Casino lawsuit seeks tax equality for games of skill

A Pennsylvania game of skill at a Philadelphia bar (Credit: Anthony Hennen/The Center Square)

Twelve casinos filed a lawsuit last week demanding that unregulated skill games operators pay the same 54% tax rate that applies to slot machines.

While the industry claims this would make the tax constitutionally fair, critics argue it is another tactic aimed at crushing its competition.

The turf war between Pennsylvania’s 17 casinos and roughly 67,000 unregulated skill-gambling terminals in social clubs, convenience stores, gas stations and bars has grown more heated in recent years as one of the latter’s leading manufacturers, Pace O’ Matic, seeks a legal distinction from “gambling.”

In the lawsuit, the casinos say: “There is no basis for requiring licensed entities to pay approximately half of their slot machine revenues to the Commonwealth while allowing unlicensed entities to pay no tax on such revenues.”

Proponents of skill games say that winning is achieved through skill, not pure luck, which makes them completely different from traditional gambling devices.

While game manufacturers vary, those familiar with them disagree on the distinction and often compare them to slot machines. Data released by the American Gaming Association last year found that most Americans consider them to be games of chance.

Critics say the machines amount to an unregulated gambling industry, housed in corner shops, bars and nonprofit clubs with little regulation and little oversight, opening the door to potential abuse and even addiction.

Owners of these establishments must comply with age restrictions and protect customers from related crimes, although this is difficult to do without specific guidance on law enforcement. In states such as Virginia and Kentucky, games of skill have been banned entirely.

Skill game advocates want to see the industry regulated and taxed in Pennsylvania at 16%, generating an estimated $300 million in revenue for the state.

Governor Josh Shapiro proposed a 42% tax rate in February, It is estimated to generate $420 million by 2028-29.

Although neither plan has moved forward, there is still broad support for regulating the industry.

However, according to competitive polling conducted this week by CYGNAL for the Pennsylvania Association of Taverns and Gamblers, or PA TAP, Pennsylvania voters have significant support for skill games: 50% of respondents opposed banning skill games and 60% supported the proposed lower 16% tax.

“Poll results show that Pennsylvanians overwhelmingly support a compromise solution that would fairly tax and regulate games of skill. They understand the important role that the ancillary revenue generated by these games plays in supporting small businesses and fraternal clubs,” said Doug Sprankle, President of PA TAP.