Lower trigger for jackpots seen as costly for casinos

A Wall Street gaming analyst calculated that individual casinos could lose roughly $530,000 per year under a proposed Internal Revenue Service change that would lower the reporting rules for casino customer winnings.

The suggested move to reduce the trigger from $1,200 to $600 on jackpots for slot machines, keno and table games, was soundly criticized by gaming industry leaders as unnecessary and burdensome. The IRS set a 90-day period for the casino industry to respond to the proposed action.

Credit Suisse gaming analyst Joel Simkins said the downtime on a slot machine to allow a customer to fill out IRS paper work and for the game to be reset would increase significantly through the regulation changes.

In a report to investors this week, Simkins said casinos would face additional labor costs for hiring more employees to make service calls to reset games following jackpots.

Simkins said $600 jackpots are far more frequent than they were in 1970s when the IRS first enacted the $1,200 reporting threshold.

“While $530,000 per casino is not game changing, the impact on a portfolio of 20 to 30 casinos begins to add up,” Simkins wrote. “We expect this topic to be a galvanizing issue for casino interests and state interests.”

The American Gaming Association (AGA) came out against the proposed changes after they were first announced, calling the move “a step backward for the industry.”

Penn National Gaming, Inc. Senior Vice President of Public Affairs Eric Schippers suggested the IRS increase the reporting threshold.

Simkins agreed. The last IRS revision in 1977 came before the increase in regional and American Indian casinos. At the time, Nevada and pari-mutuel racing were the only legal gambling options in the U.S.

In his investors note, Simkins suggested the proposed changes would shrink gaming tax dollars paid to states and local governments.

He said the $600 threshold would “take the joy” out of playing slot machines for many players and also slow down play at the game level.

“In many high tax rate jurisdictions, states are significant partners with casino operators and have a vested interest in making sure that tax streams remains steady and growing,” Simkins said. “We believe that once politicians better understand that tax revenues could be negatively impacted, there will be increased push-back and commentary on any changes that cut into their coffers.”

Earlier this week, Rep. Dina Titus, D-Las Vegas, asked to meet with IRS Commissioner John Koskinen to discuss the proposed changes. In a letter, Titus said the new reporting requirements aren’t needed.

“I am concerned that the IRS has not adequately justified the need for this regulatory change,” Titus wrote. “The gaming industry already partners extensively with the IRS and other agencies to facilitate collection of taxation as well to prevent money laundering and other potentially illicit activities.”

In its proposal, the IRS said it was seeking comments regarding the reporting figure, including the feasibility of reducing the reporting threshold, whether electronically tracked slot machine play should have a separate reporting threshold, and if the games’ reporting amounts should be uniform.

The comment period ends June 2. The IRS may hold a public hearing on the issue on June 17.

Simkins said the proposed change is one of the few revisions of federal issues that has come up recently and would prompt the AGA and other trade groups to lobby aggressively on the downside of the changes.

“We see this attempt to generate additional federal tax revenue as anti-business and consumer, (and) placing additional compliance burden onto operators,” Simkins said.