Atlantic City Casino Property Tax Break Appeal Heard in New Jersey

Posted on: March 21, 2024, 11:06h. 

Last updated on: March 21, 2024, 11:25h.

New Jersey’s Superior Court Appellate Division this week heard the state’s appeal of a ruling on how Atlantic City casino property taxes are calculated. The state is contending the 2021 change violated a consent order.

Atlantic City casinos PILOT property tax
Atlantic City casinos received major tax breaks through legislation passed in 2021. The law stripped iGaming and online sports betting revenue from their property tax liability. (Image: New Jersey Casino Reinvestment Development Authority)

Tim Sheehan of the New Jersey Attorney General’s Office spoke to Appellate Judge Francis Vernoia. He contended that the state’s decision removing iGaming and online sports betting revenue from the calculation  determining the nine casinos’ property tax liability was in the best interest of the gaming industry, state, and Atlantic County.

Under the casinos’ property payment-in-lieu-of-tax (PILOT) structure, the nine resorts pay a tax based on their previous year’s gross gaming revenue. But since much of the online revenue is shared with third-party operators like DraftKings and FanDuel — companies that have little or no physical presence in Atlantic City — the casinos argued they shouldn’t have to pay property taxes on the internet win.

State lawmakers agreed in 2021 and amended the PILOT computation. Atlantic County subsequently sued the state and won the challenge in 2022.

Through a 2018 consent order, the county is mandated to receive 13.5% of the annual PILOT payment. The state consequently agreed to pay the county the full amount it would have received with iGaming and online sports betting as it appealed the matter.

Cases Heard

Along with Atlantic County, a nonprofit called Liberty and Prosperity filed a lawsuit against New Jersey for adjusting the casino property tax arrangement. The New Jersey organization — run by attorney Seth Grossman — successfully argued that the state’s agreeing to lower the PILOT tax violated the state constitution. That mandates that the state must not pass laws that favor one industry over another.

Judge Vernoia and the appellate court panel heard arguments from the state, county, and Liberty and Prosperity. Sheehan said if iGaming and online sportsbook income hadn’t been removed, several casinos, namely Golden Nugget, Resorts, and Bally’s, might close.

Sheehan alleged that if the changes hadn’t been made, a “ruinous” tax hike could have devastated the industry. It would also significantly reduce the overall tax benefit that the Atlantic City gaming industry provides to the state and county. Atlantic City’s governances have been under the state’s control since 2016.

Vernoia pressed Sheehan about why the state would rescue a company that seemingly entered into a bad business deal.

The amendment was to make sure the casinos kept more of the money?” he asked. “Aren’t we just rescuing a bad business deal?”

Sheehan said the change was to ensure a predictable tax revenue stream continued. The appellate court decision is expected in the coming weeks.

Difficult Times

The PILOT change came in the wake of the COVID-19 pandemic. That saw the nine casinos shutter for 108 days in 2020. During that time, many gamblers ventured online. iGaming revenue has surged ever since.

Internet gaming win rose from $482.7 million in 2019 to $970.3 million in 2020. iGaming totaled $1.36 billion in 2021 and climbed to $1.66 billion in 2022, and to more than $1.92 billion last year.

Online sports betting has been on a similar trajectory. Oddsmakers won $299.4 million in 2019, $398.5 million in 2020, $815.7 million in 2021, $763 million in 2022, and more than $1 billion last year. While those numbers include retail wagering in Atlantic City and at state racetrack sportsbooks, about 90% of the win was facilitated online.

In 2023, the casinos paid $288.5 million in iGaming taxes, as the state takes 15% of the online slot and table win. Internet sports betting taxes from the casinos totaled $60.3 million.