Earlier this month, the Congressional Gaming Caucus introduced the bipartisan legislation that would see the antiquated slot tax threshold raised for the first time since 1977. This legislation has received support from the American Gaming Association (AGA).
Alex Costello, the AGA’s Senior Director of Government Relations, delved into how an increase could impact players and casinos, why it has taken so long for it to be adjusted for inflation since 1977, and how it can streamline “unnecessary administrative burdens” on casino operators.
SBC: The Congressional Gaming Caucus recently introduced bipartisan legislation to increase the slot tax threshold, can you explain what this is and how it impacts players and casinos?
Alex Costello: The current slot tax threshold requires that every time a player hits a slot jackpot of $1,200 or more, the casino operator must temporarily take that machine out of service while the customer fills out a W-2G tax form.
That tax form is then sent to the Internal Revenue Service, which processes every W-2G tax form sent from every casino across the country.
Unlike the slot tax threshold, slot jackpots have increased dramatically since 1977, leading to a flood of W-2G tax forms inundating an already understaffed and overwhelmed IRS.
Thus, not only does the antiquated threshold hurt the customer experience and create significant operating inefficiencies for casinos, but it also causes the IRS to spend far more resources on jackpot forms when they could be focusing on taxpayers who actually have net slot winnings at the end of the taxable year.
SBC: It was stated that the original threshold – $1,200 – had not been adjusted for inflation since it was established in 1977. Why has it taken so long for this to be looked at?
Costello: Raising the slot tax threshold has been a standing priority for the American Gaming Association and this legislation builds off years of work by the AGA, with multiple administrations, to resolve this issue.
Unfortunately, the US Department of the Treasury has been unwilling to make this change through regulation, which would be much simpler than modernizing the threshold through legislation.
Despite repeated efforts by the AGA and congressional champions, the Treasury maintains that it needs a federal statute to make the change.
That is why the AGA and gaming champions in Congress like Congressional Gaming Caucus Co-chairs Reps. Dina Titus and Guy Reschenthaler are now pursuing slot threshold legislation.
SBC: Why have jackpots steadily increased with inflation over the past few decades yet the slot tax threshold hasn’t?
Costello: Payouts from slot jackpots have adjusted to market forces like inflation and customer expectations over the years. Conversely, the slot tax threshold is set in stone by regulation until the federal government takes action to change the threshold.
If the threshold of $1,200 set in 1977 had tracked with inflation over the decades, it would stand at more than $5,000 today.
SBC: Can you explain how the mechanism for future increases will work?
Costello: Under the proposed legislation, the mechanism for future increases is a fairly standard practice in US tax policy called indexing, in which the federal government annually adjusts rates or thresholds in response to inflation.
Indexing is carried out through a federal government formula that accounts for inflationary increases or decreases and is then applied to current rates and thresholds.
Modern tax provisions are usually indexed for inflation from the outset, but this practice was less common in the 1970s when the slot tax threshold was established.
SBC: The AGA noted that this threshold increase will “alleviate unnecessary administrative burdens on casino operators, their customers and an understaffed and overwhelmed IRS”. What more can be done to make these processes more streamlined and efficient?
Costello: Technology in casinos has also evolved since the slot tax threshold was set in 1977. Today, many casinos have implemented scanning solutions that complete the tax forms automatically.
While this may cut down on time, unless the threshold is raised, slot machines will still need to be taken out of service more frequently and patrons will still have to wait for an employee to give them their tax form.