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Casinos: The Effects of Casinos - Direct Government Revenue

tribal gaming taxes tax

From Commercial Casinos

According to the AGA study 2004 State of the States, commercial casinos generated tax revenues of $4.32 billion in 2003, up from $4 billion in 2002. Nevada generated the greatest tax revenue in 2003 ($776.5 million), followed by Illinois ($719.9 million) and Indiana ($702.7 million). Racetrack casinos generated tax revenues of $765.6 million in 2003, up from $718 million in 2002.

According to a 2003 AGA survey, 70% of Americans believe that legalized casino gambling is a good way to generate local and state revenues without having a general tax increase. However, respondents seemed uncertain as to where those gaming tax revenues go. Only 58% of those polled agreed that such revenues have helped pay for local roads, schools, hospitals, and other projects.

Gaming revenue taxes can be a substantial portion of a state's revenue. In Nevada in fiscal year 2003, gaming taxes and the casino entertainment tax accounted for 37% of the state's total budget. In July 2003 the Las Vegas Sun estimated that the gaming industry actually contributes 50% of the state's budget, when associated property and commercial taxes are considered ("Gaming Takes It on Chin During Session," by Jeff Gorman, July 5, 2003). Nevada legislators increased the maximum gaming tax rate from 6.25% to 6.75% during 2003, the first increase in years. The move was driven by a severe state budget crisis.

During 2002 and 2003 the state of Illinois raised gaming taxes on its casinos in an effort to ease state budget woes. The AGA complained that the increase caused the casinos to raise prices, lay off employees, and limit their capital investments, thus hurting the industry in the long term. Legislators in other casino states are increasingly considering raising gaming taxes to ease their budget problems.

According to statistics published on the Web site of the Mississippi Gaming Association (www.mississippigaming.org) the state's casino industry contributes about 10% of the state's total budget. In Mississippi in 2001, gaming revenue taxes were greater than the combined corporate taxes paid by all other corporations in the state.

According to statistics provided by the Mississippi Gaming Commission (www.mgc.state.ms.us), the number of people receiving food stamps in Tunica County dropped 56% between June 1992, when the first casinos opened there, and August 1997, while the assessed value of personal property rose from $16 million to $566 million. The tax rate dropped from 11.4 cents per $1,000 assessed value to 4.2 cents per $1,000. The county improved its roads and sewers and built new schools and a medical center.

From Native American Casinos

As described in Chapter 5, the Indian Gaming Regulatory Act requires that net revenues from tribal gaming be used in five general areas:

  • To fund tribal government operations or programs
  • To provide for the general welfare of the tribe and its members
  • To promote tribal economic development
  • To donate to charitable organizations
  • To help fund operations of local government agencies

Figure 6.1 shows the tribal government services funded by tribal casinos during 2003. This breakdown was compiled by the NIGA based on a survey of its member tribes.

The revenues earned by tribal casinos are not taxable, because the casinos are operated by tribal governments. Just as the federal government does not tax the states for revenue earned from lottery tickets, the federal government does not tax tribal governments for revenue earned from casinos. Therefore, tribal casinos generate less tax revenue than commercial casinos. Tribe members who live on the reservation and are employed at tribal enterprises (such as casinos) are not subject to state income taxes. On the other hand, tribe members do pay federal income tax, FICA, and social security taxes on their wages, even if earned at tribal enterprises. Wages paid to tribe members living off-site and to nontribe employees are subject to state income taxes.

FIGURE 6.1

The NIGA says that tribal casinos and associated business generated $4.7 billion in federal taxes during 2003. This includes employer and employee Social Security taxes, personal and corporate income taxes, and excise taxes. Indian Gaming: Final Impact Analysis estimates that jobs created by tribal casinos reduced federal unemployment and welfare payments by $1.2 billion during 2003.

According to the NIGA report Indian Gaming: Final Impact Analysis, tribal governments spent more than $200 million during 2003 on casino regulatory costs. They gave another $50 million to their home states and $9 million to the NIGC to offset oversight expenses. The report also notes that tribal casinos and associated businesses paid $1.6 billion to state governments during 2003 and $100 million to local governments.

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