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The Impact of Gaming Privilege Taxes

6 July 2005

The American Gaming Association has released a new research "white paper" prepared by Christiansen Capital Advisors, which examines the impact of gaming privilege taxes on capital investment, job creation, and other forms of economic contributions that casinos make in their host jurisdictions.

Christiansen's paper, "The Impacts of Gaming Taxation in the United States," theorizes that unreasonable tax rates on gaming operations can have the opposite effect legislators intend - thwarting capital investment, forcing job cuts and ultimately leading to long-term revenue losses. He provides hard data and concrete examples to show that lower tax rates are the key to creating jobs, capital and, in fact, increased tax revenue.

To demonstrate this point, Christiansen notes that, of the more than $30 billion that has been invested in major U.S. casinos or casino resorts since 1989, fully 91 percent was invested in Nevada and New Jersey, the commercial casino states with the lowest gaming privilege tax rates. These lower tax rates, Christiansen notes, have given Nevada and New Jersey an advantage in the competition for gaming-related capital investment, and that advantage is a strong argument for keeping gaming privilege taxes low in those states. Lower privilege taxes make larger, more diverse gaming facilities possible, he said. These full-service resorts contribute more to the economy than machine-only facilities can, but the capital investment necessary to develop them simply isn't feasible if tax rates are too high.

Conversely, Christiansen uses New York as an example of how unreasonably high tax rates can stunt capital investment, which has led to less than expected levels of employment and tax revenue for the state.

Christiansen describes that when lawmakers in newer gaming jurisdictions have opted for higher tax rates, they are trading jobs and capital investment for short-term government revenues and quick fixes to state budget crises. Moreover, he notes that gaming taxes are rising at a greater rate than the tax base. Since 1994, the average privilege tax for commercial casinos in the United States has increased by 60 percent - significantly higher than the rate of increase for gross casino gaming revenues during that time.

Businesses cannot survive and thrive in jurisdictions where there is an unreasonable rate of taxation. Investors, wisely, will be unlikely to invest their dollars in states that choose to change the rules of taxation significantly.

Thus, it is critically important for all jurisdictions which expect to reap the benefits of the industry to set a reasonable rate of taxation and to keep it stable over time to allow investors their expected returns on their investments.

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com