States Weigh Gaming Tax Hikes
Many states have raised taxes in the past several years. For example, last September Michigan lifted the rate on the three casino operators in Detroit to 24% from 18%. The move has already had a significant financial impact on Mandalay Resort Group (MBG), which Thursday said its 53.5%-owned MotorCity Casino saw taxes increase by $6.3 million in the quarter ended Jan. 31.
But the state that engineered the steepest recent increase was Illinois. In 2002 and 2003, the government raised the top rate on its graduated casino tax first to 50%, then to 70%. The AGA said the high taxes have hurt gaming businesses, which have cut 700 jobs and postponed or canceled hundreds of millions of dollars worth of planned construction projects. In turn, state revenue from casinos has fallen.
Bradford Smith of International Gaming Consultant Services said legislators need to be savvy about how much they tax gaming. "You can tax it to death and see it shrivel, or you can leave a reasonable rate and see investment grow," he said.
In Louisiana, the governor's top fiscal adviser late last month said he had asked state economists to look at raising various gambling taxes to 32.5%. Current rates are 21.5% for riverboat and land-based casinos and 18.5% for slot machines at racetracks. Video poker machines are taxed 22.5% at racetracks, 26% at bars and restaurants and 32.5% at truck stops.Analysts said such an increase would dent earnings at a handful of publicly traded companies. David Anders at Merrill Lynch estimates 2005 and 2006 EPS at Harrah's Entertainment (HET) could each take a 13-cent hit. (Merrill Lynch does and seeks to do business with companies covered in its research notes.) Anders' current EPS estimates are for $3.71 in 2005 and $4.22 in 2006 and account for Harrah's pending acquisition of Caesars Entertainment (CZR). The company operates four casinos in Louisiana, although Anders and other analysts noted the Harrah's New Orleans property likely would be immune from any tax hike because it signed a special state contract, expiring in 2014, requiring it to pay the higher of either $60 million a year or 21.5% of gross gaming revenue.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV