A total of 12 PA casino operators, including Penn Entertainment and Caesars Entertainment, have filed a lawsuit in court seeking to challenge the state's taxes on slot machines, in a move that also puts the spotlight on skill games. This long-running battle to see skill games as just the same as slots is finally coming to a head.

In a bold move that could reshape the landscape of Pennsylvania's gaming industry, the owners of 12 prominent casinos have taken legal action against the state, challenging what they describe as an unfair and discriminatory tax structure. The lawsuit, filed last week in the state Supreme Court, argues that the current tax on slot machine revenue is unconstitutional and places an undue burden on licensed gaming establishments.

The crux of the dispute: slot machines vs. skill games

At the heart of the lawsuit is the stark contrast between the taxation of slot machines and skill games. In Pennsylvania, slot machine revenue is subject to a hefty 54% tax, one of the highest rates in the nation. In contrast, skill games, which are often found in bars, convenience stores, and other venues, have escaped taxation altogether. This discrepancy has long been a point of contention for casino owners, who argue that the state is creating an uneven playing field.

The casino owners contend that both slot machines and skill games are forms of gambling and should be taxed similarly. "There is no basis for requiring licensed entities to pay about half of their slot machine revenue to the Commonwealth while allowing unlicensed entities to pay no tax on such revenue," the plaintiffs argue in their lawsuit, The Independent reports.

The plaintiffs include some of the biggest names in the gaming sector, such as Penn Entertainment Inc. and Caesars Entertainment Inc. These companies operate both online and land-based casinos in Pennsylvania and have seen their profits significantly impacted by the high tax rate on slot machines.

The state's position: a legal and legislative quagmire

The legal challenge comes at a time when the state is struggling with how to address the issue of skill games. Pennsylvania Governor Josh Shapiro and Senator Gene Yew have both put forward proposals to tax skill games, but neither proposal has gained significant traction.

Governor Shapiro's proposal, which would impose a 42% tax on skill games, has stalled in the midst of ongoing legal battles. At the moment, the Commonwealth Court is hearing a case that questions whether skill games should be classified as gambling, a decision that could have far-reaching implications for the state's gaming laws. Until this legal question is resolved, Shapiro's proposal is unlikely to be included in this year's budget.

Senator Yew's proposal, on the other hand, suggests a more modest 16% tax on skill games, but it has also faced delays. In fact, it remains under debate in the state House, with no clear timeline for a resolution. This legislative gridlock has only added to the frustration of casino owners, who see the lack of progress as a failure to address a critical issue in the state's gaming industry.

The stakes are high for Pennsylvania's gaming industry

The outcome of this lawsuit could have significant consequences for Pennsylvania's gaming industry. If the court sides with the casino owners, the state may be forced to either lower the tax rate on slot machines or impose a similar tax on skill games. Either scenario would have a profound impact on the revenue generated by the gaming industry, which has been a major source of funding for public services.

For the casino owners, the stakes are equally high. The current tax rate on slot machines has been a major financial burden, particularly in an industry that is already facing challenges from the rise of online gaming and the proliferation of skill games. A favorable ruling from the court could provide much-needed relief and help level the playing field.