The Pennsylvania Supreme Court last week struck down the 0.5 percent tax on slot revenues created by a provision of the 2017 gaming expansion law to subsidize lower-performing casinos. The decision means the state will be handing out millions in tax refunds to the state’s 12 casinos.
The tax has funded the state’s Casino Marketing and Development Account, which grants funds to the lowest-performing casinos to use for marketing and capital expenses such as expansions and renovations. Sands Casino Resort Bethlehem filed suit in December 2017, before the tax was even implemented.
The panel of justices agreed with the plaintiffs’ argument that the fund violated state and U.S. constitutional requirements for uniform taxation, in that the highest-earning casinos were paying a disproportionate amount of the tax pie and getting the least benefit from the special fund.
The law, known as Act 42, provided that casinos with annual slot revenue of $150 million or less would get a mandatory distribution of $4 million from the fund. Casinos with slot revenue of between $150 million and $200 million would get a $2.5 million distribution and, lastly, a casino with less than $50 million in slot revenue would get a distribution of $500,000.
Based on the 2017-18 fiscal year, opinion noted, Mount Airy and Presque Isle would have gotten $4 million each, while Harrah’s Philadelphia Casino and Racetrack and SugarHouse Casino would be in line for a $2.5 million distribution. Lady Luck Casino Nemacolin would have gotten $500,000.
Meanwhile, the court pointed out that under the law, Bensalem’s Parx Casino, which generated more than $400 million in slot revenue in 2017-18 and put more than $2 million into the account, would not get a mandatory distribution. Parx and others would be able to apply for grants for the remaining funds, which the court noted would amount to a “small fraction” of what the casinos put into the fund.
Last summer, the Supreme Court ordered that all funds deposited into the special account be held in escrow pending the outcome of the case. According to a state Revenue Department official quoted by the Allentown Morning Call, there is around $21 million in the fund that will be returned to the casinos.
“Act 42 establishes a system specifically designed so that the taxpayers who pay the least into the CMDC Account are the most likely to receive a mandatory distribution from that account (and the less they pay, the more they receive), and vice versa,” wrote Chief Justice Thomas Saylor in the court’s opinion.
“Any advantage that a high-earning casino which does not qualify for an automatic distribution might receive from the gaming industry being ‘up and running’ through Pennsylvania is too speculative to be considered a benefit proportional to the amount of money it must pay into the CMDC account.”
The Sands lawsuit is one of three that have been filed since the gambling expansion law was signed late in 2017. Hollywood Casino parent Penn National Gaming sued over the law’s creation of mini-casinos, which it stated made the casino unfairly susceptible to competition from the satellite facilities. Penn dropped that lawsuit.
The other case, still pending, is a lawsuit filed by several casinos challenging the state’s online lottery games that mimic slot games, making them essentially online gaming competing with land-based licensees required to pay $10 million for an online gaming license. The plaintiffs also argue that they cannot compete with state revenues unencumbered by a tax burden that takes 36 percent of their online gaming revenues.
