PressofAtlanticCity video of September 2, 2022 (Vernon Ogrodnek):
- PressofAtlanticCity.com on August 31, 2022 (Michelle Brunetti Post, Alison Burdo):
A Superior Court judge in New Jersey has struck down a state law granting Atlantic City’s casinos tens of millions of dollars in tax breaks, saying the measure was passed on dubious grounds and violated the state Constitution.
The ruling, handed down Monday, deals a blow to Gov. Phil Murphy and the state’s legislative leaders, who fast-tracked the legislation last year. It also is a rebuke to the gaming industry, which had argued the bill was needed because it was struggling amid the COVID-19 pandemic.
At issue in the court case were changes to a local taxing program known as PILOT, or payment in lieu of property taxes. Since 2016, instead of paying property taxes, each casino has paid a share of an industrywide assessment that was distributed to Atlantic City, its school district and the county to fund various operations. The number was calculated based on the prior year’s total gaming revenue. But last year, the industry pressed for and won a key legislative change to that formula, excluding online gaming — a fast-growing sector of its business — from the program. The alteration reduced the gaming companies’ total PILOT liability this year by $55 million — revenue cuts that disproportionately impacted Atlantic City, one of the state’s most distressed cities.
A conservative nonprofit group called Liberty and Prosperity 1776 challenged the constitutionality of the law, saying the state’s founding document bars preferential tax treatment. The state countered that the new law was exempt from that prohibition because it served a “permissible public purpose.” On Monday, Atlantic County Assignment Judge Michael Blee sided with the nonprofit, potentially increasing casinos’ tax bills and sending tens of millions of additional dollars into local coffers.
At the time the bill was passed, state lawmakers and industry leaders argued that despite soaring online gaming revenues, the change was necessary to prevent financial peril. “We are risking four casinos closing,” said then-state Senate President Steve Sweeney, without providing specifics.
But, as The Press of Atlantic City and ProPublica reported in June, the casino industry was already rebounding from a pandemic slump as it argued for tax relief. Even as the industry claimed fiscal trouble, it had its best year in more than a decade: Casinos in Atlantic City reported roughly $767 million in gross operating profit in 2021. Financial reports show that revenue from in-person gambling has surpassed pre-pandemic levels. Through the first six months of 2022, the most recent data available, the city’s nine casinos reported $339 million in gross operating profits, or 17% more than the same period last year.
“There is no evidence to suggest that casinos could not meet their PILOT obligations under the Original Act,” Blee wrote. The legislation, he concluded, was advanced “to aid what was actually a resurging industry.” That echoed the findings of The Press of Atlantic City and ProPublica investigation, which calculated what each casino’s tax liability would have been had the PILOT law remained unchanged.
The Casino Association of New Jersey declined to comment on the ruling, citing its policy of not discussing pending litigation. The organization previously told The Press of Atlantic City and ProPublica that last year’s changes to the PILOT law were necessary. “Failing to adjust the PILOT would have resulted in egregious, inappropriate, and inequitable taxes for any industry, let alone an industry that is still fighting to recover from COVID-19,” the group said in a statement.
2. Advance Media for NJ.com on September 1, 2022:
“Seth Grossman, a former Atlantic County freeholder and congressional candidate who is also executive director of Liberty and Prosperity, …”
3. Lexis/Nexis Law 350 Tax Authority on September 1, 2022:
NJ Judge Scales Back Casino Tax Breaks
By Ryan Harroff · September 1, 2022, 6:19 PM EDT
4. Casino.org on August 31, 2022:
Last year, New Jersey lawmakers and Governor Phil Murphy (D) amended the casinos’ payment-in-lieu-of-tax (PILOT) structure to remove iGaming and online sports betting revenue from the calculation used to determine the resorts’ annual property tax load.
Formed in response to the 2008 Great Recession and the closure of five casinos from 2014 through 2016, PILOT assesses a collective property tax responsibility for the casinos based on their annual gross gaming revenue.
The gaming industry convinced the state that several casinos would be at risk of closing without PILOT reductions. They argued that since iGaming and online sportsbook revenue is shared –third-party operators like DraftKings and FanDuel have little physical presence in the city — that revenue shouldn’t be included in their annual property tax bill.
This week, New Jersey Superior Court Judge Michael Blee said the PILOT change was carried out in violation of the state Constitution.
Preferential Tax Treatment Prohibited
Blee reviewed the PILOT amendment after a New Jersey-based nonprofit conservative political group, Liberty and Prosperity 1776, filed suit against the state. They claimed that the state Constitution prohibits preferential tax treatment.
Blee previously ruled in Atlantic County’s favor in its legal plea that the 2021 PILOT change violated a consent order reached with the state. That order guaranteed the county approximately 13.5% of the annual casino property tax.
Blee said at the time that the state could reduce the casino property tax by stripping iGaming and internet sportsbook revenue. But he also ruled it must continue to pay Atlantic County the full amount it would have received before the calculation adjustment.
Now, Blee is throwing out the entire PILOT change.
“There is no evidence to suggest that casinos could not meet their PILOT obligations under the Original Act,” Blee wrote in his order issued on Monday.
Instead, the judge concluded that the PILOT change was simply “to aid what was actually a resurging industry.” Outgoing New Jersey Senate President Stephen Sweeney (D), who a political newcomer defeated during the 2021 election, spurred the PILOT change. Sweeney was a longtime advocate of the Atlantic City gaming industry.
No Public Purpose
The New Jersey Constitution allows special tax treatment in the rare case such a policy serves a “public purpose.” Blee found that the 2021 PILOT adjustment failed to reach that classification.
“This Court finds that the Amendment was enacted to aid the casino industry and not for a public purpose,” Blee summarized.
The Casino Association of New Jersey didn’t respond to a request for comment. The lobbying group cited its policy of not commenting on pending litigation. However, Seth Grossman of Liberty and Prosperity 1776 did comment.
“The bottom line is when you have tough economic times, every business is affected. So, to say you’re going to give one industry a break by making everybody else pay more, that’s not helping the economy. It’s just helping one ‘ailing’ industry,” Grossman opined.
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