The Pennsylvania Supreme Court recently ruled that skill games are slot machines, so they are subject to the existing gaming and criminal laws in the state. Lawmakers in Pennsylvania have been in ongoing debates for some time about whether skill games should be part of the state’s formal tax structure. The decision of the court has accelerated the legislative debate.
The recent ruling effectively criminalizes the skill games machine operators, and they have a 120-day grace period before law enforcement can act. This gives lawmakers some time to come up with how to regulate the many skill game machines across the state. They are currently weighing regulation proposals that differ quite significantly on the proposed amount of the tax and the use of the tax revenue.
The Supreme Court rules skill games legal
Skill games are slot-like machines found in convenience stores, bars, restaurants, and social clubs across the state. These venues often rely heavily on machine revenue to stay open.
These skill games don’t contribute to tax revenue or operate under the strict laws that a regulated PA online casino must comply with. The operators don’t need licenses, while online casino operators must pay a substantial amount for them. The ruling of the Supreme Court will change the situation and help ensure that skill games are fair and operate within the bounds of the law.
Consensus on the tax rate is lacking
Lawmakers have been unable to reach a consensus on the proper tax rate, and now the clock is ticking. Governor Shapiro’s proposed budget sets the rate at 52% to align with the existing 55% tax on casino slot machines. This would generate about $400 million annually for state reserves. Senate Republican leaders previously introduced a proposal for a rate of 35% and reiterated support for the measure after the Supreme Court ruling.
Senate Bill 626 introduces a 16% tax, and proponents argue that a rate any higher than this will harm the small businesses and veterans’ organizations that rely on the money from the games. Another proposal by a bipartisan coalition is for a $500 monthly per-machine licensing fee.
Different funding priorities
The proposals differ in setting financial goals and establishing the public purpose that the tax revenue should serve.
House Bill 2046 would direct half of the tax revenue to the General Fund. A quarter would go to the Pennsylvania Standardbred Breeders Development Fund. The other quarter would go to the Property Tax Relief Fund.
Senate Bill 626 takes an environmentally based, local approach, with half of the tax revenue going to the Clean Streams Fund. Counties and municipalities would each receive 22% based on local skill game activity. The other 6% would go to the Bureau of Liquor Control Enforcement.
House Bill 2075 would direct half of the tax revenue to the General Fund and allocate portions to local counties and municipalities.
Oversight is a source of revenue
A large skills game market already operates in the state, and the machine revenue helps support the venues where these games operate.
Under House Bill 2046, proposed by Rep. Danilo Burgos, skill games would have to undergo testing to determine whether skill was the primary factor in determining outcomes. Operators and distributors would need state licenses.
Regulating the skill games market could generate a significant amount of tax revenue annually through taxes and machine fees. These games could become key contributors to economic growth as Pennsylvania currently has a structural deficit of nearly $5 million. However, lawmakers don’t want to rush into regulations that do not protect public health in the search for easy revenue.
Dealing with an uneven competitive landscape
The licensed casino industry in Pennsylvania has lobbied against skill games for some time, believing that they make the competitive landscape uneven. Skill game machines compete directly with regulated slots and yet don’t have to pay for licenses or taxes. They also don’t have the same oversight requirements.
In making the ruling, the Supreme Court said that the fact that skill games involve some minor element of skill is irrelevant and that a skill game meets the general definition of a slot machine in the state statute. The justices did note that their ruling isn’t necessarily the final word on skill games.
