Spiraling taxes on gaming revenue could have a significant role in shaping the gaming industry’s future. That was one of the dominant messages delivered last week at the Global Gaming Expo (G2E) in Las Vegas.
The most troubling trend has been the rash of increased taxes on gaming revenues at the state level, according to Frank Fahrenkopf, Jr., president and CEO of the American Gaming Association (AGA).
"State legislatures have turned to gaming as a source of new or increased taxes to shore up budget deficits and shortfalls," said Fahrenkopf, citing Illinois as an example of runaway tax rates, which were increased to a 70% marginal bracket last year.
But rather than raise needed funds for the state, higher taxes have actually had a detrimental effect, Fahrenkopf said.
"Unfair tax rates have had the opposite effects of their intent, which is to raise revenue for the state," Fahrenkopf said.
In Illinois, Fahrenkopf said, the immediate impact of higher gaming tax rates has been a 10% drop in casino revenues, a reduction of casino hours and the halt of any new capital investment in gaming.
Moreover, higher admission rates at Illinois casinos (riverboats may charge admission to patrons) have driven some customers to nearby Missouri casinos.
"Since the increased taxes in Illinois, revenue at Missouri casinos has increased 5 percent," Fahrenkopf said.
Fahrenkopf vowed that the AGA, a national trade organization for the commercial casino industry, will focus some of its resources at the state level to educate officials about how sensitive gaming is to unfair taxes.
He added that the tax crunch facing the industry is similar to the recession of the early 1990s, when states had to make difficult choices — whether to cut services or raise taxes — to balance their budgets.
At the time, six states looked at gaming and eventually proceeded to approve gambling: Iowa, Illinois, Missouri, Indiana, Colorado, and Mississippi.
Those states passed legislation allowing for commercial casinos, most of which were "riverboat" venues, which also included dockside casinos.
Fahrenkopf said that today’s model is the racino, which makes use of a venue already approved for gambling (horse or dog track), but introducing casino-like gaming to the mix.
He cited Dover Downs in Delaware as an example of how a commercial casino can be built at a one-time horse track.
Legislation is currently pending in several states, including Maryland and Kentucky, that would allow adding casinos to racetracks.