Proposed 10% casino tax called jackpot for industry

For a lesson in the economics of casinos and taxation, consider this: The Wynn Las Vegas gives away more free food and drinks than it pays in gambling taxes.

In the first nine months of this year, the 4,700-room complex on the Vegas Strip made up of the Wynn and Encore hotels paid Nevada and local jurisdictions about $34 million in casino taxes, according to regulatory filings. During that same stretch, it “comped” customers about $44 million in cocktails, meal tickets and other bar-and-restaurant giveaways aimed at rewarding gamblers, the company said in regulatory filings.

That gap between freebies and tax bills stems from Nevada’s 7.75 percent gambling tax rate, the lowest in the country. The Florida Legislature is considering a 10 percent casino tax, which would be the fourth lowest in the country behind Nevada, New Jersey and South Dakota.

Casino taxes are shaping up as a key flashpoint in one of the fiercest debates in Tallahassee. Some Florida lawmakers want casinos to pay a larger share of their gambling revenue to the public, arguing the industry-backed legislation amounts to a sweetheart arrangement given how profitable the new casino resorts will be.

“This bill is not the best deal for Florida,” said Rep. Joseph Abruzzo, a West Palm Beach Democrat. “I’m not prepared to support anything with a tax rate that low. They can afford much higher. We know that.”

But casino executives from Las Vegas and beyond insist that a grab for more public dollars will leave Florida with sub-par gambling resorts.

“It’s going to take some tax incentives to build multibillion-dollar resorts,” said Andy Abboud, vice president of government relations for Las Vegas Sands, a Wynn rival on the Strip with its eyes on a Miami casino. “As the tax rate goes up, people will peel off their levels of investment ... Ten percent would put Florida in the lower tier for taxes. But it’s looking to be in the upper tier of development.”

A review of casino taxes across the country compiled by the American Gaming Association shows a wide range between what casinos earn from gambling and what governments take. Consider:

n Casinos in Atlantic City and elsewhere in New Jersey won $3.6 billion from gamblers in 2010, making it the second-largest casino market in the country. But New Jersey didn’t even crack the top 10 in terms of casino taxes, taking in just $305 million thanks to its 9.25 percent levy on casino revenues.

n Despite having the fourth largest casino market, Pennsylvania leads the pack in gambling taxes, reaping $1.3 billion for public coffers last year. Pennsylvania charges a 55 percent gambling tax, the largest in the country outside of states that actually own digital slot machines and pay out a percentage to for-profit operators.

n Florida’s current 35 percent tax on a casino’s winnings falls in the bottom third of the list, with the Sunshine State finishing 16th in casino winnings ($329 million) and 15th in casino tax revenue ($141 million). The rankings do not include the revenue from Indian casinos -- Florida is slated to receive about $1.1 billion in payments from the Seminole tribe through 2019 -- because the gaming trade group does not track those dollars.

The ranking of casino taxes uses the top rate published by the AGA for each state, including optional local taxes. For instance, Nevada’s statewide casino tax is 6.75 percent, but local jurisdictions may charge an additional 1 percent tax. On the rankings, Nevada is counted as having a 7.75 percent casino tax.

Rep. Erik Fresen, a Miami Republican who filed the bill with the 10 percent rate, says he isn’t pushing the casinos as a way to boost state coffers. “I’m not in this so we can have more money for the state,” he said Friday during a casino gambling forum in Miami. “This was never about generating revenue.”

Backers of the low tax rate describe it as a wise trade. In exchange for a lower share of a casino’s gambling revenue, Florida can encourage the kind of iconic construction seen in Vegas and Atlantic City, home to two of the country’s lowest casino taxes. Along with attracting a new set of tourists, South Florida governments would benefit from increased taxes, too -- including gains in the state sales tax, and increases in local taxes on property, restaurant tabs and hotel rooms.

But the proposal to give new casinos what amounts to a two-thirds discount on the existing tax is proving a ripe target for foes trying to foil the bill.

