Question

The state of Iowa had hoped that tax revenue on new casino machines at local bars and restaurants across the state would generate the states $350 million share on $1 billion to build a new stadium for their football team. At this time this state hasn’t been able to bring in all its revenue projected to be raised currently. Officials state that this is due to the lack of advertising and limited machines.

- Draw the market for the casino machines and illustrate what a seller tax on these machine will do the market. Illustrate the proportion of tax the buyers will have to pay and what the sellers will have to pay.

this problem doesn't come with demand and supply curves

Answer 1

Introduction

It provides an overview of the forms of taxation that are applied to casinos by state and local governments in the USA and analyzes those taxes and fees from a policy perspective. First, the paper contains a comprehensive review of the taxes and fees applied to commercial casinos in the eleven U.S. states where casinos are legal.Second, economic analysis of the efficiency and equity issues related to casino taxes is presented. Finally, a summary of our current knowledge of casino taxation and suggestions for needed research are presented.

Tax revenue on new casino machine

Casinos generate direct tax revenue from wagering, admissions, and other taxes, but from a state budgetary point of view the relevant question is whether the added tax revenue from casinos comes at the expense of other revenue sources.

All references to “gaming revenue” are used as a substitute for more specific financial terms— including “casino win,” “adjusted gross receipts,” “gross gaming revenue” and others—as reported by state regulatory agencies. Gaming regulatory agencies in each state report monthly and annual revenue differently and readers should consult those agencies’ websites for further information. In general, gaming revenue refers to the amount earned by commercial casinos after winnings have been paid out to patrons. Importantly, gaming revenue does not equate to profits earned by commercial casinos from their operations. Such revenue is earned before properties pay for various operating expenses, marketing and employee salaries, as well as various taxes and fees, among other things.

Due to reporting restrictions, commercial casino gaming revenue does not include revenue derived from parimutuel betting at commercial casino race- and sportsbooks, except for such revenue derived at Nevada commercial casinos. Similarly, gaming tax revenue figures listed in the report reflect only specific gaming taxes paid by casinos out of monies won from patrons. They do not include various other taxes that apply to casinos as they do to most other businesses. They also do not include the federal excise tax of 0.25 percent generally applied to sports betting handle across most states. For the purposes of calculating state gaming tax revenue totals, reported tax figures include monies directed to state and local governments and the specific casino revenue funds established by those entities.

They also include further mandatory allocations of gaming revenue from commercial casinos to non-government entities, such as problem gambling services, race purses, breeding programs and other funds used to support local racing industries. In certain states, gaming is operated under the authority of the state government, and a portion of casino revenue is then redistributed to private operators. Where this is the case, this report considers the effective tax rate applied to gaming operators to be the portion of gaming revenue retained by the state or its designated beneficiaries.

Information on supplier licensing in the table in this report is limited to those supplier entities that either manufacture EGDs or table games, or distribute or otherwise sell them to casinos. In many states, additional licensing requirements are applicable to the suppliers of various other goods and services to casinos. Readers are advised to consult the websites of state gaming regulatory agencies for more specific information.

America’s commercial casino industry enjoyed another record-setting year in 2018, with nationwide consumer spending on casino gaming reaching a highest-ever annual total of $41.68 billion. The figure represented an increase of 3.5 percent over 2017 and marked the industry’s fourth straight year of gains in gaming revenue. The commercial casino industry has also grown every year but one—2014—since the U.S. economy came out of recession in 2009. Twelve of the 24 states with commercial casinos reported record annual gaming revenue in 2018, reflective of strong local economies in many parts of the country and the addition of new casino properties in certain markets. Overall, just two states with commercial casino gaming—Illinois and West Virginia—reported lower revenue in 2018 versus the prior year, the latter seeing a decline of just one-tenth of one percent.

ECONOMIC IMPACT

The nation’s 465 commercial casinos were not the only beneficiaries of revenue growth in 2018, as the industry generated a total of $9.71 billion in direct gaming tax revenue for state and local governments and designated causes. Notably, the $9.71 billion figure—a record haul and an increase of 3.1 percent over 2017—reflects only specific state and local taxes that are applied directly to gaming activities. It does not include the billions more paid by the industry in the form of income, sales and various other corporate taxes, nor does the total reflect payroll taxes paid by gaming operators and suppliers. According to the most recent statistics from Oxford Economics, the U.S. commercial casino industry directly employed more than 361,000 people in 2017 and those employees earned more than $17 billion in wages, benefits and tips that year.

