Atlantic City Casinos Bemoan Unconstitutional Tax Relief
Judge in New Jersey Nullifies Tax Incentives for Atlantic City Casinos
In a surprising turn of events, Judge Michael Blee has ruled against the tax relief for Atlantic City casinos, amounting to millions of dollars, on grounds that it breaches the New Jersey constitution.
Citing the judge's decision, the amendment passed hastily by Governor Phil Murphy in 2021, which altered the PILOT taxation system, has been deemed unconstitutional. The legislation, introduced under the guise of helping the struggling casino industry during the COVID-19 pandemic, is now under fire for being biased towards the casinos.
Under the 2021 law, casinos were exempted from contributing a percentage of their total gaming revenue towards property tax, instead paying based on their prior-year combined gross gaming revenue. However, the decision excluded revenue from online gambling activities from the PILOT contribution calculation, leading to a massive $55 million reduction in the Atlantic City casinos' annual property tax payments.
The conservative NGO, Liberty and Prosperity 1776, has taken up the fight against this tax break on the grounds that it violates the state's constitution, which prohibits preferential taxes. The court ruling, in favor of the NGO, declared that the law was enacted for the benefit of casinos and not "for a public purpose," as claimed by Governor Murphy.
Despite the portrayal of a struggling casino industry, the financial results of Atlantic City casinos tell a different story. In 2021, they reported a gross operating revenue of $767 million, with revenue for the second quarter of 2022 reaching $828.8 million, an increase of 14.1% compared to the same period the previous year. The net revenue for the first six months of 2022 stood at $1.5 billion, marking a boost of 19.9% year on year.
Insights into the PILOT System
The PILOT system, originally intended to stabilize casino tax payments post-2014 closures [1][3], remains partially in place through 2026 due to recent financial settlements [1][2]. The settlement provides partial relief to Atlantic County, though specific allocations for education remain unclear in available reports [4].
The shifting of costs to the 22 other municipalities of Atlantic County due to reduced casino tax contributions under PILOT poses further challenges [1][3]. Gaming taxes (8–15% of revenue) continue to be separate from PILOT, funding state programs rather than being earmarked for education [4].
The ongoing legal battle highlights the ongoing tensions between gaming revenue stability and local fiscal needs [1][3]. Untaxed gaming alternatives threaten to exacerbate revenue challenges for public services if unaddressed, as seen in the debates over sweepstakes casinos [5].
Despite the ruling, the future of tax relief for Atlantic City casinos remains uncertain.
- The unconstitutional tax relief for Atlantic City casinos, worth millions of dollars, has led to a heated discussion within the online gambling and casino-and-gambling industry.
- Owing to the court ruling, the 2021 amendment that offered tax relief to Atlantic City casinos, and specifically exemptions for online gambling revenue from the PILOT contribution calculation, is now questioned.
- In light of the court decision, the closure of casinos in the coming years could be potentially reevaluated, considering the heavy financial gain reported by these casinos in 2021 and 2022.
- The finance department is now under pressure to reconsider the allocation of property tax payments and their impact on municipalities, particularly those outside Atlantic City.
- The industry and conservatives alike are keeping a watchful eye on the future developments in this legal battle, as it directly affects the financial stability of the casino-games sector and the PILOT system in Atlantic City.
