Here are some answers to commonly asked questions about Pennsylvania's property tax relief program, which is funded by the state's slot machines.DO I QUALIFY FOR THIS PROGRAM?All homeowners are. GAMING TAX RATE Pennsylvania imposes a 34 percent tax on the gross revenues collected from slot machines. On top of this, the state has placed an additional tax of up to 12 percent for the Pennsylvania Race Horse Improvement Assessment, a 5 percent tax that will go to the Pennsylvania Gaming and Economic Development and Tourism Fund, and, finally, a 4 percent tax or $10m, whichever is greater. Number of Machines 6 1,450 1,462 1,462 1,470 1,470 GTR% Change 7-11.59% -23.89% -21.67% -38.41% -79.55% July 2020 August 2020 September 2020 November 2020 December 2020 January 2021 February 2021 March 2021 May 2021 June 2021 FYTD Grand Total. Antique slot machines, defined by statute as those manufactured at least 25 years prior to current year, also are legal. Other types of gambling, such as poker and roulette, are strictly prohibited. Illegal gambling is charged as a first-degree misdemeanor in Pennsylvania, punishable by up to five years in prison and as much as $10,000 in fines. (AP) — Top Republicans in Pennsylvania’s state Senate are pressing sweeping gambling legislation that would allow slot machine-like terminals in thousands of bars, restaurants.

Players dream of hitting a big jackpot when they play the slots. When that day comes for you, you'll have questions about the taxes you must pay on the winnings.

Hand Pay Jackpots

When you hit the winning combination of symbols for a large jackpot, your slot machine locks up. Depending on the machine, the lights on top of the machine may come on and start flashing, music may play or bells ring. A slot attendant arrives promptly to see what you have won.

On jackpots smaller than $5,000, an attendant verifies that you hit the jackpot and then assists you in claiming your money at the cashier's cage. In the case of a large or progressive jackpot, the casino may have technicians come and check the machine to certify that it was functioning properly when the jackpot hit. If you hit one of the wide-area progressive machines such as MegaBucks, the slot company that operates the game comes out and verifies that machine before giving you a check.

When you hit a jackpot, you have the option of taking your winnings in cash or check. Usually, large amounts are paid by check. In the case of the MegaBucks or similar multi-million dollar jackpots, you receive a check for the partial amount, and then you have 90 days to decide if you want to be paid a lump sum or an annual annuity on the balance. If you select the lump sum option, you receive only a percentage of your actual winnings. For example, the full winnings of one multi-million slot jackpot is paid in 25 annual installments, or you can take a lump sum of 60 percent of the winnings.

Pennsylvania

IRS Withholding

All casino winnings are subject to federal taxes. However, the IRS only requires the casinos to report wins over $1,200 on slots and ​video poker machines or other games such as keno, lottery or horse racing. When you have a win equal to or greater than $1200, you are issued a W-2G form. This form lists your name, address and Social Security number. The casinos are not required to take out withholding tax on jackpots under $5,000 as long you supply your Social Security number. If you don’t provide your Social Security number, the casinos withhold 28 percent on small jackpots.

You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some players like to do this to avoid a big tax payment in April when they file their income tax returns. The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling losses up to the amount of your winnings. You can only do this if you have documentation of your losses. Keeping a diary or log book is the way to do this.

Proper Identification

Casinos can refuse to pay you until you produce proper identification—a photo ID such as a driver’s license, military ID or passport.

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If you don’t produce an ID, you are photographed and the casino holds your winnings until you come back with proper ID. For this reason, you should always carry a valid form of identification with you when you visit the casino.

When the casino checks your identification, it also checks your age to make sure you are legally old enough to play. The minimum age for gambling varies from state to state, but under-age gamblers are not be paid if they hit a jackpot. This is the law in all jurisdictions, and it has been upheld in court.

Plan Ahead

Before you start playing your favorite slot machine you should have a plan for the day you hit a jackpot. Players become excited when they hit the big one, and this may affect the decisions you make about your winnings. It is helpful if you know ahead of time how much withholding you want taken out or whether you want a check for all or some of the amount.

