New Jersey: Gov. says casinos to pay "fair share" as administration appeals court rulings in tax breaks lawsuits

Atlantic City casinos are to “pay their fair share” in taxes, according to New Jersey Governor Phil Murphy, who assured the state will see it happen as his administration continues its court fight to uphold a 2021 law that cut the industry’s local tax burden by millions. 

The changes to the casinos’ payment-in-lieu-of-property tax system resulted in the industry paying $55 million less in 2022 than it would have if the law had stayed the same. 

The Governor’s comments came during the February 2 episode of WNYC public radio’s Ask Governor Murphy program. Asked by senior WNYC reporter Nancy Solomon how the new PILOT fit into his vision of a “stronger and fairer” economy, Murphy said he did not have the math at hand, “but we will make sure as a state that the casinos pay their fair share.”

“Tax fairness is really important to us, and it has been from day one. And if we don’t quite get it right, we’ll come back at it and do everything we can to get it right,” he added, as reported by The Press of Atlantic City.

The state is appealing Superior Court rulings made in two separate lawsuits, one from Atlantic County and another from conservative nonprofit Liberty and Prosperity 1776, that challenged the 2021 law amending the PILOT law. 

The Superior Court last year ruled in favor of Atlantic County, with Judge Joseph Marczyk writing in his February decision that the new PILOT law violated a 2018 consent order that determined the county’s share of those revenues. 

County officials estimated the amended PILOT will result in roughly $19.3 million less than expected for the jurisdiction from 2022 through 2026. 

Both county Executive Dennis Levinson and Seth Grossman of Liberty and Prosperity questioned the administration’s commitment to “tax fairness" in its move to amend the PILOT law. "Why should the Atlantic County taxpayer be the only taxpayers in the state that are taking it on the chin?" Levinson said on Thursday.

Murphy’s latest remarks appear to be his first public statements on the casino PILOT since December 2021, reports The Press of Atlantic City. The day before signing the bill into law, Murphy told reporters that he concurred with the approach, the notion and the direction of the proposal. 

Beginning in 2017, instead of paying property taxes, each casino has paid a share of an industry-wide assessment known as PILOT, which is distributed to Atlantic City, its school district and Atlantic County.

The original PILOT system determined the amount due based on three data points for each casino: gross gaming revenue, including money from online gaming; number of hotel rooms; and acreage. 

In 2021, the casinos pushed for and won a key legislative change to that formula, excluding online gaming, a fast-growing sector of their business, from the program.

In August, Atlantic County Assignment Judge Michael Blee sided with Liberty and Prosperity, which challenged the constitutionality of the 2021 law by arguing that the state’s founding document bars preferential tax treatment. 

The state countered that the new law was exempt from that prohibition because it served a “permissible public purpose”. But Blee disagreed, writing that the changes to PILOT were “enacted to aid the casino industry.”

In a brief filed on January 18 with the Superior Court of New Jersey Appellate Division, the state reiterated its view that the amended PILOT serves a public purpose by redirecting potentially “stranded” Investment Alternative Tax revenue to Atlantic City and “forestalling a potentially ruinous tax hike” for the industry. 

The brief claimed that a group of casinos could face “severe financial difficulties” if the PILOT had not changed. The state also contends the new law meets the state Constitution’s uniformity clause since it “mandates only that taxpayers be treated in a manner comparable to other similarly-situated taxpayers,” meaning casinos, and that the new PILOT law is “presumptively valid” because it falls in line with statutes related to exemptions for blighted areas and casino taxation.

Liberty and Prosperity has until February 20 to respond to the state’s January 18 filing. In the Atlantic County case, the Appellate Division granted the state’s motion for an extension of time to file its brief.