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Metro-East News

Bar owners, VFWs upset over Pritzker plan to increase tax on video gaming terminals

 

At Crehan’s Irish Pub and Banquet Center in Belleville, the five video gaming terminals brought in more than $196,000 in net income in 2018. The state took 30 percent off the top, leaving about $137,650 for Crehan’s and terminal operator J&J Ventures to split, according to state gaming board records.

Over the years, Crehan’s has been able to use its share of video gaming revenues to give its employees pay raises, renovate the outside of its building, and keep the cost of menu items from increasing, said Barry Gregory, who owns the pub with his wife Patti. The revenue source made it easier for the restaurant to contribute to local charities, events and sponsor local sports teams.

But now the Gregorys are worried about an idea in the governor’s budget proposal to increase taxes on the video gaming terminals.

While no legislation has been introduced, a graduated tax increase on VGTs was proposed by Gov. J.B. Pritzker during his February budget address.

There is a 30 percent tax on video gambling revenue commonly referred to as net terminal income. The remaining money is then split, with half going to the retailer, such as a restaurant or bar, and half to the operator.

Pritzker proposed taxing net terminal income above $2.5 million a year at 50 percent. The current revenue sharing arrangement with local units of government would remain the same, under the governor’s proposal. Pritzker estimated under his proposal the state’s Capital Projects Fund would receive an additional $89 million per year and local governments would receive about $18 million under the alternative tax structure.

“That’s a huge increase,” said Barry Gregory, who was one of several small business owners who were in Springfield recently to lobby against the proposal. “We already pay more in the tax rate than most of the out-of-state casinos. Our money when it’s invested here in the video gaming in the communities comes back to our communities.”

The Gregorys are part of a group called Bet on Main St., an organization of small business owners, which also includes at least three video gaming terminal operators — Accel Entertainment, J&J Ventures and Tap Room Gaming — as supporters.

On the face of the proposal, it may look like a small mom-and-pop business, which only generates hundreds of thousands of dollars in net terminal income, would not be affected by a graduated tax system on video gaming. But the idea of it still worries Barry Gregory.

“If it starts there, where is it going to stop?” he said. “Once you get your foot in the door, the door can never be closed again. It may not affect me tomorrow, but what about the day after, or the week after, or the month after? Once that rock starts rolling down the hill, it’s hard to stop it.”

Ways to get more gaming revenue

Gregory added if the state needs more revenue, it should work toward having the state’s largest city allow gambling. Chicago has an ordinance which bans gambling.

“The simplest way to resolve this whole issue would be to get the city of Chicago involved in the video gaming,” Gregory said. “I think the state legislature needs to make a deal with the city of Chicago to include a casino and video gaming if they want to solve their revenue problems.”

The Illinois Gaming Machine Operators Association has suggested raising the betting limit on single plays from $2 to $4, increasing the maximum winnings on a single play from $500 to $1,199, allowing games with higher jackpots, and increasing the number of gambling terminals allowed at one location from five to six.

Those measures would create $210 million in new tax revenue the first two years without changing the tax rates, the gaming machine operators association said.

“In the governor’s proposed budget he put forth ideas to raise revenue serving as a bridge to the fair tax,” said Jordan Abuddayeh, Pritzker’s press secretary. “From the start the governor said he’s open to negotiations and that’s what the administration is currently doing.”

 

There are more than 30,000 video gaming terminals in almost 6,800 locations around the Illinois.

“Many of the video gaming operations are single site operations while others may be numerous separate LLCs underneath a larger parent entity,” the governor’s budget proposal stated. “These larger entities may be operating hundreds of video gaming machines at scores of locations around the state, yet they pay the same tax rates as the smaller single-site operations.”

Casinos in Illinois, most of which are owned by companies outside the state, have a graduated tax rates starting at 15% and rising to 50%, depending on how much money is made. The state accounts for differing market sizes through the progressive wagering tax.

“Video gaming should do the same,” the governor’s budget book says. “The new structure will require combined reporting of net terminal income at the parent entity level.”

Most of the casinos in the state are owned by larger companies that are based outside of the state.

Discussions on how to increase gaming revenue comes as Illinois considers legalizing sports betting and some municipalities get ready to lobby the legislature to authorize casinos in their communities.

Video gaming terminals were approved in the state as a funding source for the 2010 Illinois Jobs Now! capital plan. The terminals were legalized in bars, restaurants, fraternal organizations such as VFWs and American Legion posts, and truck stops. Establishments are limited to five terminals. After the terminals were allowed, video gaming parlors also began to open up around the state.

Non-gamblers impacted

Randy Rehmer, owner of Waterloo’s Double R Bar, says raising taxes on video gambling will eat at the $70,000 he makes each year off the machines.

Besides bringing more customers to his business, Rehmer says video gambling revenue has helped him remodel the building, hire an extra employee and give his staff pay raises.

“I’ve got nothing against raising the minimum wage, but the state is telling me to pay people more at the same time that it takes money away,” Rehmer said.

Barry Gregory said customers, both those who play gamble on the VGTs, and those who just come for a drink and a meal should care about video gaming tax rates.

“You care what I charge you for that hamburger, or that Pepsi product, or whether it’s Woodford Reserve or Tito’s,” Gregory said. “You care about what you’re paying each time you go into a restaurant or bar. Whatever the case may be. We’re able to hold our line because of the increased revenue there ... If you’re living in the community, you’re worried about some of the things like the food pantries ... or the Shriner’s hospital.

“It not only affects us directly, but you the customer indirectly.”

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