When a state or local tax is invalidated in Pennsylvania it is typically based upon either the Commerce Clause of the United States Constitution, art. I, § 8, cl. 3, or the Uniformity Clause of the Pennsylvania Constitution, art. VIII, § 1. Last week, however, the Supreme Court of Pennsylvania struck down a tax relying primarily on the Fourteenth Amendment, and most of the Court’s members could not decide which part invalidated the tax. Sands Bethworks Gaming v. Pa. Dep’t of Revenue, No. 216 MM 2017, 2019 PA LEXIS 2361 (Pa. Apr. 26, 2019). That may sound strange, but it is not the Court’s fault: The relevant precedent is frankly not consistent.

Sands Bethworks involveda tax on slot machine revenues. Pennsylvania levies a variety of taxes on theserevenues:

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  • There is a 34% base tax that is payable to theState Gaming Fund. See 4 Pa. C.S.A. §1403.
  • There is a 5.5% tax that is paid into the GamingEconomic Development and Tourism Fund. See4 Pa. C.S.A. § 1407(a)-(c).
  • Finally, there is 0.5% tax that is paid into theCasino Marketing and Capital Development Account (“CMCD Account”). See 4 Pa. C.S.A. § 1407(c.1). ThisCasino Marketing tax was before the Court in Sands Bethworks.

The Gaming Act provides that the CMCD Account will also befunded with annual transfers of $2,000,000 from the State Gaming Fund. See 4 Pa. C.S.A. § 1408(c.1). Theresulting fund is then to be distributed annually among certain of thelicensees. 4 Pa.C.S.A. § 1407.1(e). To understand how the funds are to beallocated, it is necessary to explain the classification of slot machinelicenses; there are four classes of licenses, but only three are affected bythe Casino Marketing Tax:

  • Category 1 licenses are for slot machines atexisting horse racing facilities, 4 Pa.C.S.A. § 1302;
  • Category 2 licenses are for slot machines thatare not at a track and can be located “in a city of the first class, a city ofthe second class or a revenue- or tourism-enhanced location,” 4 Pa.C.S.A. §1304(a);
  • Category 3 licenses are for slot machineslocated “in a well-established resort hotel having no fewer than 275 guestrooms under common ownership and having substantial year- round recreationalguest amenities,” 4 Pa.C.S.A. § 1305(a)(1).

The CMCD Account is to be distributed annually in twostages. First, there are mandatory distributions:

(i) Each Category 1 or Category 2 slot machine licensee with gross terminal revenues of $150,000,000 or less for the previous fiscal year shall receive $4,000,000.

(ii) Each Category 1 or Category 2 slot machine licensee with gross terminal revenues of more than $150,000,000 but less than $200,000,000 for the previous fiscal year shall receive $2,500,000.

(iii) Each Category 3 slot machine licensee with gross terminal revenue of less than $50,000,000 for the previous fiscal year shall receive $500,000.

4 Pa.C.S.A. § 1407.1(e)(1)(i)-(iii). If the funds on handare insufficient, the distributions are prorated. 4 Pa.C.S.A. § 1407.1(e)(1)(iv).After the mandatory distributions are made, then grants can be made from the CMCDAccount, but no casino can receive more than $4,000,000 annually, and no casinocan receive a grant in the first two years it holds a license. 4 Pa.C.S.A. §1407.1(e)(2), (3). The overall effect of this arrangement is worth noting:Successful casinos are subsidizing less successful ones.

The taxpayer, Sands Bethworks Gaming LLC, which holds a Category 2 license,1 filed a petition with the Supreme Court to challenge the constitutionality of the Casino Marketing tax in December of 2017. Sands Bethworks, 2019 PA LEXIS 2361 at *4-*5. The Court had original jurisdiction under the Gaming Act. See 4 Pa.C.S.A. § 1904. In its petition, Sands Bethworks challenged the Casino Marketing tax and the provisions governing the CMCD Account as violating the Uniformity Clause of the Pennsylvania Constitution, along with its requirements that legislation have a public purpose and the rule against special legislation. 2019 PA LEXIS 2361 at *5. Sands Bethworks also challenged the arrangement under the Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. Id. A second casino with a Category 1 license was permitted to intervene and it raised similar arguments. Id.

