Atlantic City: online gaming helps offset tax revenue losses from land-based casinos

According to data from New Jersey gaming regulators, losses in the tax revenue from brick-and-mortar slots and table games have been significantly offset by online gaming.

Although tax revenue generated from the leisure, hospitality and tourism industries has been severely impacted in 2020 because of business and public restrictions stemming from the coronavirus pandemic, one industry segment that has managed to generate comparable levels of tax revenue has been gaming.

Through the first 10 months of this year, casino gaming taxes have declined by $12.7 million, or roughly 5.5%, compared to the same period in 2019, the Press of Atlantic City reports.

Gaming revenue taxes, whether from brick-and-mortar or online, are placed in the Casino Revenue Fund for programs that assist seniors and the disabled throughout the state, including housing assistance, vocational and educational services, transportation, and medical reimbursements.

The reason for the relatively nominal decline in casino gaming taxes during a time when gambling parlors were empty is simple — the internet.

"Internet gaming revenue more than doubled year-to-date as of October. Taxes on that revenue significantly helped to offset losses in the tax revenue from brick-and-mortar slots and table games," said Jane Bokunewicz, coordinator of the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism at Stockton University.

When Gov. Phil Murphy ordered Atlantic City’s casinos to close March 16, online gambling and sports wagering were permitted to continue. Both forms of internet betting are taxed at higher percentages than their in-house counterparts.

The industry shutdown lasted 107 days, with the casinos eventually being permitted to reopen July 2. Borgata Hotel Casino & Spa, the market’s highest revenue producer, opted to not reopen until July 26.
“For an industry looking at a year-to-date loss of nearly 23% of total gaming revenue due to pandemic-related challenges, an equal degree of decline might have been anticipated in the industry’s tax contributions. Fortunately for the state of New Jersey, revenue from internet gaming is taxed at 15%, nearly double the rate of brick-and-mortar gaming at 8%,” Bokunewicz said.

Taxes from online casino gross revenue increased by more than $59 million through the end of October over the same 10 months last year. The $117 million in taxes generated from online casino revenue accounts for nearly 54% of the year-to-date total of $217.4 million collected from gambling taxes.

Online and mobile sports wagering revenue taxes also increased by more than $3.6 million.

Casino gaming taxes generated in 2020 have outperformed 2019 levels in every month that was not impacted by the state-ordered shutdown. January and February taxes increased by 24% and 19%, respectively, while August, September, and October all exceeded the prior year’s reported figures.

It is too early to say whether the current shift to online gaming will be a lasting trend or if customers will revert to prior behavior once restrictions are lifted and people feel more confident being inside a casino, Bokunewicz said. She said a shift back to brick-and-mortar has benefits to both casino operators and the state.

"Casinos would pay the lower gross revenue tax rate of 8% on slot and table revenue, and also benefit from additional spending by guests on nongaming amenities at their properties. The state would continue to benefit from the casino tax contributions on gaming plus other amenities (food and beverage, sales and room taxes), and also from the many jobs that are created by live table games, in-person wagering on slot machines and hotel operations," she said.

The increased taxes for casino operators in 2020 are also coupled with lost revenue as a result of restrictions and increased costs upon reopening to ensure the properties were in compliance with health and safety protocols.

Casino Control Commission Chairman James Plousis praised the industry for being nimble in the face of unprecedented challenges.

"The fact that casinos have been able to responsibly manage their properties while still finding ways to remain successful with a vision to restore all staff is a testament to Atlantic City’s resilience and resourcefulness and why I remain confident in the city’s future," he said.

The Casino Revenue Fund was established in 1976 with the provision that state revenue derived from casino gambling would be applied solely for the purpose of “providing funding for reductions in property taxes, rental, telephone, gas, electric and municipal utilities charges of eligible senior citizens and disabled residents of the state.”

The fund’s authorized use was expanded in 1981 to include additional or expanded health services or benefits and transportation services or benefits to eligible senior and disabled residents, according to the state Treasury.

In 2019, the CRF received $233 million from gaming taxes. The Casino Revenue Fund Advisory Commission had projected gaming revenue taxes of $261.5 million for 2020.

The taxes derived from sports betting revenue — which became legal in New Jersey in 2018 — are split between the state General Fund and the Casino Revenue Fund.