HARRISBURG — Skill games are slot machines under Pennsylvania law and must adhere to the commonwealth's crime and gambling statutes, the state’s highest court ruled Monday.
However, the ruling says that law enforcement can’t take any action for 120 days. That gives the legislature a four-month window to decide whether to regulate the machines, which have proliferated across the state in taverns, gas stations, and corner stores despite existing in a legal gray area. An estimated 70,000 machines are operating in Pennsylvania.
Republicans who control the state Senate said the ruling makes addressing skill games a “critical piece” of resolving this year’s budget, while Democrats who lead the state House said the caucus is still reviewing the decision.
Taxing skill games as part of a regulation scheme could eventually bring in more than $1 billion annually in much-needed revenue, according to the Independent Fiscal Office. Should the legislature fail to act, the devices would be subject to seizure by law enforcement.
There were two skill games cases before the court. The justices ruled on both together.
One, a 2019 case in which a bar and skill games supplier filed a petition for return of property after police seized their machines, centered on the question of what the devices are: Do they involve enough luck to be considered gambling, or enough skill that an experienced player can consistently win?
The Dauphin County Court of Common Pleas and Commonwealth Court both ruled in that case that the games are skill-based and therefore not subject to regulations for slot machines.
In the other case, Pace-O-Matic, a major skill games developer and distributor, sued the state to get a judgment about whether the games are legal. Commonwealth Court ruled the state’s existing law regulating gambling doesn’t apply to skill games.
In both cases, a majority of state Supreme Court justices said Commonwealth Court’s interpretation of statutes was “deeply flawed,” and the court was “incorrect on both points.”
A skill game, they wrote, is a slot machine “several times over” because it meets the general definition of slot machine in state statute, and because it meets the ordinary English definition of “a coin-operated gambling machine that pays off according to the matching of symbols on wheels spun by a handle.” Whether it involves some minor element of skill is irrelevant, they said.
As for whether the Gaming Act applies to skill games — and not just to licensed slot machines in casinos — the court said it clearly does, and listed several instances in which the language of the act appears to include entities and facilities that aren’t licensed.
The court’s core holding was “premised upon the court’s misreading of fundamental aspects of the statutory scheme,” they wrote.
The justices noted that their ruling isn’t necessarily the final word 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 wrote, adding that their decision “does not constitute an endorsement of, any particular policy view concerning the proliferation of ‘skill games’ throughout our Commonwealth.”
Will the legislature act?
The ruling starts a 120-day clock for legislators to pass legislation legalizing, regulating, and taxing the devices, or to allow a widespread law enforcement crackdown on the market.
State lawmakers have tried for years to come up with a regulatory scheme for skill games. Though there’s broad consensus that this regulation should happen and that taxation would bring the state needed revenue, a deal has eluded them.
In a statement, state Senate Republican leaders said the games’ proliferation is “a matter of public safety which must be addressed.” The ruling means gaming reform is now a “critical piece of resolving this year’s budget,” they said.
A spokesperson for the state House Democrats said Monday they are reviewing the ruling, as did a spokesperson for Democratic Gov. Josh Shapiro.
State lawmakers’ greatest hurdle in regulating skill games has been their inability to reach a consensus on the proper rate to tax their gross revenue.
Shapiro’s proposed budget this year would set the rate at 52% to more closely align with the state’s existing 55% tax on electronic games and casino slot machines.
State Senate Republican leaders previously introduced a proposal for a 35% rate and reiterated their support for that approach in their statement Monday. Other Republicans argue that rate is too high and proposed a 16% tax.
Complicating talks over the years are wealthy interests’ strong preferences: Casinos support a higher tax rate for skill games, and the skills industry argues such a rate would sink them and harm the small businesses and veterans’ organizations that depend on the money.
Pace-O-Matic, the skill games developer that was a plaintiff in one of the cases, said in a statement it is “disappointed with the decision” and strongly believes the ruling “does not accurately reflect the facts presented.”
Small businesses and fraternal clubs that operate skill games “are now potentially left facing an impossible choice: cease operating these games and lose an important source of revenue, or endure a legislative solution that could bring excessive regulation and crippling taxation, which will force them to cease operating these games and lose an important source of revenue,” the statement continued.
Some lawmakers are also cautioning their colleagues against rushing regulations that don’t protect public health in the search for easy revenue.
“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 this month. “And we cannot make short-term decisions with really long-term consequences.”