The Court’s majority opinion, authored by Chief JusticeSaylor, focused on the arguments made under the 14th Amendment, and itcommenced its analysis with two cases: Thomasv. Kansas City Southern Railway Co., 261 U.S. 481 (1923) and Morton Salt Co. v. City of South Hutchinson,159 F.2d 897 (10th Cir. 1947). SandsBethworks, 2019 PA LEXIS 2361 at *6. In Thomas,Arkansas had created a drainage district and imposed a six percent tax on theproperty in that district to pay for improvements. The plaintiff, which hadrailroad tracks in the district, complained that it would pay a significantportion of the costs of the improvements in the district but would not benefitfrom them as its tracks were above flood level. 2019 PA LEXIS 2361 at *6. TheSupreme Court of the United States affirmed a lower court ruling that thearrangement violated the Equal Protection Clause. Initially, it noted that “[t]hetax laid imposes upon the railroad, which can receive no direct or immediatebenefit, a very heavy burden; and the lands which will receive a large direct(and possibly immediate) benefit, are required to bear only a very small partof the burden.” Thomas, 261 U.S. at485. Given the disparity in treatment, the ThomasCourt held that the Arkansas tax was “grossly discriminatory.” Id.

The majority in SandsBethworks then considered Morton Salt,which it characterized as involving “analogous facts.” 2019 PA LEXIS 2361 at*7. Morton Salt was another casewhere a taxpayer would pay a significant share of a tax for local improvementsthat would not enhance its property value. The taxpayer owned 46% of theassessed value in the City of South Hutchinson. 159 F.2d at 899. The city soughtto finance a waterworks by issuing bonds, which would be paid through a prorata assessment of all property in the city and would create a lien on thetaxpayer’s property if not paid. From the taxpayer’s perspective, this projectwas of little utility:

It is specifically averred that the construction plans for the waterworks system do not provide for a supply of water to any of the property owned by complainant for any purposes whatsoever; that the nearest water pipe contemplated by the proposed construction plans terminates about three-quarters of a mile from plaintiff’s property; that the additional cost of facilities for furnishing plaintiff’s business with an adequate water supply would amount to not less than $70,000, and that the additional cost of furnishing said water to plaintiff is not within the statutory limitation imposed upon the City for such improvements.

Id. Reviewing thecase on appeal from the denial of a preliminary injunction, the 10th Circuitconcluded that an injunction should be issued, reasoning that “whether 46% ofthe total tax burden for the indirect benefits conferred is so grosslydisproportionate and discriminatory as to amount to a taking of propertywithout due process of law, . . . poses a serious constitutional question whichshould be decided only after a full and complete hearing.” Id. at 902.

The majority in SandsBethworks noted the variance in approaches between the Supreme Court in Thomas (which relied upon the EqualProtection Clause) and the Tenth Circuit in MortonSalt (which relied upon the Due Process Clause) in a footnote, which alsocommented that there was “uncertainty” among courts over which clause of theFourteenth Amendment was implicated. 2019 PA LEXIS 2361 at *8, n.6. Themajority noted that “some courts have used a litmus based on the concept ofarbitrariness without directly stating which aspect of the Fourteenth Amendmentit is founded on.” Id. (citationsomitted).

