Iowa casinos going through a tough time during the coronavirus pandemic might soon catch a break. The Senate Ways and Means Committee advanced a bill Tuesday that would make it so that casinos no longer need to pay taxes on promotional play.
Currently, Iowa casinos pay taxes on marketing dollars until the figure exceeds $25,820,000 in any single year. Essentially, casinos pay the same 22% tax on gaming revenue for money they are giving away in promotions.
“We’re advocating that this is an unfair tax,” said Wes Ehrecke, president and CEO of the Iowa Gaming Association. “Any other business that provides promotional rewards to customers, there’s no tax on that. If a clothing store provides a coupon for $20 off so a $100 item costs $80, that company doesn’t pay tax on that $20.”
Senate Study Bill 1027 simply excludes promotional play from adjusted gross receipts. The bill also amends the definition of sports wagering net receipts to exclude promotional play on sports betting, which is taxed at 6.75%.
The committee passed the bill by a vote of 12-3. The bill now goes to the Senate floor. Similar bills introduced in previous sessions did not advance from committee. A companion bill in the House has yet to move.
How phase out of promotional play tax works
To address the revenue impact for the state, the bill implements a three-year, phase-out period on the promotional play tax.
For the next three fiscal years, casinos would pay an adjusted percentage of the tax until it is no more.
Here’s a breakdown of the three-year plan:
- Beginning July 1 and going through June 30, 2022, casinos pay 75% of the tax on promotional play.
- From July 1, 2022 through June 30, 2023, casinos pay 50%.
- From July 1, 2023 through June 30, 2024, casinos pay 25%.
- Tax on promotional play ends for good on July 1, 2024.
Pandemic helps casinos make case for relief
After not gaining any traction on changing the promotional tax in previous years, Iowa casinos seem to be getting lawmakers’ attention by making the case that they could use a boost after losses suffered last year due to the coronavirus pandemic.
Iowa casinos were closed for 11 weeks between March and June. Once they reopened, Ehrecke said admissions were down 30% on average compared to the previous year.
Sen. Roby Smith, who has experience with gaming bills from authoring the 2019 legislation to legalize sports betting, is helping to shepherd through the promotional play bill.
“Understanding the effects of the economy on casinos because of the pandemic, I believe lawmakers will take a look at this proposal through that lens,” Smith told PlayIA.
Iowa casinos want to be on same level as competition
Smith pointed out surrounding states, including Illinois, don’t tax promotional credit.
So the current system leaves Iowa casinos at a disadvantage. Iowa’s four tribal casinos also don’t have to pay the tax.
“This is basically a tax on coupons,” Smith said. “Other states don’t have it. It’s the same thing as if you go to Burger King or McDonalds with a coupon, they don’t pay a tax on that but a casino does.”
Iowa consumers figure to benefit. If the bill passes and gets signed into law, it will encourage casinos to offer more promotions.