Regulation and Taxation is Becoming a Moving Target


The legislative response to competition from neighboring states is really starting to gain some momentum. Pennsylvania, Indiana, Delaware, Rhode Island and Connecticut are all trying to help local casinos compete in an increasingly crowded environment. The casinos themselves are of course behind the initiatives. In most cases they suggest the measures they believe will be the most beneficial in their specific conditions. It is not always a straightforward issue as there is often more than one constituency. Ohio, Indiana and Illinois, for instance, each have more than one kind of “casino” and therefore need more than one kind of fix.

In Indiana, there are two separate gaming forces, the casinos and the racinos. The racinos want to become more casino-like and add table games. The casinos would like to pay less tax and to leave the riverboats behind and move onto land; both would like to pay as little tax as possible. And that idea is not very popular with the host cities that have grown quite accustomed to the gaming revenue. In Rhode Island, the legislature is preparing to authorize a hotel at Twin River Casino.

House-approved legislation authorizing Indiana’s riverboat casinos to move on land adjacent to their docks unanimously cleared the first of two Senate committees…also provides state tax incentives for new casino construction, continues a “free play” tax credit for casino marketing programs, permits live dealers at the state’s two horse track casinos. Dan Carden, Northwest Indiana Times, 3-19-15

The House Finance Committee has approved legislation that would allow Twin River Casino to build a hotel on its Lincoln property. Associated Press, 3-18-15

The casinos in Pennsylvania want to reduce the costs of regulation and they want to insure that there will not be any additional in-state competition. Pennsylvania has the highest tax rates and that level of taxation will not be sustainable for long. However, tax is a backburner issue, but only at the moment; it will get moved to the front burner when the casinos begin to open in New York and Massachusetts.

The state’s casino industry is asking lawmakers to block legislation that would legalize video gaming terminals because they would “cannibalize” existing gambling revenue, which has declined the past two years. Brad Bumsted, Pittsburgh Tribune-Review, 3-18-15

“In order to reverse the Pennsylvania gambling industry’s negative trend” — Pa. casino tax revenues slipped from $1.40 billion in 2012 to $1.32 billion last year — the state should pass this list of friendlier casino laws, according to a letter from 10 casino chiefs…Reduce staffing and other costs by easing mandatory minimum casino staffing rules and other unnamed “strict regulatory requirements; Pass a 24-hour casino alcohol service law…Grant reinvestment tax credits for 1) updating casinos, 2) marketing to out of state patrons. Joseph N. DiStefano, Philadelphia Inquirer, 3-18-15

In Delaware, the casino would like to pay less tax. The level of taxation is going to become a major issue in most jurisdictions. The taxes in Delaware, and all of the states in the region, were established in much better days when the casinos faced little or no competition and it was one of the ways casinos were sold to lawmakers and voters. Indiana is the first state to attack the problem, but others will follow.

Two states, Idaho and Connecticut have a unique problem; the casinos they are trying to protect are Indian casinos. Although not taxed in the traditional sense, the Indian casinos are important to the states’ economy. The states took opposite tracks, one choose to eliminate internal competition and the other to allow for expansion to fight external competition. In Idaho, the tribes felt threatened by the slot-like, historical-horse racing machines and asked the legislature to reverse its decision and make them illegal. The race tracks are naturally against the idea, but for the moment the tribes have more leverage. In Connecticut, the two existing Indian casinos are lobbying for the right to operate at least one more casino in the state. The tribes don’t pay tax, but they do give the state 25 percent of their slot revenue. Even in these depressed days, it amounts to over $200 million a year and is important to the state’s budget. The tribes want to work together and put casinos closer to the Massachusetts border to try and retain some of the Massachusetts customers.

Legislation that would ban Idaho’s lucrative slot-like betting machines has only one more hurdle to clear before heading to the governor’s desk… The Coeur d’Alene Tribe-backed legislation would require removal of the machines July 1…Idaho law permits the tribes to operate gaming machines -not that dissimilar to instant racing terminals- under a voter initiative passed in 2002. Kimberlee Kruesi, Associated Press, 3-19-15

A proposal to expand casino gambling in Connecticut advanced Thursday, passing a vote of the legislature’s public safety committee. The bill, An Act Concerning Gaming, passed with a wide margin built on concerns that a lack of action in Connecticut would leave the state’s two casinos without a response to competition building in neighboring states, especially Massachusetts. Brian Dowling, Hartford Courant, 3-19-15

Massachusetts is still several years away from the opening of its three major casinos. However, the racino to be operated by Penn National is scheduled to open in June. Racinos may not be as much competition as a regular casino, but they are competition. Genting Aqueduct racino in Queens has had a huge impact on the casinos in Connecticut, but the casinos in Massachusetts will be worse. Approximately half of the customers at Foxwoods and Mohegan Sun come from Massachusetts.

The pressure to do something to mitigate the impact of out-of-state competition will increase as Massachusetts and New York move closer to opening more casinos in a region already saturated. The two issues that will surface over and over are the costs and limitation imposed by regulation and taxes. Each jurisdiction will use different measures, but each will do something. Even Massachusetts and New York will be forced to revise their gaming regulation and taxes within a year or two of the opening of the casinos. There will be too many casinos in the region and to compete, the casinos will need conditions that are comparable.  One thing is certain, regulation and taxation is going to become a moving target in the Northeast gaming market.

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