U.S. News

The Tax Gamble: States Double Down on Casinos


COLUMBUS, OH — Gambling clichés are everywhere. Roll the dice. Go all in. Double down. Crapped out.

You get the picture.

Almost half the states in the U.S. today are rolling the dice on casinos. As tax revenue and job opportunities eroded during and after the 2008 financial crisis, states and municipalities have turned to the gambling establishment to fill the tax void.

Take Ohio for example.

With the opening of Hollywood Casino Columbus, owned by Penn Gaming, the state will have opened three casinos in just a year's time. A fourth will open next year in Cincinnati.

The reason: taxes.

Each casino pays a $50 million license fee to the state. Then, each casino's gross revenue is taxed at 33 percent.

Gambling on Rise Nationwide

In August, the casinos in Cleveland and Toledo had gross receipts of approximately $40 million. Add in Columbus and Cincinnati, and this means millions of needed dollars that will be split between the casino's host city and the state. All Ohio counties will also get a slice of the tax revenue.

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Nationally, the gambling pie is big. A generation ago, people went to Atlantic City or Las Vegas to gamble. Now in 2012, there are 23 states with full-blown commercial gaming, and more states are seriously considering the addition of casinos. Revenue hovered around $35 billion in 2011. The industry paid nearly $8 billion in taxes, and that does not even include the businesses done on Indian reservations.

Pennsylvania might be the most stark example of this national trend.

It has allowed the casino business to flourish, and it taxes gambling at an eye-popping 55 percent. Because of that, the state brought in more tax revenue from gaming ($1.5 billion) than Nevada did ($865 million) in 2011.

Former Governor Ed Rendell aggressively pushed to expand casinos in Pennsylvania. The initial impetus was to provide property tax relief for senior citizens.

His logic was that Pennsylvanians were gambling in West Virginia and New Jersey anyway, so why not keep that money — and tax revenue — at home. "We love to gamble. We love to bet," said Rendell. "...Barack Obama can't stop it. Mitt Romney can't stop it. So, if we can't stop it, let's make the best of it.

"Let's make sure it's regulated well. Let's make sure it's taxed robustly and make sure those dollars go to a good purpose."

The purpose for a company like Penn National is to grow the top and bottom lines. The change in perception over having casinos in cities across the country is a huge opportunity for the company.

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"We think we will make a nice living in central Ohio," said Penn's COO Tim Wilmott. "We're serving an area with 1.5 million people, and we think there will be a good return for shareholders."

It looks like a win-win all around.

That is, unless you are the one losing money in the casino.

Gaming Stocks:

- Las Vegas Sands
- Bally Technologies
- MGM Resorts International
-Pinnacle Entertainment
- International Game Technology
- Wynn Resorts
- Ameristar Casinos

-By CNBC's Brian Shactman