It is not going to be business as usual for Pennsylvania skill games, thanks to a proposed bill that aims to tax the unregulated gaming market by 16%. It is a bill that has, expectedly, split opinions among various stakeholders.
The bill, promoted by Senators Gene Yaw and Elder Vogel, is set to introduce the state’s skills games market to a licensing and taxation scheme. Chief among its other proposals include profit allocation among hosts, operators, and distributors, and a cap on the number of terminals per location. It remains to be seen if the bill will be ultimately successful.
Pennsylvania skill games are a series of electronic machines requiring players to tap winning symbols to claim rewards. They can be seen across different places, from grocery stores to taverns, where they operate in a legal grey area. On one side of the argument, they are said to be different from traditional casino slots as they involve player skills and provide key supplemental income for small businesses and veterans organizations.
According to Senator Yaw, SB 626 needs backing as it caters to small businesses in Pennsylvania. He mentioned his visit to one of the state’s biggest producers of skill games, Miele Manufacturing, as being key to helping him understand how the industry impacts local economies.
As the Pennsylvania supreme court continues to review if these devices fall foul of the state’s Gaming Act, SB 626 is designed to create a legal framework for the tons of machines currently in the system. Those supporting the bill claim that regulation aims to create a clear legal framework to protect consumers, ensure fair play, and help the state fetch billions of dollars in revenue.
A number of detailed licensing and fee requirements for all the parties involved have been written into SB 626. They include provisions that the hosts – liquor-license holders, tobacco/lottery retailers, and nonprofits, may only install up to two skill games per 500 SQ ft. Also, each of the locations must host a maximum of five terminals and pay $250 in annual hosting fee.
The requirement for operators, including Miele, is to pay a $25,000 initial license fee and $5,000 annual renewal. Lastly, Distributors (like Pace-O-Matic) are faced with a $1 million application fee and a $100,000 annual renewal.
Meanwhile, revenue distribution and taxation get the same structure, with a 40/40/20 split of bet profits among hosts, operators, and distributors, respectively. Gross revenue will be taxed 16% and the returns directed to state and local governments.
Amidst the lobbying and discussions, Pennsylvania Governor, Josh Shapiro, has pushed for a more robust rate to safeguard existing gaming revenues. To put things in perspective, Pennsylvania is one of the USA’s highest-taxed gaming markets, with its 54% levy on casino slots and the 34% tax on lottery tickets trumping SB 626’s 26 percent levy.
Governor Shapiro’s February budget proposal recommends a 42% tax on skill games. He has stated that such rates could help carve out new funding streams for the state for supporting its education, infrastructure, and social programs as can be seen with PA sportsbooks. Speaking further, he argued for part of the money made from slots to be channeled to state coffers, also warning of the effect that low taxes on unregulated machines could have on the lottery’s contributions to seniors’ programs and other critical services.
With SB 626, Pennsylvania aims to turn its fast-growing skill-game market into a framework that’s regulated and taxable. With measures like capping machines per location, a 16% tax imposition and a clear definition of licensing requirements all accounted for in the bill, there’s no mistaking what it is designed to achieve. The goal is to bring legal clarity and new revenue streams, all while backing small businesses and veterans organizations.
While the Governor’s call for an increased levy will certainly split opinions among the various stakeholders, the courts are still left to take important decisions on the subject. One thing is certain, however – Pennsylvania has an important choice to make. The choices are between regulating and taxing skills games to boost state coffers or to retain the status quo where machines continue to operate in a legal gray zone.
