Delaware Governor Signs Casino Tax Relief Bill into Law

Last week, the Delaware Senate finally gave the state’s three casinos the tax break they so desperately required after passing SB 144 by a vote of 17-3, with the piece of legislation also being accepted in the House by a vote of 35-4 on Thursday, following some last minute negotiations.

The bill designed to reduce the struggling operation’s tax burden by $16.8 million per year was then signed into law by Gov. John Carney (photo) on Saturday, and commenting upon the development, Ed Sutor, CEO of Dover Downs Hotel & Casino, stated:

“This took a lot of time, a lot of work and a lot of effort but its finally paid off.”

Industry Stability Was Threatened

Delaware’s casino market has struggled to cope with the punitive taxes imposed on the industry, with local government having raised their tax rates a total of seven times since the mid-1990s. By 2009, the Legislature then upped the tax burden on slots to a restrictive 43%, almost double the rate set when slot machines were first legalized, with the state also collecting 30% of all gross revenue produced by table games. Delaware’s three casinos were further required to pay another $3 million per annum on table game licensing fees.

The overall result of the high tax regime was to make the casinos’ economic viability untenable, whilst putting at risk some of the 4,000 casino jobs currently available in Delaware. The situation has also been further exasperated by the impact of increasing competition coming from nearby states, such as New Jersey and Pennsylvania, who have steadily been expanding their gambling operations over the years.

Last year, for instance, Dover Downs made a loss of more than $1 million, despite the venue paying $75 million to the state and the Delaware Standardbred Owners Association (DSOA). Needless to say, Delaware casinos have long sought a reduced tax relief package to cope with the situation, arguing that the high take on gaming revenues threatened their very survival.

Fortune Reversal

Delaware finds itself in a favorable position to pass the tax break after going from a $400 million budget deficit in 2017 to a $380 million surplus this year. Commenting upon the high taxes that made that possible, Rep. William Carson, D-Smyrna explained:

“We’ve overtaxed this industry. We needed it at the time but we got it back to where it belongs.”

Despite SB 144 clearing the Senate by a vote of 17-3, however, the bill met opposition in the House, especially from Speaker Pete Schwartkopf who sought to have the proposed tax relief worth $20 million cut in half to just $10 million. As Schwartkopf noted at the time:

“Surrendering that much money to three private institutions means there would be less money for various programs benefiting seniors, students and people with disabilities, as well as adequately supporting correctional officers, probation and parole officers and other state workers.”

In the end, however, a compromise was made to reduce the cut by $3.6 million in 2019, and $3.2 million thereafter, meaning that state casinos are set to benefit from an ongoing $16.8 million reduction in their taxes. The piece of legislation was then passed in the House on Thursday be a vote of 35-4, and commenting upon the bill’s successful passage, Schwartkopf noted:

“They got the money they think they need to make their businesses solvent, keep all their employees and reinvest back into their businesses. And we got $3.6 million. You can provide a lot of services for $3.6 million.”

New Tax Regime

SB 144 reduces the state’s cut of gross gaming revenue on slot machines from 43.5% to 42.5% , reduced by a further 2% if the venue’s capital expenditures is equal or above 3% of its net slots proceeds. In addition, Delaware has agreed to reduce its share of table game revenues from 29.4% to 15.5%, and allow casinos to avoid paying the annual licensing fee by agreeing to invest in their businesses.