A group of casinos in Pennsylvania are asking the state to level the playing field between slot machine and gray machine operators.
According to a petition filed in the Supreme Court of Pennsylvania, 12 casinos in the Keystone State are seeking declaratory and injunctive relief over the discrepancy of tax rates on revenue levied for slot machine and gray machine operators.
The casinos believe gray machines not being taxed in the same manner as slots violates the Uniformity Clause of the Pennsylvania Constitution, which mandates state taxes to be “uniform, upon the same class of subjects.” The clause was placed in Pennsylvania’s constitution to prevent preferential or punitive treatment among taxpayers by the state government.
“There is no basis for requiring licensed entities to pay about half of their slot machine revenue to the Commonwealth while allowing unlicensed entities to pay no tax on such revenue,” said the group of casinos in the petition that was filed earlier this week.
The Pennsylvania Race Horse Development and Gaming Act imposes a roughly 50% tax rate on revenue for slot machine operators whether they offer games of chance, skill, or both. Last year, 19,000 regulated slot machines operated by the petitioners generated nearly $1 billion in tax revenue. Now, the casinos in the state want gray machine operators to pay the same price. The casinos include Stadium Casino, Chester Downs, Rivers Philadelphia, Parx Casino Shippensburg, Wind Creek, and Greenwood Gaming.
The petitioners argued the lack of taxes on gray machines violates the Uniformity Clause because it imposes two different tax rates with slot machines hit with a roughly 50% rate and gray machines at 0%. The group also argues that the state’s gaming law unlawfully imposes different tax rates based on whether the operator is granted or denied a casino license.
The petitioners are seeking a declaration that the state’s “slot machine taxes are unconstitutional insofar as they apply to revenue generated from skill slot machines in licensed casinos but not revenue generated from those machines operating elsewhere in the Commonwealth.”
The casinos want Pennsylvania to declare taxes on slot machines as unconstitutional, which would have a significant impact on the state’s annual budget. According to data provided by the Pennsylvania Gaming Control Board, the Keystone State has collected more than $20 billion in revenue from slot machine taxes over the last twenty years.
Estimates suggest Pennsylvania is home to roughly 67,000 skill and hybrid slot machines.
Pennsylvania is also missing out on additional revenue with gray machines prohibited. The American Gaming Association projected in 2022 that illegal gambling machines generate approximately $1.9 billion in revenue annually for unlicensed operators.
The Pennsylvania Supreme Court is prepared to consider how the state imposes tax rates on slot machines after granting a request by Attorney General Michelle Henry to hear a case concerning the legality of gray machines. Henry is asking the court to consider whether electronic slot machine cease to be an illegal “gambling device,” governed predominantly by chance, if the machine’s manufacturers embed into its programming a so-called “skill” element that is almost entirely hidden from view.
She is also asking the court to consider whether state gambling statues concerning slot machines should be read in pair materia to supply an appropriate definition of the term.
Legal proceedings in Pennsylvania
The Pennsylvania casinos have taken this stance as gray machines face legal scrutiny.
In April, Mayor Cherelle Park signed Bill No. 240010. The bill adds additional amendments to Philadelphia Code prohibiting certain gambling machines and skill games.
Park’s signature came after gray machines manufacturer Pace-O-Matic (POM) voiced its support for a lawsuit filed by gaming machine distributor G&B Amusements and 7-Eleven franchise owner Tariq Jahlil. The Court of Common Pleas complaint argued that Bill No. 240010 is reserved for the state legislature as the city council has no authority over gaming.
POM is still fighting for sanctioned market access in the Keystone State. Last month, the Pennsylvania Supreme Court approved a request to consider the legality of gray machines.
The request was granted after a Commonwealth Court panel unanimously ruled that POM and other gray machine operators are not violating state gaming laws as their products qualify as games of skill.