After noting the inconsistency in the case law, the majorityturned to Allegheny County v. Monzo,509 Pa. 26, 500 A.2d 1095 (1985). As the majority explained, “Monzo involved an ordinance imposing aone-percent tax on all hotel-room rental income in Allegheny County to fund thebuilding of a convention center in Pittsburgh. The convention center wouldresult in more business for hotels in Pittsburgh, but not for hotels in distantparts of the county.” Sands Bethworks, 2019PA LEXIS 2361 at *8. Faced with a challenge to the tax by hotel operator in anoutlying area of Allegheny County, the Monzocourt held that “[w]here the benefit received and the burden imposed [are]palpably disproportionate, a tax is not only a taking without due process underthe Fourteenth Amendment to the United States Constitution, but also anarbitrary form of classification in violation of equal protection and stateuniformity standards.” 2019 PA LEXIS 2361 at *8-*9 (quoting Monzo, 509 Pa. at 38, 500 A.2d at 1103).The majority in Sands Bethworkscharacterized the court’s disposition of the hotel tax in Monzo in the following manner: “Because the tax effectively aidedPittsburgh hotels at the expense of the other hotels in the county, this Courtdetermined it violated due process and equal protection, as well as severalaspects of the Pennsylvania Constitution.” Id.at *9 (citations omitted).

Although the Commonwealth argued that the classificationsemployed in the Gaming Act did not involve fundamental rights and should besubject to rational basis scrutiny, the majority rejected that argument becausethe tax at issues was a special assessment:

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[C]ertain constraints apply where, as here, taxes are levied, not for general use by the state, but for specific projects or programs. Most pertinent for this matter, courts have viewed with disfavor circumstances in which the government enacts a special assessment but, for some subset of taxpayers, the tax imposed substantially outweighs any benefit received.

Id. at *11-*12.

In the majority’s view, “Monzois illustrative of the principle” because there was no dispute that the tax hada valid public purpose. Id. at *12.Instead, “[t]he difficulty arose because the government did not limit the scopeof the hotel tax to the hotels that would derive a benefit from the conventioncenter.” Id. at *12-*13. Althoughrecognizing that the Casino Marketing tax was enacted for public purposes, themajority was troubled by its structure, “since there are only a small number oftaxpayers (twelve at present), and the subset of those which receive a tangiblebenefit obtain, not an indirect advantage, but actual funds drawn directly fromthe account into which the taxpayers pay the special assessment.” Id. at *13.

In the majority’s view, Monzowas dispositive. The majority specifically noted that one casino with over $400million in gross terminal revenue from slot machines paid over $2 million intothe CMCD Account and would receive no distribution, while a competing casinowith revenues of $199.7 million would receive a $2.5 million distribution. Id. at *15-*16. The majority was plainlytroubled by the statute’s decision to force businesses to subsidize theircompetitors:

Overall, the financial data published by the Board demonstrate that seven of the twelve taxpayers are not due to receive any mandatory distribution based on fiscal-year 2017-18 data. At the same time, two are entitled to a $4 million mandatory distribution, two more are slated to receive $2.5 million, and one is set to obtain $0.5 million.

Id. at *16. Giventhat structure, the majority concluded that the Casino Marketing tax wasimproper:

Accordingly, we conclude that the challenged . . . Account provisions cannot be sustained under the precedent set by Monzo and the federal cases it relied upon, as “the benefit received and the burden imposed [are] palpably disproportionate” insofar as casinos which do not obtain a mandatory distribution are concerned. The tax is thus inconsistent with the Fourteenth Amendment.

Id. at *18-*19.(citation and footnote omitted).

In a footnote, the majority explained why it did not decidethe case under the Uniformity Clause to counter an argument raised by aconcurring opinion: “[A]s the federal and state precedent reviewed above makeit clear that the challenged legislation works a constitutional violationindependent of the Uniformity Clause, we see no present need to decide whetherthe clause’s prohibitions should be extended to a new category of circumstances.”Id. at *19 n.9. The problem was thatthe tax itself was uniform, but the distribution of the fund it created wasnot. The majority considered this to be an extension of the Uniformity Clause,which normally is focused on the imposition and collection of taxes, not wherethe revenues go. Id.

