Pennsylvania Governor Tom Wolf is proposing an 8 percent tax on any free play offered by the state’s casinos as a promotional incentive. Wolf included the plan in his proposal for the state’s fiscal 2016-17 budget. (The legislature has yet to approve a budget for 2015-16.)
Free play has been one of the main factors in the success of the Pennsylvania casino industry. Casinos are now permitted to deduct free play as a promotional expense, a factor that has largely mitigated the onerous 55 percent tax the state collects on slot machine revenue. The high tax left profit margins slim in Pennsylvania, which means the casinos are unable to offer the kinds of comps and freebies offered by neighboring markets with lower tax—in particular, Atlantic City, with an effective 9 percent tax.
Wolf and lawmakers have been discussing various expansion measures for gaming in the state, including slots at airports and OTBs and online gaming, as they struggle to approve a budget for the fiscal year that started July 1. Under Wolf’s proposal, the 8 percent tax on free play would be applied retroactively to this year’s budget, generating around $21 million to the state for the remainder of the fiscal year.
Wolf estimates the tax would generate nearly $51 million for 2016-17. However, operators have stated the tax could reduce revenues overall, because the additional cost would cause them to rethink the use of free play altogether. “Free play is one of the primary marketing tools that allow Pennsylvania casinos to compete,” Mohegan Sun Pocono President Mike Bean told Hazelton, Pennsylvania’s Standard Speaker newspaper. “We’d have to rethink using that tool.”
“Any time money is taken out, it’s going to affect reinvestment in the property and the creation of future jobs,” said Ron Reese, spokesman for Las Vegas Sands, parent company of Sands Bethlehem, in an interview with the Allentown Morning Call. “This proposal is bad for jobs in the Lehigh Valley and beyond. There’s certainly no shortage of taxes already being paid.”
