In lieu of an abstract, here is a brief excerpt of the content:

This chapter presents and discusses the various types of taxes levied on casino operations. The discussion is limited to taxes applied on gross revenue, together with various license fees. Taxation of income from casino operations is dealt with in chapter 13. These gross revenue taxes are significant costs of operation in a casino and are of importance in the accounting and financial reporting of casino operations. Finally, the increasing need for state and local government revenue has led legislators to levy increasing amounts on the casino and legal gaming business. government interest in casino taxation Casino taxes in all jurisdictions represent significant sources of taxation revenue for many levels of government. These local governments are substantial stakeholders in the amounts of taxes generated by casino operations.1 It has been suggested that one of the major forces behind the proliferation of various forms of gambling has been the need for local governments to generate additional tax revenues from nontraditional sources. Government Gaming and Taxation The emergence of more and more jurisdictions that have legalized gaming activities has also given rise to the situation where the state or local government not only has a taxing interest, but is the actual owner and has the equity interest in the casino operation. Examples of these emerging types of governmental casinos include the operations of the Ontario and Quebec casinos in Canada. There, the casinos are actually owned and operated by the provincial lottery authorities. In the United States the operations of many tribal casinos c h a p t e r 3 Revenue Taxation of Casino Operations Revenue Taxation of Casino Operations 69 are, in effect, operations owned by the Indian tribe and, by parallel, are owned by the local government. Finally, the increasing use of video lottery terminals by some state lottery agencies such as Oregon and Rhode Island have, in effect , put the state governments into a subset of the casino business. In these cases, there may be no formal taxation of the gross revenue, but a sharing or distribution of the profits is the equivalent of a very substantial tax levy. Proposals for the extension of legalized gaming have always been promoted on the basis of the additional revenues that would flow into the local economy. These flows include direct employment and indirect benefits to support industries and local government coffers through increased tax revenues. During the 1998–2000 period, the National Gaming Impact Study Committee studied the economic impact of casinos throughout the country, and found a significant positive impact, both in terms of employment and, in the case of revenue to Indian tribes, significant increases in governmental revenue.2 Gaming taxes are also of considerable significance as an operating cost for a casino. Based on the most recent Nevada Gaming Abstract, the gaming taxes and licenses at all levels averaged 7.5% of gross gaming revenue for 249 casinos with gaming revenue over $1 million per year.3 These gross revenue taxes were typically only second to payroll as an expense item in the casino. The level of gaming taxation varies greatly from one jurisdiction to the next and typically reflects the local philosophy and attitudes toward the industry. While gaming taxes range from 3 to 6.75% in Nevada, they start at 8% in Atlantic City, New Jersey. In the riverboat markets of Illinois, Indiana, and Missouri , the rates start at 15 to 20% of gross gaming revenue. Another important aspect of gaming taxation is that the amounts or levels of taxation often reflect the attitude of the state in granting licenses. In states with unlimited gaming and relatively low barriers to entry into the business, the tax rates tend to be lower, while in certain states with a limited number of gaming licenses, the tax rates tend to be much higher. The main idea is that additional tax levies are in exchange for the oligopoly or monopoly positions given to gaming firms in certain markets. The limited licenses and high marginal taxation of Illinois and Indiana are indicative of this oligopoly situation while Mississippi, with a more open or competitive market, has a tax rate of only 8%. In New Orleans, the minimum tax on gaming revenues of 21.5% is mitigated by the granting of exclusive rights to land-based casino operations in that community. While the combination of high taxes and exclusive licensing generally benefits both the jurisdiction and the gaming operator, high-tax...

Share