Judge Temporarily Halts His Order Denying Tax Break For Atlantic City Casinos

Validity of tax break for iGaming remains questioned, but state has time to appeal
gavel casino

A judge on Friday granted the state of New Jersey’s request for a temporary stay of his Aug. 29 ruling that found a lucrative annual tax break for Atlantic City’s nine casinos unconstitutional.

But Atlantic County Superior Court Judge Michael Blee limited the stay to a maximum of 90 days, contingent upon a higher court agreeing to hear the case in that time frame.

At issue is the fact that for tax purposes, state regulators lump revenue from online casino gaming and mobile sports betting in with dollars earned by casinos at their nine brick-and-mortar facilities.

But about two-thirds of the new forms of revenue — since 2013 for online casino play and since 2018 for sports betting — is retained by the casino business partners that actually run those operations.

The law in question removes all such revenue from the calculation used to determine how much PILOT — payment in lieu of taxes — is paid by each casino, per a 2016 agreement designed to inject more certainty for each side on projected annual payments.

Liberty and Prosperity 1776, a nonprofit group run by attorney Seth Grossman, successfully argued that the change in the law runs afoul of the state Constitution by singling out casinos over all other businesses in the state for favorable treatment.

Tens of millions at stake

By stripping the secondary forms of revenue entirely, the casinos were projected to save $55 million annually.

Attorneys for the state made the case during oral argument Wednesday that “irreparable harm” would arise from a failure to delay the ruling pending a subsequent court review.

According to a review of state and federal filings made earlier this year by The Press of Atlantic City and Pro Publica, the Atlantic City casino industry reported $767 million in gross operating profit in 2021 and would be required to pay $110 million in the PILOT deal. That’s the highest profit in more than a decade, but the lowest financial obligation in the same span.

In 2021, the nine Atlantic City casinos reported $2.55 billion in revenue from their brick-and-mortar operations, according to state Division of Gaming Enforcement records. At issue is their tax levy for the additional $1.37 billion won from online casino play and the more than $300 million won from mobile sports betting.

Attorney John Lloyd, speaking for the state on Wednesday during oral argument in court, argued that “significant chaos would flow” if there is no stay of the earlier ruling because city, county, and local school budgets would be faced with uncertainty about how much revenue was due.

“This is not just a question of a passing inconvenience,” Lloyd said.

Lloyd referenced potentially “very dire consequences” for the the three lowest-performing Atlantic City casinos — Resorts, Golden Nugget, and Bally’s — that could include layoffs or even a closure of one or more of the casinos in the absence of a stay.

Who is creating the ‘chaos’?

Grossman countered that “chaos is because of the state upending a five-year status quo” by amending the PILOT payment process late last year.

“They didn’t care about stability when they rushed through the legislation and arbitrarily excluded a whole stream of income to calculate fair market value,” Grossman added.

He also noted that DGE officials, if they choose, can exempt money from online casino and mobile sports betting from the total gross gaming revenue that sets the PILOT amount that casinos owe.

“Whenever government gets in the business of picking winners and losers, the people with the most money and political interests are the winners,” Grossman said.

Grossman also said that “there is no evidence, other than pure speculation, that the casino industry suffered more from the pandemic and other associated risks than any other business or industry in Atlantic City or Atlantic County.”

In his 13-page opinion, Blee disputed the state’s contention that “it is likely to succeed on the merits” during any subsequent court review of the case.

“This Court is hard-pressed to believe that availing Atlantic City and the County of its ability to tax an ever-increasing billion-dollar industry somehow benefited the public, rather than a thriving private business. … It is plainly in our state Constitution that the Legislature cannot aid a private industry, let alone one experiencing unprecedented growth,” Blee added.

Still, Blee noted in approving the 90-day stay that any additional revenue from his initial ruling would not go directly to taxpayers but instead go into a reserve account pending final legal resolution.

Photo: Shutterstock


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