Colorado Considers Gaming Tax Increase, License Fees Rise In California

March 20, 2024
Whether to raise taxes on gaming revenue or approve higher licensing fees are two issues state gaming regulators are dealing with in Colorado and California.

Whether to raise taxes on gaming revenue or approve higher licensing fees are two issues state gaming regulators are dealing with in Colorado and California.

The Colorado Limited Gaming Control Commission is set to hold its annual debate next month with its land-based casino licensees over whether to raise the gaming tax rates. Under Rule 14, the commission may either raise or lower tax rates so long as the rate does not exceed 40 percent of casino revenue.

Last year, the five-member commission voted unanimously to keep the current casino gaming tax rates in place for the 2023-2024 fiscal year.

Beginning on July 1, 2023, the first day of the state’s fiscal year, adjusted gross proceeds were taxed at graduated rates, with casinos paying 0.25 percent on their first $2m in adjusted gross proceeds up to a maximum of 20 percent on revenue of more than $13m.

For the current fiscal year through January, gross casino revenue amounted to more than $636.7m derived from a total of 75,283 devices, such as slot machines, table games, keno and other casino games, according to the Colorado Division of Gaming.

Current-year gaming taxes currently stand at more than $89.4m, the division reported. Adjusted gross proceeds in fiscal year 2022-2023 topped $1.08bn, with tax revenue of $172.9m, which declined from the $1.41bn in fiscal year 2021-2022 and $187.7m in tax revenue.

Although the gaming tax rate has remained at its current levels for the last decade, the commission has reduced the rate previously. At its May 2011 meeting, the commission adopted tax rates for fiscal year 2012 that represented a 5 percent reduction of the previous rates. 

“In May 2012, the commission voted to restore tax rates for fiscal year 2013 equal to the fiscal year 2011 rates,” Department of Revenue spokeswoman Shannon Gray told Vixio GamblingCompliance on Tuesday (March 19). “There was no change made in 2014 ... for the fiscal year 2015 through fiscal year 2023 gaming tax rates.”

Colorado allows casino gaming in the cities of Black Hawk, Central City and Cripple Creek. As of January 1, 2024, there were 33 land-based casinos in the state, down from 42 in 2008.

Legal sports betting in Colorado was established by a 2019 state law. Sports-betting revenue is taxed at a headline rate of 10 percent.

Although the commission can adjust the annual tax rate for land-based casino gaming in Colorado, it does not have the same oversight of the tax on sports betting. Regulators are able, however, to set annual operating fees to be paid by retail and mobile sportsbooks. Those annual fees are currently $11,700 and $78,000, respectively.

California License Fee Increases

Over the last two years, the California Gambling Control Commission (CGCC) has adopted annual fees to cover the licensing of third-party proposition player services (TPPPS) and cardrooms, but a recent analysis found those fees may not cover the state’s licensing costs.

In an effort to cover any shortfall, the commission has approved regulations updating the licensing fees charged of both cardrooms and TPPPS. Current license fees for a non-operational TPPPS license will increase from $2,035 to $2,411 for 2025, which will be invoiced in October.

An active license for a business with a three-year average gross revenue under $1.5m will rise to $4,823 from $4,069, while an active licensee with three-year gross revenue of $1.5m or more will pay the CGCC 1.48 percent of the three-year average gross revenue.

That percentage is a decrease from 1.54 percent, according to the CGCC.

The commission has also unanimously approved increasing the annual non-operational cardroom license fee to $6,234 from $5,237, while annual fees for a cardroom with three-year average gross revenue under $1.5m will rise to $12,468 from $10,473.

For those cardrooms with three-year average gross revenue of $1.5m or more, the annual fee is 1.33 percent of the three-year average gross revenue, up from 1.29 percent.

Prior to the commission's March 18 vote to set the new rates, CGCC chair Paula LaBrie said she was supportive of the changes to stay on track for budgeting collecting of the fees.

“The formula that we have and the methodology is the same that was presented by MGT,” LaBrie said.

In 2021, a report by MGT Consulting Group recommended the CGCC and the state Department of Justice’s Bureau of Gambling Control (BGC) set all fees at 100 percent of actual costs.  That report and the effort to adjust state gaming fees began in earnest after a critical report by the California auditor found fees were not aligned with actual costs.

Alan Titus, an attorney with Robb & Ross in Mill Valley, argued that using gross revenue as the basis for calculation of a fee is unprecedented. 

“There are many cases challenging fees, but I am unaware of any case where the fee was calculated as a percentage of gross revenue of the regulated company, let alone where such a scheme was upheld against a challenge,” Titus said. “As far as I am aware, fees are always tied to the activity being regulated.”

In his letter submitted Monday to the commission, Titus noted that under the new fee schedule, a cardroom with $1.5m in revenue would owe $7,482 more in fees than a cardroom with $1 less in revenue.

LaBrie said the updated regulations were filed with the state Office of Administrative Law, which ensures that agency regulations are necessary, legally valid, and available to the public. Once reviewed, the regulations are sent to the Secretary of State’s office for publication in the California Code of Regulations. 

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