Greenwood Gaming Less Green, Again
Back in May, I wrote about a tax case involving Greenwood Gaming and Entertainment, Inc. In that case, an appellate court in Pennsylvania held that the tax rate imposed on daily gross game table revenue from fully automated electronic gaming tables in the state is 48%, and not 34%, as argued by Greenwood.
Greenwood recently found itself in Pennsylvania court again, this time to argue that the value of cash and non-cash prizes distributed by Greenwood to patrons with Players Cards may be deducted from from the tax base of revenues from slot machines, known as gross terminal revenue (GTR). Once again, Greenwood found itself on the losing side of the case.
Greenwood operates The Parx Casino, located in Bensalem, PA, which is approximately 15 miles outside of Philadelphia. According to the casino’s website, Parx houses over 3,500 slot machines. In order to encourage its patrons to visit Parx more frequently, Greenwood distributes some promotional items to those holding Players Cards. Greenwood went to court because the Department of Revenue disallowed a deduction from GTR the value of prizes won by patrons in any of the following ways:
- (a) when the Players Card was inserted into a slot machine during a designated period or at a designated time;
- (b) when entries deposited in and selected from a drawing drum by a computer using a random number generator;
- (c) when redeeming in the casino a postcard or other mailer that the casino had sent to a patron; or
- (d) when the casino selected specific patrons as part of player development.
Before applying the relevant statute, let’s briefly examine the issue from a purely economical perspective. Assuming Greenwood pays some amount for the non-cash prizes distributed to its patrons, the casino is out-of-pocket each time a prize is awarded to Players Card holders. Accordingly, one would naturally hypothesize that the casino should be entitled to reduce its tax base by these out-of-pocket amounts. But sometimes, the law isn’t written to reflect this principle.
Section 1103 of the Pennsylvania Race Horse Development and Gaming Act defines gross terminal revenue as the total of:
(1) cash or cash equivalent wagers received by a slot machine minus the total of:
(i) Cash or cash equivalents paid out to players as a result of playing a slot machine, whether paid manually or paid out by the slot machine.
(ii) Cash or cash equivalents paid to purchase annuities to fund prizes payable to players over a period of time as a result of playing a slot machine.
(iii) Any personal property distributed to a player as a result of playing a slot machine. This does not include travel expenses, food, refreshments, lodging or services.
(2) cash received as entry fees for slot machine contests or slot machine tournaments.
The term does not include counterfeit cash or tokens; coins or currency of other countries received in slot machines, except to the extent that the coins or currency are readily convertible to cash; or cash taken in a fraudulent act perpetrated against a slot machine licensee for which the licensee is not reimbursed.
(Emphasis added.) The issue in the case narrowed to whether cash and non-cash prizes paid to patrons in any of the forms described in (a) through (d) above were considered “as a result of playing a slot machine.” To make this determination, the court examined the Gaming Act’s definition of “slot machine,” which in pertinent part states the device
may deliver or entitle the person or persons playing or operating the…device to receive cash, billets, tickets, tokens or electronic credits to be exchanged for cash or to receive merchandise or anything of value whatsoever, whether the payoff is made automatically from the machine or manually.
(Emphasis added.) The court emphasized that the use of “play or operation” in the definition of slot machine refers to the actual physical operation of the machine. This analysis, said the court, comports with the computer system installed by the Department of Revenue in the Greenwood casinos that tracks the financial events occurring during the operation of the slot machines. Because this computer system does not track the distribution of prizes taking place outside the actual operation of the slot machines, the casino cannot deduct such prizes from GTR.
Ultimately, the prizes in question were viewed as resulting from having a Players Card, and not from simply playing the slot machine. Going forward, if Greenwood seeks to obtain the benefit of the deduction, the gaming company must incorporate the prize distributions in question within the algorithm of occurring financial events tracked by the Department of Revenue’s computer system installed in Greenwood’s casinos.