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It’s No Jackpot, But Online Gambling Tax Contributes Millions to NJ's Coffers

Although tax revenue from Internet gaming has not met some supporters’ projections, it’s becoming a reliable source of cash for the state’s annual budget

Gambling casino

Online gambling, which got off to an unimpressive start initially, has turned it around and now is emerging as a significant source of revenue for the state.

Nearly four years ago, when it was first introduced in New Jersey, online gambling missed revenue estimates by more than $100 million. But the gross revenue from New Jersey’s legalized online-gambling sites have been totaling at least $20 million the past five months, pushing the total since 2013 to over $600 million.

They still have a long way to go to reach the lofty goal of more than $1 billion a year that were predicted by supporters when it was initiated. But the state’s latest casino-tax collection figures suggest online gambling may now be emerging as a reliable source of cash for the annual budget.

15 percent tax

Gross revenue from New Jersey’s legalized online-gambling sites totaled $20.6 million during July, according to the state Division of Gaming Enforcement. Taxed by the state at a 15 percent rate, online gambling generated more than $3 million in tax revenue for the state budget in July, and helped to push the total tax haul since online gambling started in New Jersey in late 2013 to $108 million.

The building success of the state’s online-gambling sites drew praise from analysts at PlayNJ, a website that promotes New Jersey’s online casinos, which by law must be operated by or affiliated with a state-based casino. It also comes as the co-author of the 2013 legislation that led to the legalization of online gambling in the state is calling for a loosening of the current rules that only allow virtual gambling by 21-year-olds who are playing in New Jersey.

Gov. Chris Christie signed into law the legislation which established the 15 percent tax on online-gambling revenues — nearly double the 8 percent rate on brick-and-mortar casino winnings — and it also required that online gambling servers be located in Atlantic City. Casinos in New Jersey are also required by law to dedicate another 1.25 percent of all gross revenues to capital projects that create jobs and benefit the resort.

The sponsors of the online-gambling bill that Christie eventually signed into law — after first making a series of recommendations in a conditional veto — predicted it would help boost a gambling industry in Atlantic City that had been hit hard in recent years by competition from new casinos opening in neighboring states. They also touted the benefits it could bring to a state budget still suffering at the time from the effects of the Great Recession.

Revenues on the rise

Christie’s administration initially estimated the online sites would generate up to $180 million in new tax revenue for the state budget in just one fiscal year, a mark that actual revenues fell well short of hitting. While online gambling is still a modest overall source of revenue for a state budget that totals nearly $35 billion, the latest official figures indicate the total revenues are still on the rise.

In fact, the $20.6 million in gross revenues collected by the online casinos in July was up by 18.5 percent compared to July 2016, and overall online-gambling revenues since the beginning of the year were up nearly 27 percent, according to the Division of Gaming’s latest figures. That success helped to push overall gross casino revenues in New Jersey up by more than 2 percent over the same period last year, the agency said.

With more than $619 million collected in gross revenue from just online gambling since late 2013, the casinos have now provided an estimated $108.1 million in tax revenue to the state since the law was changed to allow online gambling, according to PlayNJ. The combined revenue from the online casinos would also make them the fifth-largest casino in the state compared to the brick-and-mortar locations.

“Stuffing state and local coffers with over $100 million in tax revenue certainly drops the curtain on any lingering revenue concerns,” said Steve Ruddock, the lead analyst for PlayNJ. “The momentum is building, too,” Ruddock said. “While states such as Pennsylvania drag their feet on legalizing online gaming, companies of all stripes are flocking to the Jersey Shore to grab a piece of the online gaming action.”

Based on the growing success of the state’s online-gambling sites, state Sen. Ray Lesniak (D-Union) announced earlier this month that he will introduce legislation to loosen the current online-gambling law so that the market can be expanded beyond those playing in New Jersey.

Wooing international operators

Lesniak, a co-author of the original online gambling bill, said virtual gaming in New Jersey is already on pace to hit $700 million in gross revenue by the time the four-year anniversary is reached later this year. He also pointed to a recent study that indicated the new industry has created more than 3,000 jobs in New Jersey, and paid out more than $200 million in wages to those employees.

“Online gaming has helped Atlantic City to revive its casino sector with a success that we can expand in ways that will generate more revenue, create jobs and fuel technological innovation in gaming,” Lesniak said.

Among other changes, Lesniak said his latest bill would allow residents of other states and countries where online gambling is currently allowed to also play on New Jersey’s virtual-gaming sites. The veteran lawmaker and former gubernatorial candidate would also change the law to encourage international-gambling operators to come base themselves in New Jersey.

“I’ve changed my mission from making New Jersey the Silicon Valley of Internet gaming to the Mecca of Internet gaming,” Lesniak said.

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