Atlantic City Casino Property Tax Bill That Saved Resorts Millions Overturned by State Judge

Posted on: August 31, 2022, 08:25h. 

Last updated on: September 1, 2022, 12:52h.

An Atlantic City casino property tax adjustment that would have saved nine gaming resorts some $55 million this year alone has been overturned by a state judge.

Atlantic City casino PILOT property tax
New Jersey Superior Court Judge Michael Blee ruled that the property tax savings afforded to Atlantic City casinos through a 2021 law was wrong. This week the judge overturned the state’s decision to remove iGaming and online sports betting from the casinos’ property tax bill. (Image: Press of Atlantic City)

Last year, New Jersey lawmakers and Governor Phil Murphy (D) amended the casinos’ payment-in-lieu-of-tax (PILOT) structure to remove iGaming and online sports betting revenue from the calculation used to determine the resorts’ annual property tax load.

Formed in response to the 2008 Great Recession and the closure of five casinos from 2014 through 2016, PILOT assesses a collective property tax responsibility for the casinos based on their annual gross gaming revenue.

The gaming industry convinced the state that several casinos would be at risk of closing without PILOT reductions. They argued that since iGaming and online sportsbook revenue is shared –third-party operators like DraftKings and FanDuel have little physical presence in the city — that revenue shouldn’t be included in their annual property tax bill.

This week, New Jersey Superior Court Judge Michael Blee said the PILOT change was carried out in violation of the state Constitution.

Preferential Tax Treatment Prohibited

Blee reviewed the PILOT amendment after a New Jersey-based nonprofit conservative political group, Liberty and Prosperity 1776, filed suit against the state. They claimed that the state Constitution prohibits preferential tax treatment.

Blee previously ruled in Atlantic County’s favor in its legal plea that the 2021 PILOT change violated a consent order reached with the state. That order guaranteed the county approximately 13.5% of the annual casino property tax.

Blee said at the time that the state could reduce the casino property tax by stripping iGaming and internet sportsbook revenue. But he also ruled it must continue to pay Atlantic County the full amount it would have received before the calculation adjustment.

Now, Blee is throwing out the entire PILOT change.

There is no evidence to suggest that casinos could not meet their PILOT obligations under the Original Act,” Blee wrote in his order issued on Monday.

Instead, the judge concluded that the PILOT change was simply “to aid what was actually a resurging industry.” Outgoing New Jersey Senate President Stephen Sweeney (D), who a political newcomer defeated during the 2021 election, spurred the PILOT change. Sweeney was a longtime advocate of the Atlantic City gaming industry.

No Public Purpose

The New Jersey Constitution allows special tax treatment in the rare case such a policy serves a “public purpose.” Blee found that the 2021 PILOT adjustment failed to reach that classification.

This Court finds that the Amendment was enacted to aid the casino industry and not for a public purpose,” Blee summarized.

The Casino Association of New Jersey didn’t respond to a request for comment. The lobbying group cited its policy of not commenting on pending litigation. However, Seth Grossman of Liberty and Prosperity 1776 did comment.

“The bottom line is when you have tough economic times, every business is affected. So, to say you’re going to give one industry a break by making everybody else pay more, that’s not helping the economy. It’s just helping one ‘ailing’ industry,” Grossman opined.