PA Must Fix Casino Problem

Member Group : Allegheny Institute

Article VIII, Section 1, of the the Pennsylvania Constitution is clear:

"All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws."

Better known as the Uniform Taxation Clause, it was the basis on which Mt. Airy Casino in Monroe County’s Paradise Township challenged part of Section 1403(c) of Act 71.

The 2004 law mandates that casinos pay their host counties and municipalities a percentage or minimum dollar amount (whichever is greater) of their gross slot machine revenue. That’s known as a "host fee."

Mt. Airy argued that depending on whether a casino’s gross terminal revenue was above or below $500 million, the municipal host fee would result in differing, and thus unconstitutional, taxation.

The municipal requirement "imposes grossly unequal local share assessments upon similarly situated slot machine licensees," attorneys for Mt. Airy Casino argued. The state Supreme Court agreed.

Casino revenue quagmire won’t stop money from flowing — at least for one Pa. county
Casino revenue quagmire won’t stop money from flowing — at least for one Pa. county
When the Legislature left Harrisburg last week, it left more than $140 million worth of gambling revenue that municipalities use to balance their budgets in limbo.

Because many counties and municipalities with casinos include such income in their budgets, the high court stayed its decision for 120 days to give the Pennsylvania Legislature the opportunity to bring Section 1403(c) up to constitutional snuff.

(Still, at least three casino hosts — in Pittsburgh, Dauphin County and Plains Township in the Poconos, unsure of what future legislation will bring — cut deals with their casinos for continued payments.)

And as scholars at the Allegheny Institute for Public Policy write in a new white paper, time is running short for the Legislature to act.

The Supreme Court’s stay will expire on Jan. 26. Legislators won’t return to Harrisburg until January.

But what might the remedy be?

The think tank’s Eric Montarti and Jake Haulk remind that Mt. Airy Casino, in its court filing, proposed striking the $10 million minimum fee for a uniform 4 percent tax rate on all casinos. The state Department of Revenue favored keeping the $10 million minimum.

While Mt. Airy’s recommendation "would satisfy uniformity … it would not guarantee a minimum of $10 million to the host municipalities," Montarti and Haulk note.

"A flat $10 million requirement with no reference to an alternative percentage payment would seem to treat all casinos the same," they add, "but it appears from notes in the Supreme Court decision that (the court) disagreed with the Department of Revenue’s argument that the host fee was more like an excise or privilege tax."

All that said, the Legislature will have much to discuss and debate in a short amount of time. And Montarti and Haulk say if the 120-day stay lapses, "then host counties and municipalities will be even more concerned."

"For whatever time the fee is in limbo there can be no required payment as it is doubtful the fee can be levied retroactively," they remind. "Thus, some urgency by the General Assembly is needed."

Colin McNickle, the former editorial page editor of the Pittsburgh Tribune-Review, is a senior fellow and media specialist at the Allegheny Institute for Public Policy. Readers may email him at [email protected].