1 It all comes down to tax rates
2 A 54 percent tax rate is a non-starter
3 The margins dont exist for a 54 percent tax rate Online gambling is on the clock again in Pennsylvania. The PA Senate CERD Committee will meet Tuesday. Its likely to discuss an innocuous-looking bill authorizing tablet gaming at certain Pennsylvania airports. The bill, H 271, passed the Pennsylvania House of Representatives earlier this month without much fanfare, thanks in part to its very limited scope. However, there is more to the bill than meets the eye. In an interview with Online Poker Reports Matthew Kredell, state Rep. George Dunbar said, We put in one thing, tablets in airports, and basically said, You load it up with what you want in it it puts the ball in [the Senates] court. In effect, the House passed it in order to give the Senate an opportunity to assemble the other pieces of a comprehensive gaming package that will meet revenue targets in the states budget. We dont yet know what pieces the Pennsylvania Senate may add. It all comes down to tax rates If a group of state senators gets its way, Pennsylvanias gaming bill would likely include the legalization and regulation of online gambling. This isnt necessarily good news for legal online gaming supporters, and like most things, the devil is in the details. In the case of the rumored Senate online gambling proposal, the structure of the bill would be such that Pennsylvanians wouldnt have access to licensed online gambling sites. That tax rate would be too much of a burden on casinos. According to reporting from Online Poker Report, a small group of state senators, led by Robert Tomlinson, are calling for online gambling tax rates that would mimic land-based taxed rates 54 percent for slots and 16 percent for table games. Tomlinson has long-called for such a tax rate, citing (wholly unfounded and downright absurd) concerns that casinos will cease trying to generate billions of dollars of revenue at their land-based properties in order to generate hundreds of millions in online revenue. Or as my colleague Robert DellaFave astutely put it: A 54 percent tax rate is a non-starter The 16 percent table game rate would be in line with other proposals. But the slot tax rate is a burden no online casino operator would be able to bear. The tax rate would not generate more revenue for the state or bolster casinos with a new, beneficial revenue stream. Instead, it would simply kill online gambling before it ever got off the ground. Based on publicly available revenue reports and talks with New Jersey online operators, its obvious online gambling doesnt possess the margins to withstand a 54 percent tax rate on online slots. If the state implemented such a tax rate, one of two things would happen. Neither of them would be helpful for Pennsylvania or the casino industry:
Operators would shun Pennsylvania, seeing no reason to part with the million-dollar upfront licensing fee when there is zero opportunity to ever turn a profit due to the excessive tax rate.
Daring operators would pass the burden on to the customer, ensuring the existence of a thriving black market with which the licensed operators would be unable to compete. The margins dont exist for a 54 percent tax rate Per Online Poker Report: More importantly, the entire premise for the 54 percent tax rate has no basis in reality, as detailed in the two columns below.
The Lower Tax Rate For PA Online Gambling Vs. Bigger Tax For Casinos Is A Red Herring
PA Lawmakers Should Understand This: Online Gambling Customers Are Not Like Land-Based Patrons