The Pennsylvania Supreme Court is being tasked with deciding if a tax on casino slot revenue is unconstitutional because, unlike the top-rated sportsbooks, operators of electronic skill games are generally not being taxed at all.
Seeking a Level Playing Field
A dozen of the state’s 17 licensed casinos have collectively filed a lawsuit with the state’s highest court claiming the 50% tax on land-based slot revenue is unjust and unconstitutional based on the same taxation rules not applying to electronic skill games, often called gray machines, that dot the state’s bars, convenience stores, truck stops, and non-profit clubs.
The lawsuit contends that the playing field is unjustly uneven in that the 25,000 licensed slot machines contributed more than $1 billion annually in tax revenue to the state last year off of a slot handle that soared to $32 billion, generating revenues of more than $2.4 billion.
The lawsuit states, “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.”
Major players in the state’s casino industry, including Penn Entertainment and Caesars, are behind the lawsuit and are effectively battling the “gray machines” from a different angle after backing legal measures to have them ruled in the same category as slot machines, games of chance, as opposed to skill games.
The machines are virtually identical, with the only subtle difference being the user can take extra steps using “skill” to determine the outcome. Most users don’t go through the exercise and treat it as one would a slot machine.
Mike Barley, the Chief Public Affairs officer at Pace-o-matic, a major manufacturer of electronic skill games, explained, “A slot machine, you press the button, and you hope that you win or lose based on some math equation or algorithm that’s in the game. Our games don’t have that. On every single play, you can win… you can win up to 105 percent every time; it just depends on the way you play it.”
Neither the state Department of Revenue nor the Pennsylvania Gaming Control Board have commented on the lawsuit.
Competing Lawsuit
The state attorney general’s office has already filed a lawsuit asking the state Supreme Court to determine whether electronic skill games are truly based on skill after a lower court ruled that they were. Should the Supreme Court rule that they are not based on skill, then the entire skill game industry would be banned. The skill aspect of the machines is what allows them to operate separately from slot machines despite their striking similarities.
Skill game manufacturers, like Pace-o-matic, as well as distributors and retailers, argue that they are legal, albeit unregulated, devices that are not governed by state gambling regulatory laws. Pennsylvania has more of these electronic skill games than any other state, estimated to be around 67,000 devices throughout the Keystone State, according to the American Gaming Association.
Should this lawsuit prevail, it would likely make any other lawsuits moot, including the one filed by the state’s casino operators. At that point, electronic skill games would either be banned or subject to taxation.
