State Judge Overturns the Million-Dollar Property Tax Savings Bill from Atlantic City Casino

A state law giving Atlantic City's casinos' tens of millions of dollars in tax advantages has been overturned by a New Jersey judge because it was not providing any ‘’public purpose’’ according to the state constitution.

This year alone, the property tax adjustment that the bill included saved nine resorts about $55.000.000.

The Judge's Decision for Atlantic City

After rushing the law through the Legislature last year, this decision was a setback for Governor Phil Murphy and the state's legislative leaders. 

The casino industry, which had argued the bill was necessary since it was struggling in the wake of the COVID-19 outbreak, will also directly be impacted by this decision. Decisions that affect the taxes of casinos in New Jersey majorly impact the companies' budgets.

The contentious bill called for modifications to the "Payment In Lieu Of Taxes" (PILOT) local taxing regime. 

Since 2016, each casino has paid a portion of an industry-wide assessment given to Atlantic City, its school district, and the county to fund various operations instead of paying property taxes. The amount was determined based on the overall gaming revenue from the previous year.

The state claimed that because iGaming and online sportsbooks money is shared and third-party operators like DraftKings, FanDuel, and Borgata have a negligible physical presence in the city, the revenue shouldn't be accounted for in their yearly property tax bill.

Judge Michael Blee of the New Jersey Superior Court declared last week that the PILOT alteration was implemented in violation of the state constitution.

Interdicted: Preferential Tax Treatment

After Liberty and Prosperity, in 1776, a non-profit organization based in New Jersey, sued state officials because the PILOT Amendment forbids preferential tax treatment, Blee was forced to revisit the PILOT Amendment.

In an earlier decision, Blee agreed with Atlantic County's legal argument that the 2021 PILOT adjustment contravened the terms of the state's consent agreement, which guaranteed the county around 13.5% of the annual casino property tax. 

At the time, Blee said the state might lower casino property taxes by eliminating iGaming or online sportsbook revenue. The amount Atlantic County was supposed to receive before the calculation change is still required. 

Blee now wants to cancel the PILOT Change as a whole.

The PILOT statute has been unconstitutional twice in recent months. In a second action filed in 2018 that claimed the state had broken the provisions of a consent agreement that promised the county a particular portion of the industry's overall PILOT payment, the judge previously sided with Atlantic County. The county said that the annual cost of the PILOT formula change would be around $5 million.

This month, Blee awarded Atlantic County millions of damages and mandated that the state pay for legal expenses and other expenditures. The state is appealing that ruling, and on Monday, it successfully got the court to halt awarding damages while the appeals process is underway.

Combined, the judgments in the two instances raise questions about the gambling industry's impending tax liabilities. When contacted for more information, state regulators—who bill and collect PILOT payments—did not respond immediately.