Sure, casinos are worried about revenues, but the entities they need approval from in order to operate — state governments – also are looking at what’s best for their bottom line.
And with that in mind, legislators are examining their strategies for taxing casinos.
“We see it very much as an emerging issue,” said Michael Pollock, managing director of Spectrum Gaming Group.
Pollock will speak on a panel and Spectrum will help state leaders compare notes at the summer meeting of the National Council of Legislators from Gaming States, which runs July 29-31 in Boston. NCLGS is a non-partisan organization of state lawmakers who meet to discuss issues in regard to gaming. The organization does not support or oppose gaming.
Pollock said that taxation policy is going to become increasingly important for states. He notes that New Jersey taxes slot machine revenue at 8 percent, while neighboring Pennsylvania taxes it at 55 percent, yet Pennsylvania has crushed Atlantic City gaming revenue over the last decade. He also reminds us that although regulators are increasingly cooperative with one another, state legislatures that make the laws often have vastly different tax and regulatory objectives.
“We at Spectrum see it more and more in the sense that states recognize more competition on their borders and dealing with policies and taxes set in place several years ago, often for political reasons,” said Pollock, whose company has worked in 36 states, frequently researching the market either for state governments or business clients.
“How do you attract capital investment? How do you have a different business model? It’s not just a question of lowering the tax rate,” Pollock says.
The cautions come because a state could lower its tax rate to encourage more investment, but see companies just taking the money and investing it elsewhere.
“It’s has to be a policy to inspire investors to invest and to guaranteed adequate return on that investment,” Pollock says. “You don’t want to just give them a tax break and hope for the best.”
Lower tax rates do generally help increase entertainment entities, according to Eugene Christiansen, the chairman of Christiansen Capital Advisors, in a study commissioned by the American Gaming Association.
“Lawmakers electing single-digit rates are putting economic development (and diversified entertainment) and long-term government revenues first and short-term government revenues second,” Christiansen wrote.
NCGLS President Helene Keeley of Delaware adds that “there’s give and take all the time.”
“With the competition in Pennsylvania maybe that higher rate may not be affecting the state right now but if New York state starts to expand or Ohio starts to expand, then Pennsylvania will have to look at it and say, ‘Whoa, maybe this is too high.’
“As competition continues in the region, I think the Penn legislature will have to revisit that.”
Delaware, which faced an $800 million deficit in 2009 – a major problem for a small state – raised the tax rate on casinos in 2011 while also raising personal income tax, she said.
“With competition from Maryland and Penn I personally believe we put our racinos at a disadvantage. So several people have been trying to get that tax rate lower,” she said.
Legislators, casino executives, regulators, attorneys, and others with an interest in gaming will convene for NCLGS’s July meeting, which is open to the public via nclgs.org. Penn National Gaming President and CEO Timothy J. Wilmott will give the keynote address. Other topics at the meeting include responsible gaming, pari-mutuels, lotteries, daily fantasy sports, and a case study of the complicated Massachusetts market.
