Pennsylvania State Tax On Gambling Winnings
Pennsylvania lawmakers deserve some credit for putting their state on the leading edge of this trend toward sports betting.
For Pennsylvania residents (or during the time you were a resident), all gambling and lottery winnings from any source are taxable on your Pennsylvania return. While a resident, you must include lottery winnings from other states and countries. For nonresidents, all gambling and lottery winnings from Pennsylvania sources are taxable on your return. On the other side are the state’s licensed casinos, angry because the skill games operate without the 34 percent gaming tax imposed on their slot machine profits; and the Pennsylvania Lottery.
The legislature passed an enabling law last year, even before the US Supreme Court considered overturning the federal ban known as PASPA. That prohibition is no longer on the books, and Pennsylvania sports betting is legal pending final regulations.
Casino operators aren’t exactly lining up at the license office in anticipation, though. The specifics of the PA law leave a lot to be desired, clipping the industry’s wings before it even tries to fly.
Here’s how Brett Collson put it on the most recent episode of TheLines podcast:
“Pennsylvania is kind of a wild card this year. The regulations for sports betting currently in place are… concerning.”
What’s wrong with them? We’ll explain.
PA gets aggro with gambling taxes
As the saying goes, two things in life are certain: Death and high gambling taxes in PA.
The state’s expansion into these new formats will be taxed at a rate that raises serious questions about sustainability. As the law is written, sportsbooks will have to pay 36 percent of their revenue back to state and local coffers. That is a ridiculous number.
Compare that to Nevada, which has been refining its industry for almost 70 years. Nevada sportsbooks return 6.75 percent of their revenue to the state, and things work just great. Operators make a little profit, the state collects tens of millions of dollars, and bettors get to do what they do in a regulated environment.
PA operators will pay more than five times the tax rate in Nevada, a serious disincentive for some operators.
Spokesman Eric Schippers says Hollywood Casino isn’t even sure it wants sports betting under those terms. “We haven’t made a final determination on whether to pursue what is the highest rate on the planet for sports betting,” he told Penn Live.
A couple states (like Delaware and Rhode Island) will offer sports betting through more lopsided revenue-sharing agreements with their lotteries. Those are exceptions to the rule, though. Most states are proposing something between 7-15 percent.
It’s also worth mentioning that the oppressive taxation won’t be limited to sports betting. PA will tax online slot revenue at 54 percent, more than twice the rate at which operators say they feel comfortable. Slot play accounts for around three-quarters of total online gambling revenue in existing markets.
By way of another comparison, New Jersey taxes online slot revenue at 17.5 percent.
A high bar to entry for casinos too
The recurring costs are unfriendly, but some operators might not even be able to squeeze in the door. Obtaining a PA sports betting license requires operators to overcome the tallest hurdle in any US market, existing or proposed.
Like tax rates, there is no state standard for licensing fees. As an example, Indiana recently considered a bill with a proposed fee of just $5,000. There are some big ones, too, including the $5 million suggested in one Illinois bill. In broad terms, a couple hundred thousand dollars seems to be within the range across most states.
PA sports betting licenses will cost $10 million apiece, though, larger than any other proposal. The tax rate makes the market unappealing from the start, and the up-front fee will be a dealbreaker for some properties.
As the smallest PA casino, Lady Luck Nemacolin is a good example. The property generated around $20 million in total revenue last year, so there’s almost no way it would front the money for a license. Its only real path to sports betting would involve a partnership with an existing operator.
It’s not just the little guys, though. Hollywood Casino tallied more than $100 million in revenue last year, and it seems to have a good foothold on its market. Still, giving away $10 million is not a high priority. Schippers said that if Hollywood does offer sports betting, it would try to do so on the cheap. “The state has strangled the goose on this one,” he said.
There’s also some disparity between the licensure for sports betting and other forms of online gambling. Casinos will pay $4 million for a license in each of these game types:
- Slot machines
- Table games
- Poker
While each of these separately cost $4 million, for $10 million, a property can purchase all three. So, casinos can spend the same amount of money to offer sports betting as they would to offer every form of iGaming.
So what? The state needs money
Yes, it certainly does. The fact that Pennsylvania has been operating under a budget shortfall is the only reason we even have a sports betting law to pick on.
This is the issue, though. Rather than viewing expanded gambling as an amenity for casinos, the state took it as an opportunity to plug its own leaks. Tax revenue is arguably the worst reason to allow expanded gambling, and that’s especially true for sports betting.
Pennsylvania State Tax On Gambling Winnings Money
As any bookmaker (or bettor) will tell you, sports gambling has some of the tightest margins in the industry. Although bettors plunked down almost $5 billion last year in Nevada, sportsbooks earned less than $250 million, holding around five percent of the total “handle.”
In simple terms, operators earn about a nickel on every dollar bet. And Pennsylvania will take back almost two cents of that in taxes. That take will be counterproductive to what should have been the primary reason for legalization.
