PA House Passes H 271 With Drastically Reduced Tax Rate

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The Pennsylvania House of Representatives passed an extensive gambling expansion bill on Wednesday, bringing the Commonwealth tantalizingly close to legalizing online gaming in the state.

The legislation is the House response to bill H 271, which was passed by the Senate by a wide 38-12 margin late last month. Both bills would legalize online casino games and online poker, along with daily fantasy sports (DFS). They would also allow for the state lottery to sell its products online and authorize tablet gaming at select PA airports.

Tax Rates and Fees Still Unresolved

While both chambers agree on the broad strokes, there are several key details which need to be hammered out before a consensus can be reached.

Tax Rates Vastly Higher in Senate Version

One of those details is the ever-contentious issue of taxes. The Senate bill would impose an onerous 54% tax on slots and table games and levy a 16% tax on online poker. The House version would tax both casino and poker games at a flat 16%. That’s more in line with New Jersey, which legalized the industry in 2013 and imposes a 15% tax across the board.

Senate Pushed Higher, More Complex Licensing Costs

In addition, the Senate bill would require operators to buy separate licenses for online gambling and online poker at a cost of $5 million each. House lawmakers would require a single $8 million fee which would cover both.

Opponents of the Senate bill argue that the sky high tax rate and licensing costs would cripple the industry before it could even get started. Few operators, they believe, would invest the money to build online gaming sites knowing that they would have to fork out over 50% of gaming revenue to the government, on top of the $5-$10 million for their licenses.

Land-based casinos, on the other hand, can withstand the high slot tax due to the revenue they earn offering other amenities and services, like hotel stays, dining and nightlife options. Online gambling sites would have no such opportunities.

Senate Bill Would Crush Online Poker

Online poker, for its part, would be a virtual nonstarter under the Senate version of the bill, as few casinos could expect to reap profits after paying for their license. Even if PA poker rooms made compact agreements with New Jersey, Nevada and Delaware to share player pools, the pie would not be big enough to split between multiple operators.

In New Jersey, two companies have already shuttered their online poker sites due to lack of traffic. Currently four networks compete for the state’s limited online poker players, but it seems doubtful more than two will be able to flourish long-term.

iGaming advocates, including Rep. George Dunbar, argue that the state would be shooting itself in the foot to adopt the high Senate tax rate. He believes that not only would few operators sign up to participate, but those who did would be stuck operating on shoestring budgets. Sites would have difficulty bringing in new players without proper marketing funds and could even tarnish their brands by launching subpar websites.

Video Game Terminals

A final point of contention in the bill concerns video gaming terminals (VGTs), specifically whether they will be allowed inside businesses which hold liquor licenses. VGTs were passed by the House but were not included in the Senate bill. Brick-and-mortar casino operators are opposed the measure, which they believe has the potential to cannibalize their businesses. The issue of VGTs could even turn out to be a “poison pill” that sinks the bill entirely.

How We Got Here

In Pennsylvania, legislation which potentially generates revenue can only originate in the House. That said, representatives passed two online gambling bills in 2016, but neither garnered interest in the Senate. In the case of H 271, House lawmakers introduced the bill as a shell with a single item: airport terminal tablet gaming. The bill was then punted to the Senate, where it was filled in to their liking.

The Senate will reconvene on Monday, after which both sides will need to work together to find common ground.

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