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Atlantic City casinos, still smarting from a three-day shutdown earlier this month, may soon be soothed by their fatter wallets.
The casinos' collective tax burden was eased by roughly $30 million a year as of July 1. That's because little-known taxes on casino profits and the value of free perks granted to high rollers, enacted three years ago under industry protest, are due to decrease or expire.
The tax change is a relatively small boost to the Atlantic City casino industry, which paid more than $400 million in state taxes last year, money that is earmarked for services for the elderly and disabled. But in a budget year when state lawmakers raised taxes on everything from power boats to fur coats, the phase-out and related industry tax changes mean $43 million less will flow into New Jersey's coffers from the casinos in the current fiscal year, according to state budget documents.
Three years ago, then-Gov. James E. McGreevey set off a political firestorm when he proposed squeezing the casinos for what he said would be an additional $90 million a year. The casinos fought back hard. Their biggest target was an initial McGreevey proposal to raise the casino revenue tax to 10 percent, from 8 percent. This tax accounts for most of the state's take from the casinos.
"It will produce disastrous results, not just for the gaming industry but for all those whose livelihoods depend on it," the president of the casino trade association said at the time.
McGreevey eventually dumped the proposed revenue tax hike. He agreed instead to a 7.5 percent tax on casinos' adjusted net income. Also instituted was a 4.25 percent sales tax on complimentary rooms, meals and other freebies casinos frequently extend to their best customers.
In bargaining with the state, the casinos also won a provision to reduce or eliminate the two new taxes within several years.
At the same time, the state tacked on additional fees for hotel stays and parking in Atlantic City. Those fees collect roughly $30 million for the casino revenue fund, but the costs generally are passed on to Atlantic City visitors. While the fees will remain in place, part of the money is being redirected from the casino revenue fund into economic development projects, including casino and hotel construction plans.
Collectively, the taxes and fees added in 2003 raised $80 million in public money for the fiscal year ended June 30, 2005, according to most recently available figures from the N.J. Department of Treasury.
The adjusted net income tax added $23 million to the state in the fiscal year ended June 30, 2005. That tax disappeared as of July 1.
The tax on the estimated value of complimentary services has raised $26 million annually for the last three years. The tax declines to $19.5 million in the current fiscal year, and will continue decreasing until it expires in two years. Atlantic City casinos give away the lion's share of their rooms to good customers, and instead concentrate on deriving revenue from gambling.
The casinos may have been dealt a tax blow three years ago, but Atlantic City has thrived since then. For the first time, the casinos collectively surpassed $5 billion in revenue last year. New casino towers and revamped veterans dot the boardwalk.
Experts say the expiration of the income and comp taxes is more good news for the industry.
The tax expiration "clearly sends a message ... that New Jersey in relation to other gaming states retains a positive investment environment," said Michael Pollock of industry consultant Spectrum Gaming Group.
Pollock expects at least two more casinos to be built in Atlantic City in the coming years, as well as new retail and entertainment venues. "Atlantic City's future as a regional gaming destination is very bright," he said. "A lot of that optimism is tied directly to the low tax rate and the favorable investment climate."
Several state lawmakers have pressed to keep the income and comp taxes in place for another few years. Some legislators said the casinos should not have gotten a break this year as the state's budget woes led to an increase in the sales tax and other pains for consumers and businesses.
"This is an industry that has gotten a free ride," said Sen. Shirley Turner (D-Mercer). "I thought it was just appalling that at the time we have got a budget deficit ... we would be allowing taxes to sunset for an industry that is booming."
During the budget impasse this year, Turner proposed maintaining the 2003 taxes and increasing the casino revenue tax to 10 percent. She said the steps could have raised $150 million a year.
Turner also proposed keeping the parking and room fees from being partially redirected from the casino revenue fund to economic development projects.
Reed Gusciora (D-Mercer), who called for similar legislation in the Assembly, said there was initial assent among Democrats for stopping the phaseout of casino taxes. But after the gaming halls were forced to close for three days, Gusciora said there was a feeling among South Jersey representatives and the governor that "casinos and their workers had sacrificed during the shutdown" and did not deserve additional burdens.
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