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TheStreet Open House

States Weigh Gaming Tax Hikes

Few obstacles stand in the way of casino companies' recent roll, but one -- the specter of higher state gaming taxes -- can appear out of nowhere and hammer the stocks.

The market received a reminder of that recently, when shares of gaming companies with Louisiana operations sold off on news the state's governor was looking into raising gaming taxes to fund pay raises for teachers.

The potential Louisiana tax hikes are still only in the discussion stage, but casino investors have seen enough gaming tax increases in recent years to know they shouldn't underestimate state government efforts to raise so-called sin taxes. With many states struggling to fill fiscal holes, governments may find dipping into casino tills all too tempting.

"Anytime there's a tight budget in a state that has gaming, legislators commonly look to raise the casino taxes," said Bradford Smith, who heads International Gaming Consultant Services and is the former head of the New Jersey Casino Control Commission. "A lot of them have rates that are already high. There's always that pressure on the gaming industry."

Casinos already contribute significant sums to government coffers. In 2003, gaming companies in the 11 states with commercial casinos paid more than $4.3 billion in state and local taxes, out of gross revenue of more than $27 billion, according to the American Gaming Association, an industry group. (The commercial-casino tally excludes Native American casinos, which the AGA considers government-run businesses.)

The special gaming taxes casinos pay come on top of normal business taxes.

Lawmakers in other states are eyeing increases. John Mayo, a Democratic representative in Mississippi's legislature, last month introduced a bill that would raise taxes on casinos by 1% and increase the tax on winnings of more than $1,200 to 5% from 3%, according to local media reports. Even so, Mayo has acknowledged the bill doesn't stand a good chance of passing; Governor Haley Barbour has threatened to veto any legislation that would increase taxes.

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