The tax and other economic benefits derived from commercial gaming operations drive strong support for the casino industry among the American public. AGA research shows that the vast majority— nearly 90 percent—of Americans view gaming as acceptable form of entertainment, and just over one-third of Americans—35 percent—say they visited a casino the past year. Beyond the entertainment value, Americans have embraced the positive local economic impact of the industry: 60 percent say that casinos help their local economies.

SPORTS BETTING

While 2018 set a record for commercial gaming revenue, the year will be better remembered for the landmark U.S. Supreme Court ruling that paved the way for the expansion of legal sports betting. In May, following a years-long legal challenge brought by the state of New Jersey, the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA), the 1992 federal law that had essentially restricted lawful sports betting to Nevada. Following the decision, legal sports wagering quickly spread to seven additional states before the end of the year: Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island and West Virginia.

The expansion helped propel total industry-wide revenue from sports betting to approximately $430.2 million, up from $261.3 million in 2017, with the market set to grow exponentially in future years as additional states pass laws to regulate sports wagering Still, legal and regulated sports betting barely scratched the surface of an entrenched black market—comprised of offshore sportsbooks and street bookies—previously estimated to be worth as much as $150 billion in annual wagering handle. With PASPA’s demise, AGA encouraged state and tribal governments to adopt regulatory structures that will allow licensed operators to compete with the illegal market by recognizing the appeal of mobile betting and setting tax rates that are reflective of the low-margin nature of sports wagering. AGA also led the industry in pushing back against any possible pre-emption by the federal government that would constrain the ability of state and tribal governments—with their proven track records in regulating casino gaming—from making their own policy choices on sports betting.

NEW MARKETS & COMPETITIVE CHALLENGES

In November, Arkansas voters approved a referendum authorizing up to four commercial casinos that will establish Arkansas as the 25th state to host commercial casino gaming when the new locations open in 2019. As gaming expands, state policymakers have become increasingly aware of the need to take steps to ensure the sustained health of their gaming markets and to allow operators and suppliers of gaming equipment to benefit from innovative technologies. In 2018, various states including Louisiana, Maryland and Ohio adopted regulatory reforms that were designed to make their industries more competitive with those of neighboring jurisdictions and ease unnecessary compliance burdens on licensed gaming companies.

Market Performance In 2018, total statewide commercial casino gaming revenue was $842.1 million, up 1.7 percent against 2017. Total statewide revenue from electronic gaming devices was $732.0 million, up 1.3 percent relative to 2017, while table game revenue was $110.1 million, up 4.2 percent. Gaming revenue in Black Hawk was $623.2 million, up 0.3 percent relative to 2017. Gaming revenue in Cripple Creek was $139.9 million, up 3.8 percent, while in Central City, gaming revenue shot up to $79.0 million, an increase of 9.9 percent over 2017. Gaming revenue in Colorado has risen steadily each year since 2014 reflecting the state’s rapidly growing population, strong economy and stable.

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Revenue interactions with other sources of state revenue are apparent from the economic studies conducted in casino states to date. z Additional research on this issue is needed in order to provide a clear picture of the net revenue implications of casinos. z Uses of casino tax and fee revenue run the gamut from being directed into the state’s general fund to being earmarked for specific programs such as education, gambling addiction, tourism promotion, historic preservation, and other programs. z Evidence on the fungibility of funds from lotteries indicates that earmarking for specific purposes is not likely to assure increased funding for those purposes.

Conclusion                                                          

Additional research is needed to determine more precisely, in the case of casinos, how earmarked revenues affect expenditure levels in dedicated programs and how they may affect other tax rates such as state sales and excise tax rates.Evidence on the incidence of casino taxes indicates that they are born primarily by the gamblers and are quite regressive. The effects of increasing casino access across the country on the degree of repressiveness deserves additional research. z State regulations on the number and location of casinos confer economic rents for casino owners and operators. State and local taxes and license fees may play a role in extracting a substantial portion of the economic rents conferred, but there is not yet any substantial economic analysis of this issue.