The Pennsylvania Supreme Court has determined that skill games are categorized as slot machines under state law. Consequently, these devices must adhere to Pennsylvania’s crime and gambling regulations.
The court’s decision includes a 120-day pause on law enforcement action, providing the state legislature a window to regulate the machines. These games have become widespread, appearing in numerous establishments such as taverns, gas stations, and convenience stores, with an estimated 70,000 units in operation across Pennsylvania.
Senate Republicans, who hold the majority, view this ruling as an urgent matter in resolving the current budget. Meanwhile, House Democrats are still assessing the implications of the court’s decision.
The Independent Fiscal Office estimates that taxing these skill games could generate over $1 billion annually, a significant potential revenue stream. If the legislature does not act within the allotted time, law enforcement may proceed with seizing these devices.
Two cases concerning skill games were considered by the court. The first, dating back to 2019, involved a bar and a skill games supplier challenging a police seizure of their machines. The core issue was whether these games predominantly rely on luck or skill.
Initially, the Dauphin County Court of Common Pleas and Commonwealth Court decided these games were skill-based and not subject to slot machine regulations.
In the second case, Pace-O-Matic, a key player in the skill games industry, sought a legal judgment on the legality of these games. The Commonwealth Court previously ruled that existing gambling laws did not cover skill games.
The majority of the state Supreme Court justices found the Commonwealth Court’s statutory interpretation to be “deeply flawed,” deeming the court’s conclusions incorrect.
The justices argued that a skill game qualifies as a slot machine “several times over” according to both state statute and the general definition of a gambling device. They emphasized that any skill element in these games is immaterial.
The Supreme Court clarified that the Gaming Act extends to skill games, not only to licensed casino slot machines, citing various instances where the act’s language includes unlicensed entities and facilities.
The court highlighted that their ruling is not the final verdict on skill games. “Naturally, because all that follows is a consequence of statutory law, our General Assembly also remains free at any time to take whatever legislative action it may deem appropriate,” they stated. The decision does not endorse any specific policy concerning the proliferation of skill games.
Legislative Action in Question
The court’s decision initiates a 120-day period for lawmakers to legislate on legalizing, regulating, and taxing skill games, or to permit law enforcement to act against them.
Efforts to regulate skill games have persisted for years, with a general consensus on the need for regulation and taxation. However, reaching an agreement has proven elusive.
Republican leaders in the state Senate emphasized the urgency of addressing the games’ spread, stating that gaming reform is critical for the annual budget’s resolution.
House Democrats and Governor Josh Shapiro’s office are reviewing the ruling.
The main challenge for lawmakers has been agreeing on a suitable tax rate for the devices’ gross revenue. Shapiro’s proposed budget suggests a 52% tax rate, aligning with the state’s 55% tax on other electronic gaming. Senate Republicans have previously proposed a 35% rate, while some Republicans advocate for a 16% rate.
Disagreements are further complicated by differing interests: casinos favor a higher tax rate, while the skill games industry argues that such rates would be detrimental, particularly for small businesses and veterans’ organizations.
Pace-O-Matic expressed disappointment with the ruling, asserting it misrepresents the facts. They highlighted that small businesses and clubs operating skill games face a difficult choice between losing revenue or facing excessive regulation and taxation.
Some lawmakers caution against hasty regulations that prioritize revenue over public health concerns.
“What we are talking about here is the potential largest expansion of gambling in Pennsylvania history since the casinos,” state Rep. Ben Waxman (D., Philadelphia) told Spotlight PA. “And we cannot make short-term decisions with really long-term consequences.”
