North Jersey Casino Assembly Hearing Raises Tax Question

Written By Robert DellaFave on March 9, 2016

[toc]The fight to bring casino gambling to northern New Jersey went another round this week, when on March 7, a state Assembly committee convened to discuss proposed legislation. Monday’s hearing comes on the heels of a similarly focused hearing in the New Jersey Senate just one week prior.

If passed, the proposal will leave the question of gaming expansion at venues located at least 72 miles from Atlantic City up to voters come November.

In addition to the usual back and forth banter between advocates and opponents of the proposal, state lawmakers touched upon what may become a very sensitive issue in the coming weeks – that of the proposed tax rate on northern New Jersey casino revenue.

Caputo: Casino revenue tax rate as high as 60 percent

Statements made at Monday’s hearing all but hammered home the point that in order for Atlantic City casinos to truly benefit from NJ gaming expansion, the tax rate on casino revenue will have to be highexorbitantly high.

According to expansion proponent State Assemblyman Ralph Caputo, it’s conceivable that casinos will have to fork over more than half their take to the struggling shore city:

“As a guess, [the tax rate] would be 40 to 60 percent, as opposed to what we have now.”

At the higher end of that scale, northern NJ gaming destinations would be subjected to one of the highest casino tax rates in the country – vastly exceeding the 9.25 percent rate paid by Atlantic City casinos and just over the 55 percent marker Pennsylvania casinos pay on slot terminal revenue.

Caputo’s estimates are probably somewhat in line with reality, however, as the current plan calls for up to $200 million of northern NJ casino revenue to be allocated toward Atlantic City. The funds are expected to be used to both help mitigate future revenue losses the city is expected to incur and to facilitate its reinvention as a hybrid casino/entertainment destination.

At a “conservative” 40 percent tax rate, casinos will have to generate $500 million in gaming revenue per year to fulfill that obligation. Granted, this is probably feasible in the short term, as the new casinos will presumably be located in densely populated East Rutherford and Jersey City – both of which are within close proximity to New York City.

However, when (if) casinos are constructed in New York City and other outlying areas, northern NJ casino revenue is bound to take a substantial hit, similar to the plunge Atlantic City suffered when gaming became popularized in Pennsylvania beginning in the late 2000’s. Since 2006, Atlantic City gaming revenue has dropped from its then high water mark of $5.2 billion to just $2.56 billion last year.

In short, the predicted tax rate may seem ludicrous now, but increasingly less so when one considers how saturated the tri-state area casino market is expected to become.

How will high tax rates impact northern NJ casinos?

Senate President Steve Sweeney has suggested that a high tax burden will render it difficult for the new casinos to thrive, especially considering the requirement that will task owners with spending at least $1 billion on their resorts.

It’s difficult to call one way or another. On one hand, the biggest casinos in nearby eastern Pennsylvania have been pulling in hundreds of millions in revenue for years, despite high taxation – Parx Casino near Philadelphia raked $478 million in fiscal 2013-14 alone. Northern NJ and NYC players, many of whom will migrate to the new casinos once they open, account for a significant portion of that figure.

Then again, by the early 2020’s, the new casinos could be surrounded on all sides by competitors; competitors that will be able to offer better payouts on most games due to lower taxes. Savvy gamblers, comp hounds and those who feel they’re losing their money too quickly at northern NJ casinos may seek greener pastures.

What happens next?

The next step is for lawmakers in the Senate and Assembly to vote on the proposal. This is expected to happen sometime this month and as early as next week.

A three-fifths majority in both houses is needed before the resolution is handed off to the public. The prevailing opinion is that it will pass.

As far as the final tax rate, that is expected to be hammered out at a later date, presumably before the voters referendum is conducted in November.

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Robert DellaFave

Robert is a game designer and avid poker player. He is a contributor to numerous online publications focused on legal online gambling sites in New Jersey. He also writes about the legal US online poker market.

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