Pennsylvania’s leading supplier of skill game machines would like to see its products legalized and regulated, but not if it means paying a similar tax rate to slots and video gaming terminals (VGTs).
There are many lawmakers and politicians who favor of regulating and taxing Pennsylvania skill games, including Gov. Josh Shapiro. He included a structure for both in his FY 2025/2026 budget address earlier this week. Pace-O-Matic (POM), a Georgia-based skill games manufacturer, endorses the idea but told PlayPennsylvania that the terms of Shapiro’s proposal won’t allow it to be commercially viable.
Gov. Shapiro proposes to tax the machines at 52%, the same as VGTs and slightly less than the 54% that Pennsylvania online casinos pay on their slots revenue. The exact rate for retail slots is variable but in the same ballpark.
Though skill games are headed towards regulation, which is what POM wants, it feels the tax rate is too high. The company told PlayPennsylvania in an emailed statement on Tuesday evening:
“Pace-O-Matic remains eager to work with the governor and legislature to negotiate a fair tax rate and regulatory structure for skill games.
“We are disappointed at the high tax rate on the games the governor proposes. The governor’s proposed 52% tax rate will hurt the thousands of Pennsylvania bars, restaurants, fraternal clubs, volunteer fire companies, VFWs, and American Legions that count on the supplemental income from skill games. At that high tax rate, many locations cannot afford to keep the games.”
What POM is looking for
POM has been a big proponent of small businesses, especially since the pandemic when many of those companies struggled to stay open. A lower tax rate would help companies generate another source of income.
Senator Gene Yaw and Representative Danilo Burgos each introduced bills last legislative session that called for a 16% tax on the machines, which never passed. Each have written memos for this year that support the same rate. POM is in favor of it, too, the company said:
“At a commonsense 16% tax rate, we estimate skill games could provide $250 million to the state in the first year. That projection will significantly drop under the rate included in the governor’s budget because many locations won’t be able to afford it.
“This is counterproductive because the tax is intended to help the state with its financial needs.”
Gov. Shapiro’s tax rate this time around is even higher than what he proposed last February. During his FY 2024/2025 budget address, Gov. Shapiro advocated for a 42% tax.
The governor included other stipulations this week that included establishments can possess up to five machines. He projects there to be 30,000 total combined Video Gaming Terminals and skill game machines in establishments in 2025-26, increasing incrementally to 40,000 machines by 2029-30.
POM ‘takes exception’ that skill games cut into lottery sales
Gov. Shapiro made a comment in his budget address as prepared for delivery about skill games taking away revenue from the Pennsylvania lottery. He said:
“Every time somebody puts a buck into one of those unregulated machines, it undermines the lottery and the critical services it funds for our seniors like prescriptions and meals.
“The Pennsylvania Lottery lost an estimated $200 million over the last 5 years, primarily due to these unregulated skill games.”
POM does not agree with Gov. Shapiro’s assessment of the lottery’s loss. It continued with the following statement:
“We also take exception with the governor making any connection between legal skill games and lottery sales. Research has shown that the only link between the two is that locations say their lottery sales go up when they also operate legal skill games.”
POM is ready to negotiate a fair tax rate
The legality of skill games has always been a point of emphasis in the Keystone State. So much so, the Pennsylvania Supreme Court is going to weigh in on the matter, which hopes to be at some point in 2025.
The highest court is either going to override or uphold the decision the Commonwealth Court made in 2023, which ruled the machines as legal games of skill. Should the games remain legal, POM is ready for negotiations:
“While we know the proposed tax rate is higher than the industry can sustain, we stand ready and willing to discuss these issues with the General Assembly and the Shapiro Administration.”
