Expansion of Online Gambling Still Being Debated in Pa
Revenue & Supreme Court Ruling Driving Online Gambling Expansion
Pennsylvania legislators had released the State budget earlier this year that counted on $100 million in new tax revenue from online gambling expansion. When they left for recess in the summer, the Bill was left on the Senate floor for consideration in the fall. Now time has come for the Senate to move on the Bill but time is running out without any action thus far.
Last year, Pennsylvanian’s had suffered through one of the worst budget crisis’s in the State’s history. For approximately 9 months, Governor Wolfe held out on approving the budget and consequently, caused difficulty with taxpayers. Many services had been cut, terminated or left in limbo. Hopes were that the State would not go through those same difficult times in the 2016-2017 budget period but that does not look likely.
Another Budget Debacle in the Making
At issue is the tax revenue line item brought about by online gambling expansion. Currently, Pennsylvania does not permit online gambling. Only bricks and mortar sites are licensed gambling operations. But HB 2150 set forth to change that and permit online gambling expansion. The Budget had conservatively allocated $100 million in line item revenues to the expansion. But this is predicated on permitting the expansion to proceed.
Lawmakers are conflicted. Many feel that further reliance on gambling revenues is detrimental to Pennsylvania. The perception of gambling facilities with much of the lawmakers remains negative. In the past, lawmakers were almost forced to permit gambling in order to plug the holes in the budget. Now they are in the same position all over again. Be it not for the additional online gambling expansion revenues, Pennsylvania lawmakers will need to raise both the state income tax to an estimated 4.9% and increase the sales tax from 6% to 7%. Both are near political suicide in an election year.
But failing to resolve the budget by kicking the can to 2017 will not bode well either. Pennsylvanian’s have already been affected by last years’ cuts causing difficulties in education funding and social programs. To make the same mistake again will permanently cause injury to their tenure. Further hesitation will be harmful to the revenue streams even if passed. Casinos will need time to ramp up and generate slot proceeds. $100 million might still be a hard mark to hit if casinos do not get the go ahead soon.
Supreme Court Rules Tax Unconstitutional
In another related issue, the Pennsylvania Supreme Court had recently ruled in favor of Mt Airy Casino Resort in their suit claiming the tax rate on casinos is unconstitutional. Mt Airy had objected to a minimum tax rate of $10 million dollars on slot revenues. The current tax rate is the greater of 4% of slot revenue or $10 million. Since Mt Airy is a smaller casino compared to others in the state, their slot proceeds are taxed at the minimum amount. In such, the effective tax rate then is higher for Mt Airy by virtue of being a smaller casino. For that reason, the State is then disproportionately taxing casinos differently. This, Mt Airy has successfully argued is unconstitutional.
Lawmakers now have a short window to remedy the Mt Airy ruling. This might help online gambling expansion in the state move forward since the two can be correlated together. Losing any additional tax revenues from the casinos will cause municipalities significant difficulties with their local budgets as well as that of the state.