Tax rate for PA online casinos likely to remain 54 percent for slots

PA Online Gambling Licensees Won’t Have To Be PA Casinos, Senator Says; Action Expected Next Week

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The Pennsylvania Senate plans to move a gambling expansion bill including online poker on Tuesday, Sen. Mario Scavello told Online Poker Report.

Scavello is the chair of the Community, Economic and Recreational Development Committee that is filling out H 271. He indicated in a phone interview that this bill could allow for entities other than PA casinos to apply for the state’s 12 open internet gambling licenses if casinos pass on the opportunity.

Why casinos might opt out of PA online gambling

Ten of the 12 Pennsylvania casinos have supported the legalization of PA online gambling. (One of the holdouts, Sands Bethlehem, is expected to be purchased by the pro-online MGM. Parx has also lobbied against iGaming, but may take part in it.)

However, some casinos are balking at a proposed 54-percent tax rate for slots, identical to what they pay in their brick-and-mortar establishments.

If casinos decide not to participate in online gambling at those rates, the state could lose out on tens of millions of dollars in upfront licensing fees. In order to mitigate that risk, Scavello said the committee is considering making licenses not taken by PA casinos available to other interested parties.

“We envision that we will have all licenses filled, and if it’s not by some of the land-based casinos then we might have to get some other companies who want to purchase a license,” Scavello said. “Not that we want to see that, but if no casinos take it …”

Scavello indicated that there are 12 casinos in the state and 12 licenses available. The casinos would have either 90 or 120 days from when the governor signs the bill to apply for a license, and then the application process would open up to all companies for any license remaining.

“They have a certain amount of time to make a decision, and if they decide they don’t want to participate then there might be someone that will,” Scavello said. “They’ll be vetted just like the casinos, but that offer will go out there.”

What is certain in gambling expansion bill

Scavello would only commit to two aspects of H 271 being set in stone: that online poker will be included and video gaming terminals will not be part of the bill. He expects the tax rate for online poker to be set at 16 percent.

The rest is still up for negotiation, including language for the local share tax on casino revenue.

Chris Krafcik of Gambling Compliance reported Tuesday that CERD was leaning toward offering separate iGaming licenses for poker and casino.

Scavello asserted that this is not the model he is supporting.

“Hopefully we will not have a separate license,” Scavello said. “My preference is 12 licenses – one license for both poker and casino – and my hope is casinos will buy and operate them all.”

Scavello added that he believed table games would be taxed at the same rate as poker, as they are in the  state’s land-based model.

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Why PA lawmakers want to tax online gambling at highest rate in world

The Pennsylvania Race Horse Development and Gaming Act of 2004 that authorized casinos in the state set a 54-percent tax rate on revenue from slot machines, the highest such rate in the country.

For more than a decade, the PA casino industry has thrived at that rate, and it has delivered dollars to the state.

Scavello noted that lawmakers’ main concern with online gambling is that it could take revenue from the brick-and-mortar casinos. If even one percent of casino revenue moves online, the state doesn’t want to get a smaller percentage of that revenue.

“Casinos are saying that online will have a negative effect on the inside of the building, and if it hurts the inside of the building then we need to protect ourselves too,” Scavello said. “Our concern is that if we put this bill through and they are affected on the inside, we lose those development dollars. We need a fallback, and I think the fallback is we need to have the same percentage they have now in the casino.”

It’s worth noting that only Sands and Parx advance that argument; the rest of the casinos believe that online gambling actually helps their land-based revenue.

Scavello admitted that he hears the argument that the online customer will be different than the brick-and-mortar customer, but that the legislature can’t take that risk for casino tax revenue on which the state depends.

“We want to protect our investment,” Scavello said. “That number will be finalized by Monday, and hopefully Tuesday we’ll have the vote. Could it be less? Yes it can. We just need to have a discussion in our committee on what we can support.”

Many sources, including OPR, have provided data on why online gambling is a different entity that can’t handle such high rates.

Land-based casinos generate added revenue for bringing customers into a casino (shopping, drinking, eating, entertainment, lodging) that don’t exist online.

In the successful New Jersey online casino model, casinos are spending more on advertising and player retention than is needed in their land-based casinos.

However, these arguments are not resonating with Pennsylvania legislators.

“The lottery is telling us they can do it at that number, so we’re saying if they, can then why can’t the casinos?” Scavello said.

Budget matters in PA

In moving H 271 to the Senate, the PA House of Representatives included a budget for the next fiscal year that requires $375 million from gambling expansion. Gov. Tom Wolf had previously requested $250 million. Scavello indicated that the Senate expectation will be closer to the governor.

The Senate projection includes the $100 million in licensing fees that was previously earmarked for the current fiscal year that expires in June. Scavello said that he doesn’t see it as possible to have this money in the current fiscal year, but having it a few months later for the 2017-18 year won’t make much of a difference.

An white paper by Robert DellaFave projects $172 million in state revenue from online gambling in the first year. That analysis requires all the licenses being bought and is based on a much lower tax rate than the proposal being advanced.

What’s next for PA online gambling

For a bill to pass in Pennsylvania, it needs support from 26 senators, 102 House members and the governor.

Scott Petri, chairman of the House Gaming Oversight Committee, has already told Online Poker Report that he agrees with the tax rates being pushed by Scavello.

“My goal is to move something to the House by Tuesday, and then the House can take a look at it,” Scavello said. “If they feel they need to adjust the number or anything else, it’s up to the House to do that and send it back to us for concurrence.”

Until then, details of the bill remain fluid and anything can happen.

“You’re in a negotiation – one person tells you one number and another tells you another number,” Scavello said. “We’ll see what happens. Anybody can walk into our offices and talk with us at any time. My office door always stands open.”

- Matthew began writing about legislative efforts to regulate online poker in 2007 after UIGEA interfered with his hobby of playing small-stakes online poker while working as a sportswriter at the Los Angeles Daily News. Covering the topic for Bluff Magazine, PokerNews and now Online Poker Report, he has interviewed four U.S. Congressmen and 40+ state legislators. His poker writing has been cited by The Atlantic, and Matt also has written on a variety of topics for Playboy Magazine, Men's Journal, Los Angeles magazine, LA Weekly and
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