There seems to be a lot of folks, recently, who have never been in casinos but are making pronouncements about how to regulate or run them. There’s nothing wrong with general Monday-morning quarterbacking, but in the gaming world, folks without a clue often have the power to do serious harm. The most recent example comes from Ohio, where the legislature’s Joint Committee on Gaming and Wagering has declared that since their studies show that there’s been no increase in gaming revenues in the last two years, there should no longer be a tax exemption for promotional credits (what some call free play). In other words, casinos should pay a tax on the money they give away free to their guests, since the casinos aren’t sending an increasing amount of tax revenues to the state.
I’ve often found that it can be useful, when dealing with ridiculous arguments about the gaming industry, to apply these arguments to the non-gaming world, to see if they make sense in a different context. So consider the concept of taxing more when revenues don’t increase. Can you imagine if a type of business (say, auto dealerships) saw lower sales in a year, a state would then respond with higher sales taxes (say, on new vehicle sales) because the existing (lower) tax rate didn’t stimulate more sales?
Here’s another example with a closer parallel. Slot machine “free play” is generally offered because casinos view it as a way to entice customers into the building. They hope that once a guest has used the complimentary play, they’ll also spend some of their own, “real” money. While some may argue that the return on such an investment is not always spectacular, it is an undeniable fact that spending of “real” money will be greater after such an investment than if guests remained at home, on their couches.
Most rational folks argue that free play is a form of promotion or advertising incentive and therefore should be exempt from taxes. Not the Ohio committee. They believe that taxes should be paid on everything that goes into a machine, free or not.
So let’s take their argument and apply it to a standard retail model. Walmart puts items on sale in the hopes that it will lure customers into the store. Sometimes the company publishes coupons in a Sunday newspaper insert. Wouldn’t Ohio’s argument be consistent with requiring Walmart to pay sales taxes based on the list (full) price of items, not the actual prices? (Can you imagine the impact on Macy’s, where everything has been “on sale” for decades?) Shouldn’t Walmart have to pay sales tax on all the coupons redeemed at its registers?
These are not as dissimilar arguments as one might think. New accountants auditing gaming establishment are often confused about how to handle casino books, because the main product is “cash.” Not televisions or bananas or tires – just cash. Casinos using free play are simply offering a discount on cash played, just like Walmart might gave you a 20% percent discount off the “regular price” of that large LED flat-screen in its electronics department.
Does anyone think that Walmart would have higher revenues and generate more in sales taxes if they stopped “price rollbacks” and eliminated all coupons? (Competitors would certainly cheer if Walmart made that decision.) Why would one think casinos would do better if they stopped all promotional play?
There are only 11 casinos in Ohio, but 172 Walmart stores. Did Walmart’s revenues in Ohio increase in 2015? If not, Walmart price discounts and Walmart coupons could be a tax-raising opportunity. Go get ‘em, Buckeyes!
Buddy Frank recently retired as VP of Slot Operations with Pechanga Resort & Casino and is now an industry consultant on various slot machine issues. He can be reached at buddy.frank@yahoo.com
