PA online gambling tax rate of 54 percent likely to be lowered in House

Changes Coming To Senate’s PA Online Gambling Bill? Lawmaker Says House Likely To Lower Taxes, Fees

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Sometimes it seems as though state Rep. George Dunbar is the only sane member of the Pennsylvania legislature, or at least the only one thinking rationally on how best to conduct online gambling in the state.

In an interview with Online Poker Report, Dunbar said that this is not the case, asserting there are lawmakers in the state who understand that internet gambling will not succeed at the rate and fee structure prescribed in a bill passed Wednesday by the Senate.

“The senators I’ve talked to don’t agree with the narrative being presented with the bill, but they wanted to get it through,” Dunbar said. “Plenty of people in the building know what is going on. I have a lot of faith that the leadership team grasps this issue very well and will talk to the right people before final decisions are made.”

What will the House do with PA online gambling?

Dunbar expects the House will further amend the bill —H 271 — in the next two weeks and send it back to the Senate. He indicated that the bill is heading to the House Rules Committee, chaired by House Majority Leader Dave Reed, in its first step for concurrence.

“I don’t think that’s the final product at all,” Dunbar said. “The $5 million license fee for peer-to-peer games isn’t going to fly because no one is going to pay $5 million just for poker, as they’d never be able to recoup that money, and I don’t know who is going to buy a non-peer-to-peer license with that tax rate.”

Dunbar noted that he spoke with Reed on Wednesday to make sure that he has the opportunity to provide input for the process of amending the legislation.

Author of the gambling expansion bill that passed the House last year — H 392 — Dunbar is considered the foremost expert on iGaming in the statehouse. He even regularly played online poker prior to Black Friday in 2011.

Dunbar identified the needed adjustments as not having separate licenses for poker and casino games, and lowering the tax rate on casino games. He stated that he will continue advocating for the figure in H 392, which is 14 percent for all online gambling.

Pushing back on the Senate’s stance on online gambling

The Senate Community, Economic and Recreational Development (CERD) Committee, which filled out the legislation, made the 54 percent tax rate for online slots and table games equal to the tax rate of slots for the state’s land-based casinos.

The reasoning presented by that committee’s chairman — Sen. Mario Scavello – to Online Poker Report earlier this month was that the state fears casino revenues moving from brick-and-mortar to online, lessening the funds going to the state if online is taxed substantially lower. Casinos could even direct consumers to move online in order to pay fewer taxes.

Dunbar views the first assertion as untrue and the second as ridiculous. Data shows that online gambling is more likely to increase revenue inside the casino, increasing the state’s coffers in two ways.

“There’s some potential for a minor amount of cannibalization, but also the potential of reaching a new, younger customer,” Dunbar said. “To get even one of 10 new online customers to come into the casino itself is worth it. The margins online are not nearly as lucrative as people want to believe, and it has been proven in Atlantic City how online gaming is helping their brick and mortars.

“Casinos are never going to push patrons online because there are a lot more to casinos than just gaming. Casinos want them in the building, where they can use some of the other amenities, stay in the hotel, use the restaurant, drink at the bars.”

Dunbar pointed out the fake pretense in using cannibalization as the reason for higher rates, in that online table games such as blackjack are set at the same 54-percent rate, despite being 16 percent inside the casinos.

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Does PA want to buck conventional wisdom on iGaming?

Dunbar asserted that he has heard only one casino express the narrative carried by CERD regarding potential for cannibalization requiring prohibitive tax rates equal to those in brick and mortars. Parx Casino, the top revenue-generating casino in Pennsylvania, has argued that a lower tax rate would result in less tax revenue for the state.

“The concern is that I have the largest market share so, if we have internet gaming and I don’t have the type of internet gaming platform or relationships to be successful, those individuals may be going to a different casino than mine and I may lose market share,” Dunbar explained, adding that refrain is reason to support lower online fees because it backs up that iGaming drives people into the casino.

Dunbar stressed that cannibalization justifying higher tax rates is not conventional wisdom among the industry in general, and that he was confident House leadership would reach out to all stakeholders and take their positions into account.

Other forms of gaming are still in play

Dunbar also contended that the state revenue that would be generated from the bill as filled out by the Senate wouldn’t come close to reaching the money the state needs from gambling expansion to balance its budget, particularly if no one wants to take part at the 54-percent tax rate.

Even if the expansions laid out in the bill are successful, he said that either off-track betting parlors or video gaming terminals – which weren’t addressed in the Senate bill – would be necessary to meet the revenue the state needs to generate.

“We did the budget counting on revenues from gaming that aren’t in this bill,” Dunbar said. “If that’s how the Senate wants to do it, we have to discuss where we’re going to find the revenue to balance the budget. What’s the alternative? Is it gaming and a personal-income tax increase, or is it a sales tax increase? What other alternatives do they want to put on the table to cover the revenue shortfall?”

After the House twice passed gambling expansion bills last session only to have them ignored by the Senate, Dunbar told OPR earlier this year that H 271 was being sent to the Senate as a shell bill for them to fill out.

The plan worked, as the Senate has now passed a bill with online gambling. That’s the positive.

“We’re a step further than we’ve ever been,” Dunbar said. “It’s not a great step, but it’s a step.”

- 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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