Pennsylvania casinos ask state's highest court to declare taxation on slot machines as unconstitutional

Twelve Pennsylvania casinos have asked the state's highest court to declare that the tax on slot machine revenue is unconstitutional. The lawsuit, filed by a majority of the 17 licensed casinos, argues the state does not impose the same tax broadly on cash-paying electronic game terminals, known as skill games, that can be found in many bars and stores across Pennsylvania.

The lawsuit, filed Monday, could endanger more than $1 billion in annual tax revenue that goes toward property tax rebates and economic development projects, the Associated Press reports.

According to AP's report, casino owners argue that the state's collection of the roughly 54% tax on casinos' revenue from slot machines, but not on revenue from skill game terminals, violates constitutional guarantees designed to ensure that taxation is fair.

“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,” they argue in the lawsuit.

The lawsuit asks the court to force the state to apply the same tax rate to skill games or to bar it from collecting taxes on slot machines. The casinos' owners include dozens of principals, as well as major casino companies such as Caesars Entertainment and Penn Entertainment.

The Pennsylvania Gaming Control Board said it had just learned of the lawsuit and was evaluating it. Pennsylvania brings in more tax revenue from casinos than any other state, according to American Gaming Association figures.

The fate of the lawsuit is likely tied to the outcome of a separate lawsuit that the state Supreme Court is considering. That case between the state attorney general's office and Pace-O-Matic, a developer of skill games, could decide whether the skill games are unlicensed gambling machines and, as a result, must be shut down.

In December last year, a lower court ruled that the Pace-O-Matic games are based on a player’s ability and not solely on chance, like slot machines and other traditional gambling games that are regulated by the state.

For years, the state has maintained that the devices are unlicensed gambling machines that are operating illegally and subject to seizure by police. Machine manufacturers, distributors, and retailers contend that they are legal, if unregulated, games that are not subject to state gambling control laws.

Lawmakers have long discussed regulating and taxing the devices, but they have not reached a consensus. It is not clear exactly how many skill game terminals there are in Pennsylvania, but the American Gaming Association estimates there are at least 67,000, which would be more than any other state.

Casinos operate roughly 25,000 regulated slot machines on which gamblers wagered almost $32 billion last year and lost just over $2.4 billion. The state and casinos split that amount.