July 5th, 2011 by Judd Ballard
Governor Kasich strategically included a provision in a version of the state budget which clarified that the Commercial Activity Tax (“CAT”) would apply to all revenue generated by casinos before winnings were paid out. In other words, if a gambler wagered $20, the $20 would be considered a gross receipt for CAT purposes.
Ohio casino operators, Rock Ohio Caesars, LLC (“ROC”) and Penn National Gaming, Inc. (“Penn National”), argued the CAT should only apply after payouts to winners were subtracted. In fact, ROC was so upset about how the CAT was going to apply to their operations, they actually stopped construction on their Cleveland and Cincinnati casinos.
Eventually, cooler heads prevailed and both casino operators struck similar deals with the state of Ohio. According to the two agreements, ROC, Penn National, and the State of Ohio have agreed to the following:
It is important to note that portions of the agreements will require the General Assembly’s approval and possibly the approval of the Casino Control, Lottery, and Racing commissions.
Some people are skeptical if the deal struck by Governor Kasich is good for Ohio in the long-term. While the state receives hundreds of millions of dollars up front ($220 million over 10 years), the state forfeits the additional revenues it could have received through the CAT for many years to come. Arguably, if the casinos fail, the state will be better off with the upfront money because CAT revenues will not be as lucrative. However, if the casinos succeed, the present value of the CAT revenues forgone could outpace the upfront payment. Thus, at the end of the day, the state itself is making the first “wager.”
Is it worth the gamble? Depends on which side of the table you sit.