Pennsylvania casinos have a question: why should they pay a 54% tax on slot machine revenue while other businesses pay no taxes on the income they earn from operating similar, unregulated machines known as skill games?
Twelve of Pennsylvania’s casinos effectively raised that question to the state’s Supreme Court earlier this week. The casinos filed a lawsuit on Monday, July 29, asking the court to rule that slot machine taxes are unconstitutional since the state does not apply the same rules to skill game machines.
Separate from the lawsuit, the Supreme Court will make an upcoming ruling on the overall legality of Pennsylvania skill games. The decision will affect many retailers that supplement their revenue with options like skill games, lottery draw games, and Keno.
Details of the Pennsylvania casino skill game lawsuit
Skill games have been a highly-contested topic in Pennsylvania since before 2020. As you might imagine, the state’s casinos view them as a threat to their businesses and want them outlawed.
Slot machines are the bread and butter for Pennsylvania casinos. Taxed at 54%, slot revenue generates more than $1 billion annually for the state, the most in the US.
The casinos involved in the lawsuit include:
- Hollywood Casinos (Penn National Race Course, The Meadows, Morgantown, and York)
- Live! Casinos (Philadelphia and Pittsburgh)
- Parx Casinos (Bensalem and Shippensburg)
- Wind Creek Bethlehem
- Harrah’s Philadelphia
- Rivers Casinos (Philadelphia and Pittsburgh)
The lawsuit claims:
“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.
“Accordingly, Count I seeks a declaration that the Gaming Act’s slot machine taxes are unconstitutional insofar as they apply to revenue generated from all slot machines in licensed casinos but not revenue generated from slot machines operated elsewhere in the Commonwealth.”
A mere formality or a serious claim?
The lawsuit raises a legitimate claim about unfair and unequal taxation. That said, a ruling in the casinos’ favor would result in the state cutting off a ten-figure revenue source.
That result is extremely unlikely to occur. As such, the lawsuit makes a louder statement about skill games’ legality and lack of taxation than anything else.
Any future discussions on the matter will hinge on the state Supreme Court’s decision on the legality of skill games.
A ruling that these games are illegal would render the discussion moot. Any machines remaining in operation after such a ruling would violate state law and subject the owners to legal penalties.
If the court rules the games as legal, discussions will continue about whether or not to regulate the industry.
Because skill games are unregulated, it’s impossible to know how many skill game machines exist in Pennsylvania. According to the American Gaming Association, it could be well over double the 25,000 legal, regulated slot machines at in-state casinos.
Different models for regulating skill games project that they will bring the state as much as $300 million in tax revenue after two years.
Arguments for and against PA skill games
Skill games function similarly to slot machines, but require a skill component. Some state officials support skill games and the financial benefit they bring to small businesses statewide, including restaurants, bars, and convenience stores.
Others believe skill games should be illegal, citing that:
- They have no fundamental difference from slot machines
- They jeopardize the safety and well-being of citizens and entire communities
A third camp wants to legalize and regulate skill games. Currently, there’s no way to ensure that every machine has verifiable, fair odds for players to win and actually requires a skill component that separates it from a slot machine, whose outcomes depend solely on chance.
Multiple bills were proposed during the 2024 legislative session, including one from Gov. Josh Shapiro to tax the games at 42%. However, the state removed all skill games language from its FY 2024/2025 budget.
Skill game manufacturer Pace-O-Matic also wants the games regulated. It believes some of the skill games in Pennsylvania and throughout the US are legitimate, and others are not. Thus, POM wants to weed out the bad actors, while facilitating a landscape that benefits all parties involved.
Photo by Virrage Images via Shutterstock
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