[toc]It is a watershed moment in this year’s quest to bring regulated online casinos to Pennsylvania. The legislation is still alive, but the debate now is twofold:
- How to tax it
- Who will operate it
History has shown there are answers to these questions that are more profitable than others. That is not stopping legislators from extensively debating options and strongly considering measures which could kill online casinos before any even get off the ground.
This could be dire news for the cash-strapped state. Budget proposals include $375 million in additional gambling revenue for the state next year. The budget does not explicitly define this additional revenue as online casinos. Nonetheless, the numbers do match up with the kind of money Pennsylvania online casinos could generate.
Those estimates are based on running Pennsylvania online gambling optimally. If tax rates are not reasonable and there is no competitive market of experienced operators, revenue could come up short.
What follows is a list of reasons and resources to help explain why these issues are vitally important. Moreover, these links articulate why casino-operated online gambling sites with tax disparity from brick and mortar gaming is the best solution for customers and the state.
What is the best rate to tax online casinos?
Pennsylvania has one of the highest tax rates in the state, raking 54 percent on slot machines. Lawmakers are currently discussing whether or not to match those rates for online as well. The argument stems from a belief in a need for parity across mediums as well as a desire to protect brick and mortar business.
The Chairman of the House Gaming Oversight Committee Rep. Scott Petri spoke with Online Poker Report on the subject and refused to believe online casinos cannot exist under the same parameters as brick and mortar casinos.
US Poker dispelled the notion the overhead of online casinos is low enough to withstand the high rates. Online sites have high marketing costs in order to attract and retain customers. With high taxes and likely higher rake, it will only cost more to convince a player a site is worth their time.
The truth of the matter though is there is an abundance of evidence which shows a 54 percent tax rate is much too high for an online casino to be viable.
The ideal tax range is 15-20 percent
Researchers examined the multitude of online gaming companies offered across Europe and concluded 15-20 percent resulted in peak revenue.
It is also a range which presents regulated sites as a viable alternative to black market online casino offerings. While it is against the law to offer online casinos in Pennsylvania, it is technically not against the law to play on them. Extremely high taxes on a regular site are far less appealing to customers than a tax-free unregulated site where the customer might run into inferior security and problems depositing and withdrawing funds.
Play USA runs down a list of important facts to know about how regulated online gambling in the United States works. In addition to providing numbers regarding taxation and player liquidity, there is also an important list of factors to consider, including:
- Better regulation than even brick and mortar casinos
- Decreased risk of money laundering compared to black market sites
- More clarity and support for online gambling customers
Online poker is not immune
The proposed tax rates for online gambling is 54 percent for slots and 16 percent for table games and poker. Online poker enthusiasts may think this means they are in the clear, but that is far from the truth. There are a number of reasons poker players should be rooting for casino to pass with a reasonable tax rate.
Economically, it is difficult for a site offering only poker but no casino to survive. In Nevada WSOP.com operates on thin margins and is not bringing in all that much revenue for the state. With Pennsylvania’s budgetary woes, poker would be a tiny drop in the bucket without casino.
In Pennsylvania the proposed licensing fees are higher than Nevada. With high fees and low margins, this could be a recipe for high rake. And high rake brings is own set of problems.
Oppressive tax rates only help the black market gambling sites
Online Poker Report’s Joss Wood broke down the financials of online poker sites in Europe. Multiple research studies support the suggestion regulated online casinos with low tax rates and a wide range of games to choose from are the most profitable and successful.
Additionally, the research indicates poorly regulated online markets only help the black market survive. Without thorough regulation and efforts for the market, customers often do not realize they are playing on unregulated sites.
If regulated sites are not able to offer the full complement of casino offerings, there is difficulty convincing customers to play on a regulated account for just poker when they can play casino games and poker in one consolidated, albeit unregulated, place.
Pokerfuse also argues these high casino tax rates will not help brick and mortars. If anything, it hurts the land-based casinos operating online casinos since customers engender ill will towards the entire brand, regardless if it is an online site or the casino proper.
The best group to operate online casinos are land-based casino operators
The other major question for Pennsylvania is who will run online gambling. The assumption had been Pennsylvania would follow in the footsteps of Nevada and New Jersey and leave that task to existing land-based casinos.
However, some lawmakers are suggesting Pennsylvania lottery might be a better group to oversee the venture. Thing is, the Pennsylvania lottery is struggling to meet projections with its existing workload.
If the concern is to ensure online gambling does not hurt existing land-based casinos, excluding them from the market is nonsensical. New Jersey online gambling has categorically shown how online casinos boost brick and mortar returns.
If the government put the lottery in charge of online gambling, it would actually lose money. With a state-run monopoly, the state stands to lose over $100 million in potential licensing fees stipulated by the existing legislation.
The answer is low tax rates and land-based operators
The debate may be ongoing, but the answer is pretty clear cut–Pennsylvania lawmakers and online gambling enthusiasts would both benefit from land-based operators and lower tax rates than brick and mortar casinos.
This is not just an opinion. There is overwhelming evidence showing the financial benefits. Research shows consumers benefit from regulated sites that can compete with the remaining offshore sites. And Pennsylvania desperately needs the budgetary boost online casinos would bring.
It seems simple, but lawmakers continue to debate the particulars. You can make your voice and this evidence heard before it is too late. Just check out this page for more information on bringing online gambling to the Keystone State the right way.