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In the wake of a new lawsuit filed by Pennsylvania casinos, the chief executive of Penn Entertainment has pledged his company’s continued opposition to the proliferation of skill-game devices that “sound, look and smell” like slot machines.
The legality of skill-game machines that operate without being taxed or regulated like slot machines in casinos is scheduled to be heard by the Pennsylvania Supreme Court.
The state’s Supreme Court agreed in June to determine whether the terminals are unlicensed gambling machines, accepting Pennsylvania Attorney General Michelle Henry's appeal of a lower-court decision that found the games are based on a player’s ability, not solely chance.
Pennsylvania's licensed casinos have upped the ante, however, filing a lawsuit last month in the Supreme Court seeking a declaration that taxes applied to casinos' slot machines are unconstitutional as no such taxes are applied to skill-game machines.
“We have been very vocal in our position that these skill games … sound, look, smell like a slot machine and there is a lot of concern around that,” Penn CEO Jay Snowden said Thursday (August 8) when asked about the case during the company’s second-quarter earnings conference call.
“Obviously, we continue to fight against what has been a rapid expansion of skill-based games in Pennsylvania through the court system,” Snowden said. “We think that we have a very strong position there.”
Snowden stressed that the gaming industry was “very much aligned on fighting against the expansion of skill-based games, not just in Pennsylvania, but around the country”.
“So, we’ll see how things play out in Pennsylvania, but I think that my comments speak for themselves in terms of our position,” he added.
Snowden did not offer a timeline for when the state's Supreme Court might rule on the legality of skill games.
Penn, which operates four casinos in Pennsylvania, joined with the owners of eight other casinos to ask the state’s high court to declare the 54 percent tax on slot-machine revenue unconstitutional because the state does not impose it broadly on skill-game terminals.
The 40-page lawsuit, filed earlier this month, could threaten the almost $1bn in taxes generated by more than 19,000 slot machines that are paid to the state, municipalities and counties. The lawsuit was filed by Penn, Caesars Entertainment, Cordish Cos. and other operators against the Pennsylvania Gaming Control Board (PGCB) and state's Department of Revenue.
“Pennsylvania’s licensed gaming operators support tens of thousands of quality jobs and contribute billions to Commonwealth communities in capital investments and tax revenue,” Chris Cylke, senior vice president, government relations with the American Gaming Association (AGA), said in an email on Friday.
“Meanwhile, skill-game companies have consistently exploited legal loopholes and political processes to grow their unlicensed operations in the Commonwealth while avoiding paying their fair share of taxes,” Cylke said. “This stark contrast gives legal operators every right to ask the court to address the current double standards that the Pennsylvania Constitution seeks to prevent.”
The owners of 12 of the state’s 17 casinos are asking the state’s high court to apply the same take rate to skill games or to bar the collection of taxes from slot machines.
“There is no basis for requiring licensed entities to pay about half of their slot machine revenue to the Commonwealth while allowing unlicensed entities to pay no tax on such revenue,” the casino-owners argue in the lawsuit.
Executives from Pace-O-Matic, the most prominent supplier of skill-game machines in the U.S., have expressed their opposition to any tax rate on skill machines of 54 percent, arguing that the company's products are not gambling.
Pace-O-Matic continues to lobby Pennsylvania lawmakers to support a bill proposed by Republican Senator Gene Yaw that would apply a 16 percent tax rate to skill games, with the state's Department of Taxation proposed as the regulator of skill games, rather than the PGCB.
The Pennsylvania casino operators claim that the state's slot machine tax violates the so-called Uniformity Clause in the state constitution in two fundamental ways.
“First, there are numerous unlicensed entities in the Commonwealth operating devices that annually earn billions of dollars in revenue which, if earned by a licensed casino, would be taxed as slot machine revenue under the Gaming Act. Because the devices are operated by unlicensed entities, the revenue from those slot machines is not subject to the Gaming Act’s slot machine tax,” according to the lawsuit.
The gaming companies argued that this violates the Uniformity Clause because it imposes two different taxes — either about 50 percent or zero — on the same class of property, namely slot machines.
“Second, the Gaming Act unlawfully imposes different taxes depending upon whether a slot machine operator is a casino licensee or not,” the casinos' lawsuit states.
“All slot machines — whether operated by licensed operators or unlicensed operators – are a single collective class for purposes of taxation, because they serve the same purposes and therefore, they must be taxed uniformly,” the lawsuit reads.
Asked about the lawsuit, the PGCB told Vixio GamblingCompliance it was “aware and reviewed the lawsuit but are not offering any comment on it”. The state's Department of Revenue similarly said it did not “have any comment on this legal action at this time”.