After holding that the provisions related to the CasinoMarketing tax were severable from the Gaming Act, the majority turned to theremedy. Historically, the Court has been reluctant to require taxingauthorities to refund illegal taxes because of the adverse impact on the taxingauthority. See Oz Gas, Ltd. v. WarrenArea Sch. Dist., 595 Pa. 128, 145-46, 938 A.2d 274, 285 (2007). Because theplaintiffs had received a preliminary injunction barring the distribution ofthe funds held in the CMCD Account, the court ordered that they be refunded. Id. at *20-*21.

In a concurring opinion, Justice Wecht criticized the majority’s decision to ignore the uniformity issues that were (in his view) the focus of the parties’ briefs:

[T]oday’s learned Majority chooses instead to resolve this case principally upon the basis of Allegheny County v. Monzo, 500 A.2d 1096 (Pa. 1985), although even the Majority itself cannot specify with any confidence the constitutional provision upon which Monzo relied, or even whether any such provision is state or federal.

Id. at *22 (Wecht,J., concurring). Instead, Justice Wecht would have decided the case under theUniformity Clause:

I am persuaded by Sands’ contention that the Gaming Act’s supplemental assessment scheme violates the Uniformity Clause of the Pennsylvania Constitution. Sands argues that the Act’s collection-and-distribution scheme impermissibly ties each casino’s tax liability to its annual revenue, creating what amounts to a graduated-rate tax of the sort that the Uniformity Clause prohibits.

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Id. at *31-*32 (Wecht, J., concurring). Justice Wecht noted that existing precedent did not require that the lack of uniformity be apparent from the face of the statute. Id. at *32. He also posited that drawing “a bright line between the imposition of a tax and the spending of its proceeds” would enable the legislature to draft around the Uniformity Clause: “Instead of imposing an unconstitutional graduated-rate tax, the General Assembly simply could impose a uniform tax on everyone and then later refund all or part of the taxes paid by a chosen few.” Id. at *37 (Wecht, J., concurring). It is an interesting approach that may prove useful in future cases, even if it did not persuade the majority here.

What about Justice Wecht’s criticism of the majorityopinion? While it is true that the majority did not explicitly state whichprovision of the 14th Amendment its decision rested upon, it can hardly befaulted for that, given the variety of rationales offered in prior cases. Andit is important to bear in mind that the Due Process Clause and the Equal ProtectionClause are overlapping provisions that address related concerns. On the sameday that the Supreme Court decided Brownv. Board of Education, 347 U.S. 483 (1954), it addressed a schoolsegregation case from the District of Columbia:

We have this day held that the Equal Protection Clause of the Fourteenth Amendment prohibits the states from maintaining racially segregated public schools. The legal problem in the District of Columbia is somewhat different, however. The Fifth Amendment, which is applicable in the District of Columbia, does not contain an equal protection clause as does the Fourteenth Amendment which applies only to the states. But the concepts of equal protection and due process, both stemming from our American ideal of fairness, are not mutually exclusive. The “equal protection of the laws” is a more explicit safeguard of prohibited unfairness than “due process of law,” and, therefore, we do not imply that the two are always interchangeable phrases. But, as this Court has recognized, discrimination may be so unjustifiable as to be violative of due process.

Bolling v. Sharpe,347 U.S. 497, 498-99 (1954) (footnotes omitted); see also Steward Machine Co. v. Davis, 301 U.S. 548, 585 (1937) (“weassume that discrimination, if gross enough, is equivalent to confiscation andsubject under the Fifth Amendment to challenge and annulment”).

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Against that background, it is hard to fault the majority inSands Bethworks for offering asomewhat muddled rationale when the relevant clauses of the 14th Amendmentoverlap to some extent and the case law is itself muddled.

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1 The taxpayer operates on the site of the former Bethlehem Steel works. https://www.pasands.com/en/about-us/property-history1.html The site has changed from “the largest brownfield site in the United States,” id., to “a revenue- or tourism-enhanced location,” authorized to receive a Category 2 license. See 4 Pa.C.S.A. § 1304(a).