[toc]In a rare bit of good news for US online gambling proponents, a comprehensive gaming reform bill passed through the Pennsylvania Senate by the wide margin of 38-12. Included in the bill (HB 271) are clauses that would see online gambling taxed and regulated within state lines.
This, just one day after the bill easily passed through two Senate committees.
While a definitive victory for the pro-gambling crowd, the Senate passage is just one step in a long stairwell toward passage.
What happens next?
The legislation will make its way back to the House of Representatives. There, it will likely be amended before returning to the Senate. This process should happen in June.
There are a number of amendments that could be made in the House, some of which are related to online gambling.
- Licensing fees: The current legislation calls for separate $5 million licensing fees on both peer-to-peer (online poker) and non peer-to-peer (online casino) games. The House may attempt to lower the price of entry, or have it count against future taxes owed.
- The tax rate: As it stands, the tax rate is set at an oppressive 54 percent on all non peer-to-peer games. That’s higher than the land-based rate of 54 percent on slots and 16 percent on table games. It’s plausible that the House — which twice passed online gambling legislation in 2016 with a 16 percent tax rate — will amend the rate down to something more reasonable.
Possible non-iGaming amendments
It’s also at least conceivable that the House will try to push the inclusion of video gaming terminals (VGTs) at bars, OTBs, and truck stops as part of the legislation. Although given the Senate’s general opposition to VGTs, it’s more likely that the House will either send VGTs over as a standalone bill, or drop it entirely.
Then there is the local share assessment fix, which is currently coupled with the gaming reforms. The fix, which was devised in response to last year’s state Supreme Court ruling that the LSA was constitutional, will require casinos to pay $10 million a year to local governments.
The LSA fix is currently the most pressing issue (the soft deadline is May 26), so it’s therefore conceivable that if lawmakers can’t agree on the particulars of other gaming reforms soon, that the House will decouple the fix from the rest of the legislation.
Suffice it to say, a decoupling would not be a good look for online gambling legalization.
2/ In PA, if gaming expansion and LSA fix remain coupled, positive for expansion proponents; if decoupled … not a good sign, IMO.
— Chris Krafcik (@CKrafcik) May 24, 2017
Of course, it PA doesn’t legalize gaming reform by the end of the budget year (June 30), then it will be leaving the $100 million earmarked for expanded gaming in this year’s budget unfulfilled.
What will final tax rate on online gambling look like?
It’s difficult to say. On one hand, if the House lowers the tax rate on online gambling by a significant degree, then it may cause some Senators to flip from Yeas to Nays. Lose enough votes and the legislation fails to pass.
On the other, if the tax rate remains closer to 54 percent than 16 percent, then the industry will find it nearly impossible to thrive, especially if the high tax rate is paired with a sizable and non-refundable upfront licensing fee.
Truthfully, it’s doubtful that Pennsylvania will enjoy the same lenient tax rate as New Jersey online gambling operators (15 percent) — a rate that we feel is optimal for both state and operators. More likely, the two houses will meet somewhere in the middle (30 percent on balance), creating a difficult, but not impossible environment for license holders.