Atlantic City casinos were dealt a great hand by New Jersey lawmakers late last year when legislation to substantially reduce their annual property tax liabilities was signed by Governor Phil Murphy (D). This week a state judge ruled that the tax amendment runs afoul of a 2018 consent order.
In 2016, New Jersey and the casinos reached a payment-in-lieu-of-tax (PILOT) structure that levies an annual property tax sum on the nine casinos based not on their resort assessments but on the gross gaming revenue they generated in the previous year. The program settled casino property tax assessment disputes.
Atlantic County sued the state the following year, saying the 10.4% distribution to the county under the PILOT program was far inadequate. The lawsuit resulted in the state settling with the county and increasing its share to 13.5%.
The 2021 PILOT adjustment strips GGR from iGaming and mobile sports betting from the annual property tax calculation. As signed by Murphy, the bill will result in the casinos saving $55 million in 2022 alone. But it also slashes the county’s property tax receipts from the casinos.
Atlantic County contends that the adjustment to the PILOT law last year will cost county taxpayers between $5 million to $7 million annually. The PILOT program is to run through 2026.
Responding to Atlantic County suing the state for a second time regarding the PILOT, New Jersey Superior Court Judge Joseph Marczyk in December issued his opinion that the two sides settle their differences in mediation. The state refused, however, resulting in Marczyk being required to resolve the matter.
After weeks of consideration, the judge has come down in favor of Atlantic County. Marczyk says the most recent PILOT calculation change violates the county and state’s 2018 settlement.
The court order does not annul the 2021 PILOT amendment but requires the state to make Atlantic County whole based on the amount it would have received with iGaming and online sports betting revenue included in the calculation.
What this means is they are going to decide now what damages we can collect and how we are harmed by this,” explained Atlantic County Executive Dennis Levinson.
State attorneys did not immediately comment on the Marczyk order.
Can’t Take Gaming Out of iGaming
The 2018 PILOT consent between New Jersey and Atlantic City mandates the county collect 13.5 percent of the collective property tax bill based on total gross gaming revenue. During hearings on the lawsuit, Marczyk questioned whether the state had the legal authority to redefine GGR.
State attorneys said it was their opinion that lawmakers can indeed decide what does and doesn’t constitute gross gaming revenue. Marczyk ultimately disagreed when it comes to the state’s 2018 agreement with the county.
“All we want them to do is keep their agreement, honor their commitments,” Levinson said.
The casinos successfully lobbied lawmakers to remove iGaming and mobile sports betting income from the PILOT calculation. The gaming industry argued that much of that revenue goes to third-party operators like DraftKings and therefore shouldn’t be included in the property taxes.
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