Slot machine tax challenged by Rivers Casino
Every day, 2 percent of the cash earned by every slot machine at Rivers Casino goes to the city of Pittsburgh. In 2015, that amounted to $5.5 million. But it wasn’t nearly enough. At the end of the year, the North Shore casino cut a check for another $4.5 million to hand over to the city — representing the difference between what its slot machines produced and the minimum $10 million that Pittsburgh is entitled to annually under state gambling law.
Rivers Casino challenge to slots tax highlights big checks Pa. casinos have been writingJuly 21, 2016
Every day, 2 percent of the cash earned by every slot machine at Rivers Casino goes to the city of Pittsburgh. In 2015, that amounted to $5.5 million. But it wasn’t nearly enough.
At the end of the year, the North Shore casino cut a check for another $4.5 million to hand over to the city — representing the difference between what its slot machines produced and the minimum $10 million that Pittsburgh is entitled to annually under state gambling law.
Rivers Casino is no exception.
Last year, eight other casinos in the state ponied up anywhere from $2.4 million to $7.6 million in “true-up” payments to cover the difference between what their slot machines produced for local municipalities and the minimum $10 million they are required to pay their communities.
The municipal portion of the local share tax, enacted when slot machine gambling was legalized in Pennsylvania in 2004, is now the subject of legal challenges by Rivers and two other casinos — Mount Airy and Harrah’s Philadelphia.
Stakes have become high in the legal tussle — so high that Pittsburgh Mayor Bill Peduto canceled an appearance at Rivers Casino Wednesday for a Northside Chamber of Commerce event.
He felt “it is not appropriate to appear at the casino while it is making the city the subject of a lawsuit putting taxpayer funds in jeopardy,” spokesman Tim McNulty said.
Under the system being challenged, all casinos in the state are required to pay the municipal portion except those in Philadelphia and the resort casinos in Nemacolin and Valley Forge. The affected venues pay 2 percent of their gross terminal revenue if it exceeds $500 million or $10 million if it is less than that.
In its lawsuit filed last month, Holdings Acquisition Co., the Rivers Casino owner, claimed the provision “imposes unequal rates of taxation on slot machine licensees” and violates uniformity and equal protection clauses in the state and U.S. constitutions.
The law lacks uniformity, it maintained, because it ordains two tax rates on the same class of taxpayers depending on whether gross terminal revenues are above or below $500 million. That difference in treatment is “arbitrary and not rationally related to any legitimate government purpose,” Holdings argued.
Compounding the matter, at least in the eyes of Holdings, is that casinos in the city of Philadelphia pay 4 percent of their gross terminal revenue as the local share but are not subject to the $10 million minimum. Resort casinos pay 2 percent and aren’t subject to the $10 million minimum.
In the 10 years the state has been collecting the municipal share, no casino has ever exceeded the $500 million figure, meaning all have been required to write checks every year to hit the $10 million level. That’s despite the fact many would be paying much less based solely on revenues.
The way the system works is that the state collects 2 percent a day from casino slot machines and earmarks it for the municipal share. At the end of the year, the state calculates how much has been collected and how much each casino owes as a “true-up” payment to reach the $10 million.
Last year, Parx Casino, the largest in the state, shelled out the least, $2.4 million. Presque Isle in Erie, anted up the most, $7.6 million.
Rivers paid $4.5 million, while The Meadows Racetrack and Casino in Washington County paid $5.6 million.
The majority paid between $4 million to $5 million.
Christopher Craig, who helped craft the state’s gambling law as a lawyer working for former state Sen. Vincent Fumo, said the local share was added to help municipalities offset the costs, including police and infrastructure, associated with hosting a casino.
As for the 2 percent versus the $10 million, the legislature was seeking to strike a balance between the needs of the municipality and “not creating a burden” for the casino, Mr. Craig said.
The 4 percent was put in place for Philadelphia because legislators felt gross terminal revenues for casinos in that city would generate more than $10 million a year for the local share.
“People can go back 12 years and quibble with some of the public policy decisions,” Mr. Craig said. “At the end of the day, the act has been extremely successful.”
Should Rivers prevail, Pittsburgh would lose $10 million a year in revenue, though payments the past few years have been tied up in a battle with the Intergovernmental Cooperation Authority. Rivers also is demanding about $65 million in refunds for money it paid in the past.
Pittsburgh has been using the gambling funds to prop up its ailing pension fund, as required under the Act 47 recovery plan.
If the city loses the money, it would not be able to meet that state mandate or would have to cut $10 million from “core municipal services” to do so, Mr. McNulty said. The city intends to intervene in the lawsuit.
“The local share tax payments were one of the conditions for granting the casino its license, and it never should have taken this frivolous legal action,” Mr. McNulty said.
Like the city, Denis Rudd, a professor and director of hospitality and tourism management at Robert Morris University, doesn’t think the casino has much of a beef. He said there’s definitely a cost to the municipality in hosting such a venue “and that’s the reason they get a chunk of” the revenue.
Mr. Rudd conceded $10 million is nothing to sneeze at — even for a casino like Rivers that produced $272 million in gross terminal revenue last fiscal year, 54 percent of which went for taxes, including the municipal payment. But all casinos knew going in what the cost would be, he noted.
“They agreed to it, so they should have to pay it,” he said.