Atlantic City Casino Tax Dispute Headed to State Appeals Court

The Press of Atlantic City reported that the Atlantic City gaming industry in New Jersey is facing a high-stakes legal battle over casino taxation. 

Atlantic City PILOT System Dispute Goes to Appeal

The dispute centers around the state’s property tax system, known as PILOT. The original system-based tax was due on three data points: gross gaming revenue, number of hotel rooms, and acreage, which included online gaming revenue. 

However, the casinos successfully lobbied to exclude online gaming from the program, citing the COVID-19 pandemic’s impact on their business. A judge in Atlantic County ruled in August that the state’s legislation on PILOT had been advanced to assist an industry that was actually experiencing a resurgence and ordered a return to the original formula. The state is appealing the decision.

The amount at stake is at least $55 million, which would be split among Atlantic City, its school district and Atlantic County. Under the new regulations, Atlantic County estimates it would receive $19.3 million less over the last five years of the PILOT program, set to end in 2026, than it would have if the original formula had stayed in place. 

The state argues that the door was left open for legislators to change the PILOT formula, as a 2018 agreement with Atlantic County did not specify the formula as currently written. The county, in response, called this implausible. 

If the state’s interpretation prevails, it could have an adverse impact on some county-funded health programs, according to Atlantic County Executive Dennis Levinson.

Liberty & Prosperity 1776 Inc. Sues New Jersey Over PILOT Preferential Tax Treatment

In a separate legal action, conservative non-profit Liberty & Prosperity 1776 Inc. sued the state, arguing that the state constitution bars preferential tax treatment. The state is appealing against a ruling that the amended PILOT serves a public purpose. 

According to the state’s appeal, the new law diverts the Investment Alternative Tax revenue, which could have been left unused, to Atlantic City. This action is intended to prevent a detrimental tax increase for the industry.

An increasing share of online gaming revenue was not going to the casinos but to their tech partners, so legislators removed internet wagers from the formula, according to the state. However, the parent companies of Atlantic City casinos had been spending billions of dollars to acquire online gaming firms.

Should the state lose the legal battles, the gaming industry could face a return to higher tax bills. Atlantic County and the city are counting on the extra funds to boost services and their struggling economy.