Maryland Operators Concerned Over iGaming Tax Rates

February 27, 2024
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A Maryland House committee held a marathon hearing Monday on a bill to legalize online gaming that saw casino executives and industry lobbyists step forward to express concerns about the measure’s high tax rates.
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A Maryland House committee held a marathon hearing Monday (February 26) on a bill to legalize online gaming that saw casino executives and industry lobbyists step forward to express concerns about the measure’s high tax rates.

House Bill 1319 would establish a framework for iGaming subject to passage of a separate constitutional amendment and voter approval in November.

“This legislation, I believe, is a starting point,” said Delegate Vanessa Atterbeary, a Democrat and the bill’s sponsor.

“It is a starting point only. It’s a framework but we still have a lot of work to do.”

Under the bill, the Maryland Lottery and Gaming Control Commission would be authorized to issue up to 12 iGaming licenses. However, unlike a competing Senate proposal, licenses would not be tethered to the state's six existing land-based casino properties and would instead be awarded through a competitive bidding process.

Atterbeary's bill would tax revenue from live dealer games at up to 20 percent, while all other iGaming offerings would be taxed at a maximum rate of 55 percent. Each five-year license would cost $1m, with a renewal fee equal to 1 percent of revenue for the preceding three years.

Atterbeary testified before the House Ways and Means Committee, which she also chairs, that similar to cannabis legislation, which passed last year, it is possible for the General Assembly take a currently illegal market and regulate it.

She noted that her bill puts in place stringent regulations to help minimize problem gambling and would set aside 1 percent of tax revenue for prevention and treatment, which Maryland's 2021 sports-betting law failed to do.

The bill also proposes to distribute 1 percent of tax revenues from iGaming to 24 jurisdictions based on the percentage of school-aged children in each county. Another 1 percent would be directed to the lottery to regulate the industry, with the rest of the revenue earmarked for the state’s $40bn plan to reform its public education system.

“Illegal iGaming is already happening in our state, to the tune of $200m,” she said. “This should be a concern for everyone on this committee and everyone who is interested in the issue of problem gambling.”

Currently, six states offer legal online casino games. They are New Jersey, Michigan and Connecticut plus Maryland's neighbors Pennsylvania, Delaware, West Virginia and Connecticut. Rhode Island is set to become the seventh state to offer iGaming as soon as later this week, while Nevada only offers online poker.

Atterbeary also told the committee that she believes legal iGaming would not cannibalize the existing land-based casino industry but instead would add to it.

“Contrary to what you have heard, the sky will not fall if iGaming is implemented in the state of Maryland,” she insisted.

House Minority Leader Jason Buckel, a Republican from Allegany County, expressed his concern that legalizing iGaming would negatively impact his county’s share of local impact grants it is currently receiving from the six land-based casinos in Maryland.

Allegany County, which is the third poorest county in the state and home to Rocky Gap Casino Resort, currently receives between $2m and $4m annually in grants from gross gaming revenue generated by casinos.

“If they suffer a loss from iGaming … that’s not going to be made up by our county getting the local impact grant replaced,” Buckel said. “Instead, the money is going to all 24 jurisdictions in some way. Am I reading that correctly?”

Atterbeary confirmed that the loss would not be made up because the 1 percent allocation is a different implementation.

Buckel said the fiscal note issued with HB 1319 estimates that 1 percent would likely equal $9m once internet gaming reaches full annual maturity in fiscal year 2029, while the local impact grant revenues in the six jurisdictions are likely to decrease by $11.3m at full maturity.

Internet gaming could eventually bring in $904.9m in revenue and $425.3m annually in state tax revenue by fiscal year 2029, according to a report by the Department of Legislative Services, although the state would receive only $6m in 2025 should voters legalize iGaming in November. 

Casino representatives on Monday confirmed their support HB 1319, but put forward several proposed amendments, including considering lowering the proposed tax rates.

Randall Conroy, general manager of Caesars Entertainment’s Horseshoe Casino Baltimore, expressed his support for legalizing iGaming as long as licenses were tethered to the existing Maryland casinos, citing their experience at adhering to strict gaming regulations.

“Second, iGaming should have a reasonable tax rate of 15 percent,” Conroy said. 

Conroy was joined by representatives from MGM Resorts International, Rocky Gap Casino Resort and Penn Entertainment's Hollywood Casino Perryville, who also all supported HB 1319 but similarly called for lowering the bill’s current tax rates.

Buckel asked Conroy if Caesars would refuse to participate in the market if lawmakers declined to set a tax rate anywhere close to what he was asking for.

“We need to negotiate this obviously,” Conroy said. “If you put in a higher tax rate all of a sudden, the illegal market becomes more attractive. If the tax rates are too high, it becomes less attractive for us to market to customers.”

Buckel also highlighted that the bill as written does not guarantee that any of the six land-based casinos would receive iGaming licenses.

“It would be an absurd outcome from my standpoint,” Conroy said of a scenario in which incumbent land-based casinos fail to receive licenses. “We invest hundreds of millions of dollars into our brick-and-mortar and not having an opportunity for an iGaming license, it’s just an odd outcome.”

Atterbeary responded to Buckel by saying that there was no scenario she could envision that the six brick-and-mortar casinos would not get a license. She also said she understood that Live! Casino, which is owned by Cordish Cos., was opposed to legal iGaming.

The Senate Budget and Taxation Committee on Wednesday is scheduled to take up a separate iGaming bill introduced by Senator Ron Watson, a Democrat.

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