The Atlantic City casino property tax adjustment that would have saved the nine gaming resorts in town some $55 million this year alone has been overturned by a state judge.
New Jersey lawmakers and Governor Phil Murphy (D) last year 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. The 2016 PILOT, formed in response to the 2008 Great Recession and the closure of five casinos from 2014 through 2016, assesses a collective property tax responsibility for the casinos based on their annual gross gaming revenue.
The gaming industry successfully convinced the state that without PILOT reductions several casinos would be at risk of closing. They argued that since iGaming and online sportsbook revenue is shared with third-party operators like DraftKings and FanDuel that have little physical presence inside the city, that revenue shouldn’t be included in their annual property tax bill.
But New Jersey Superior Court Judge Michael Blee this week said the PILOT change through the state’s 2021 legislative measure was carried out in violation of the state Constitution.
Preferential Tax Treatment Prohibited
Blee was once again reviewing the PILOT amendment after a nonprofit, Liberty and Prosperity 1776, a conservative political group based in New Jersey, filed suit against the state on grounds 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 its consent order reached with the state that 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 must continue to pay Atlantic County the full amount it would have received prior to 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 was shockingly defeated by a political newcomer 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 does allow for special tax treatment in the rare case that 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 did not respond for comment, the lobbying group citing its policy of not commenting on pending litigation. But Seth Grossman of Liberty and Prosperity 1776 did.
“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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