Sports betting is unique in that operators aren’t competing against each other as much as they are competing against offshore sites. There’s something like $150 billion wagered in the US each year, and almost all of it is done through black/gray channels. In order to provide a tempting alternative, the regulated industry must provide similar convenience and competitive lines.
Convenience won’t be a problem as long as there is mobile wagering, but competitive lines might be. If bookmakers want to be profitable in PA, they’ll almost certainly have to pad their lines. And if PA lines aren’t competitive, those in the know will just keep betting with “their guy.”
By writing their greed and shortsightedness into law, PA lawmakers are actually doing the unregulated industry a bit of a favor.
➝ ResearchState of Play
Explore the national and state-by-state impact of the casino gaming industry, as well as key regulatory and statutory requirements in each state.
Number of Casinos 12
Economic Impact $6.34 Billion
Jobs Supported 33,171
Tax Impact $2.48 Billion
Gross Gaming Revenue $3.38 Billion (2019)
Size of circle indicates number of casinos in the area.
All location data is as of Dec. 31, 2019.
Pennsylvania Gaming Control Board
Pennsylvania State Tax On Gambling Winnings Losses
303 Walnut Street, 2nd Floor
Strawberry Square
Harrisburg, PA 17106
717-703- 8300
Website
Section 1201 of title 4 of the Pennsylvania Consolidated Statutes establishes the Pennsylvania Gaming and Control Board (PGCB). The board is tasked with supervising casinos as well as slot machines at racetracks, online casino gaming and sports betting.
AVAILABLE GAMING LICENSES
Category One – Racetrack Facilities License
Category One – Racetrack Facilities, Addition of Table Games License
Category Two – Standalone Casino License
Category Two – Standalone Casino, Addition of Table Games License
Category Three – Resort-style Casino License
Category Three – Resort-style Casino, Addition of Table Games License
Category Four – Ancillary Casino License
Category Four – Ancillary Casino, Addition of Tables Games License
Interactive Gaming Certificate
Interactive Gaming Operator License
Manufacturers License
GAMING TAX RATE
Pennsylvania imposes a 34 percent tax on the gross revenues collected from slot machines. On top of this, the state has placed an additional tax of up to 12 percent for the Pennsylvania Race Horse Improvement Assessment, a 5 percent tax that will go to the Pennsylvania Gaming and Economic Development and Tourism Fund, and, finally, a 4 percent tax or $10m, whichever is greater, that will go to the host community. In total, up to 55 percent of revenues generated from slot machines will go to the government in the form of taxes.
Effective August 2016, operators will pay taxes equal to 16 percent of daily gross table game revenues, up from 14 percent. The additional two percent tax is set to expire in 2019. In addition, operators must pay 34 percent of its daily gross revenues from each table game played on a fully automated electronic table game at its licensed facility.
TAX PROMOTIONAL CREDITS
None
WITHHOLDINGS ON WINNINGS
Gambling winnings are taxable income and are taxed at 3.07 percent.
| TAX ALLOCATION |
| The proceeds of the tax on slot machine revenues from Category 1, 2, and 3 casinos is distributed as follows: |
|
| The effective tax rate for Category 4 casinos is 50 percent and is distributed as follows: |
|
STATUTORY FUNDING REQUIREMENT
The greater of $2 million or .002 multiplied by the total gross terminal revenue of all active and operating licensed gaming entities. Category Four gross terminal revenue is excluded.
SELF-EXCLUSION
Yes
COMPLIMENTARY ALCOHOLIC DRINKS
Yes
ADVERTISING RESTRICTIONS
Must contain help for problem gambling message
ON-PREMISE DISPLAY REQUIREMENT
Preapproved by Office of Compulsive and Problem Gambling
AGE RESTRICTIONS
21+ years of age on floor
TESTING REQUIREMENTS
Conducted through the Bureau of Gaming Laboratory Operations, division within the PGCB.
ANTI-MONEY LAUNDERING REQUIREMENTS
Federal compliance requirements and PA-specific “suspicious transactions” report requirements for transactions over $5,000.
SHIPPING REQUIREMENTS
Notification of intention to ship into, within or out of state to Bureau of Gaming Laboratory Operations and Bureau of Casino Compliance.
RESTRICTIONS ON POLITICAL CONTRIBUTIONS
In September 2018, Pennsylvania’s blanket prohibition on political contributions from those involved in the gaming industry was struck down in federal court. The opinion declared the law overly broad and unconstitutional.
CREDIT OFFERED TO PATRONS
Yes
AUTHORIZED OPERATORS
Commercial casinos, racinos & online operators
MOBILE/ONLINE
Allowed statewide
TAX RATE
36 percent
INITIAL LICENSING FEE
$10 million
LICENSE RENEWAL FEE
$250,000, payable every 5 years
AMATEUR RESTRICTIONS
None
OFFICIAL DATA MANDATE
None
INTEGRITY FEE
None