“It’s one thing to sell-out,” said John Sowinski, a spokesman for No Casinos, an advocacy group backed by Disney. “It’s another thing to do it on the cheap.”

Abruzzo, the West Palm Beach Democrat, last week introduced his own bill that would keep out the new facilities in exchange for the Seminole Indian tribe essentially tripling its annual payments to Florida to about $750 million. Local leaders in Miami and beyond are pushing for a share of the gambling revenue. On Friday, Fresen suggested the casinos’ tax rate could double once local governments negotiate impact payments, fees and even revenue-sharing deals in exchange for approving the new resorts.

“By the time you’re done, the effective tax rate will be 20 percent,” he said . “I wanted to make sure we had enough money to expand. So that we can have all the money stay locally.”

A preliminary study by the Legislature’s Revenue Estimating Conference predicted only a modest gain for Florida’s budget if the current casino bill passes. That’s mainly thanks to two factors: first, a clause in the Seminole agreement with Florida that halts the tribe’s payments if new casinos open, and second, a shift of gambling dollars from casinos paying the current 35 percent tax to new ones paying 10 percent.

The $102 million maximum bump forecast in the study once the three casino resorts open in 2015 would be roughly equal to the sales tax Florida collected last year from shoe stores ($95 million), hardware stores ($123 million) or repair work ($101 million), according to Department of Revenue statistics.

Amy Baker, head of the Legislature’s Office of Economic and Demographic Research, said future reports will take into account higher sales-tax dollars from the proposed casinos, which likely will increase the revenue estimates.

At the 10 percent rate in the Florida bill, the Wynn complex would have paid about $48 million in gambling taxes on the $480 million in casino revenue it earned in Vegas so far this year. That’s a little more than its $44 million tab for comped food and drink. But it’s still far less when free rooms ($27 million) and entertainment ($11 million) are added to the total.

A Wynn spokesman was unavailable for an interview last week.

At the heart of the taxation issue lies a key question: How profitable would Florida want its new casinos to be?

Casinos still prosper in states where governments take more than 50 cents of every dollar of gambling revenue. The Las Vegas Sands Corp. owns casinos around the world, including two in Vegas and one on the site of a shuttered steel factory in eastern Pennsylvania.

The Sands Bethlehem boasts only 300 hotel rooms and sits two time zones away from the glitz of the Vegas Strip. The Sands must turn over to Pennsylvania 55 cents of each dollar it wins from gamblers, money the state then distributes to local governments, economic development efforts and to general government expenses.

The high tax doesn’t seem to deter gambling there. During the first nine months of this year, customers bet roughly $3.2 billion at slot machines and table games at the Bethlehem Sands, generating $279 million in winnings revenue.

By contrast, at the two Sands hotels in Vegas -- the Palazzo and Venetian with a combined total of 7,100 rooms and an on-site Maserati dealership -- gamblers bet less: about $2.7 billion on slots and table games combined. A slightly higher “win rate” gave the Vegas properties more casino revenue: $312 million.

But throw in profits from off the casino floor -- money from the hotel rooms, restaurants, convention space and other operations that are largely absent in Bethlehem -- and the Vegas properties dominate. So far this year, the Sands took in $252 million in profits from its Strip properties, and just $68 million from Bethlehem.

The profitability gap between the Sands in Nevada and the Sands in Pennsylvania bolsters the industry argument that higher taxes tend to produce less appealing casinos, and ones that mostly target local gamblers.

“Ten percent would be very attractive from an investor’s perspective,” Bill Eadington, an economics professor at the University of Nevada, Reno, said of the proposed Florida casino tax. “If the primary focus is to patch the budget, the tendency is to go much higher. Then you do end up sometimes with very nice slot halls.”

Andrew Smith, head of research for the AGA, pointed to Illinois’ 50 percent tax rate as the kind of example Florida shouldn’t follow.

“The thing Illinois has learned was you don’t give your properties much money left over to reinvest in their properties,” Smith said. “When you go to Illinois, frankly, some of the properties aren’t that nice.”