Gaming Act that legalized casino gaming.
That bill established the land-based casino tax rates in the state, currently set at 54 percent for slot machines and 16 percent for table games.
“We have the highest tax rate in the country for gaming, and yet one of the most successful casino industries in the country – I’d say the most successful in delivering dollars to the state,” Petri said.
Rep. George Dunbar, a regular online poker player himself before Black Friday, is the Pennsylvania lawmaker who colleagues turn to when they want expertise related to internet gambling.
In Dunbar’s comprehensive gambling expansion bill — H 392, a version of which the House passed last year before it stalled in the Senate — he calls for a 14-percent tax on gross gaming revenue to the state. This is similar to the successful model in New Jersey, which taxes online games at a 15-percent rate.
Dunbar is opposed to taxing online at the rate of land-based casinos, telling OPR earlier this month that “the higher tax rate would essentially kill internet gambling.”
Reporting by OPR has confirmed that taxing online gambling at the same rate of Pennsylvania casinos would likely cause the industry to fail.
This is because online gambling faces added costs in player promotions and retention, advertising, payment processing and geolocation. While it doesn’t have the overhead of a casino, this is negated by costs for the platform and content royalties.
Last week, Petri told the Associated Press: “In the end, the plan that causes the least disruption and the most and quickest revenue is going to come out on top.”
To advocates for internet gambling in the state, that seemed to be a positive quote, as upfront licensing fees from online gambling are no doubt the quickest way for Pennsylvania to get meaningful revenue.
However, in talking with OPR, Petri expressed that a lower tax rate for online gambling could be a potential disruption to the existing casino industry.
“It would lead to decreasing rates to casinos, or else it would force casinos to the internet and we’d have employees lose their jobs,” Petri said. “Who is protecting them?”
Since online gambling would be an expansion of offerings from land-based casinos rather than competition, most Pennsylvania casinos would welcome the lower tax rate for online.
Determining language for gambling expansion in Pennsylvania is currently in the Senate’s court. The House passed H 271 earlier this month, and though the only item in it is for authorizing terminal gaming in airports, Dunbar told OPR that the bill was being sent to the Senate to fill out as the intended vehicle for online gambling.
The legislation was referred to the Senate Community, Economic and Recreational Development Committee (CERD), which passed the bill unchanged but got it back from the Senate with instructions to add content.
There is urgency to act, as the current fiscal year with $100 million budgeted from gambling expansion ends in June, and a May 26 deadline to fix a local-share tax on casino slot revenue is fast approaching.
There was a joint hearing scheduled for next week between CERD and the House Governmental Oversight Committee, but it was canceled today due to scheduling conflicts.
Petri indicated that hearing was going to focus mostly on video gaming terminals, providing VGT proponents an opportunity to testify and make their case.
The legalization of VGTs, essentially digital slot machines at bars and truck stops, may be needed to reach the high projections of revenue the state expects to get from gambling expansions for the next fiscal year.
VGTs have their own bill in the Pennsylvania House separate from Dunbar’s legislation, but Petri noted that they may still be included in the comprehensive expansion bill.