The Supreme Court of South Dakota recently ruled that free promotional play credits used as a promotional tool by casinos is not taxable play. In an appeal from the Sixth Judicial Circuit Court in the case of First Gold, Inc., Mineral Palace, LP and Four Aces Gaming LLC v. South Dakota Department of Revenue and Regulation, the justices said, “The only reasonable, natural, and practical interpretation of the gaming laws and regulations is that the value of free play is not included in calculating adjusted gross revenue and, therefore, is not adjusted gross proceeds under SDCL chapter 42-7B.” The court’s opinion is not retroactive.
Mike Rodman, executive director of the Deadwood Gaming Association, said, “This is a big win for the industry. This ruling will put us on an even footing with other gaming jurisdictions, like Nevada, that does not tax free play.” He noted on average nationally, free play is 15 to 25 percent of slot machine revenue per month. Locally, free play ranges from 8 percent in small casinos to 25 percent in larger casinos.
Mike Gustafson, owner of the First Gold and Deadwood Mountain Grand casinos said, after working to change the law for five years, “Obviously, we were overjoyed that the Supreme Court saw fit to agree with the complaint from the industry about the way tax laws were interpreted. The revenue department interpreted it one way and the industry felt totally different. I’m very happy the Supreme Court agreed with us.”
Gustafson said thousands of dollars in taxes are erroneously paid on free play by operators each month. “We tried to reach an agreement with the gaming commission and the department of revenue, but they would not listen to us, so the only recourse we had was to turn to the court system. My take is, from January 15 forward, we will just leave off free play in gross revenue.”
Ken Gienger, general manager at the Celebrity Hotel, stated, “It took some time in getting it accomplished, so we would like to thank the Deadwood Gaming Association and those companies involved for pursuing this issue and in successfully getting free play off of adjusted gross revenue and reducing the taxes we pay in. We have always felt that free play was not income and this ruling agrees with the gaming industry. The freeing up of these tax dollars will allow the industry to invest that money back into their businesses.”
Caleb Arceneaux, chief executive officer for Liv Hospitality, LLC, added, “We have long-held that free play should not be considered taxable play. I do know that it is a highly utilized method of marketing casino operations in Deadwood and its overall impact to the market is significant.”
Larry Eliason, executive director of the South Dakota Commission on Gaming, said he wasn’t sure when free-play taxation officially will end or how the gaming commission’s monthly revenue reporting structure will change.
The Deadwood Gaming Association currently is working on legislation in conjunction with the South Dakota Commission on Gaming to fulfill the mandate of Constitutional Amendment Q, which voters passed in November, to add craps, keno and roulette at local casinos.
