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The House (State) Always Wins – Should You Take a Chance on a PA Tavern Gaming License

by / Thursday, 23 January 2014 / Published in Articles, Blog

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On November 27, 2013, Governor Corbett signed Act 90 of 2013 (“Act”) into law, which permits certain liquor licensees to obtain a Tavern Gaming License (“Gaming License”).  The Gaming License allows the licensee to conduct limited small games of chance on its premises.  While this creates an opportunity to increase revenue and provide additional entertainment to customers, some may see the costs and regulatory burden as a high stakes gamble.

Admittedly, this law is very new, having only been approved less than 60 days ago.  Furthermore, four state agencies are coordinating to issue, enforce, and otherwise administer the Gaming Licenses (the Pennsylvania Liquor Control Board, Gaming Control Board, Department of Revenue, and State Police, Bureau of Liquor Control Enforcement).  As a result, it could be a very bumpy road initially, as there are many aspects to the Act that have not been refined, especially on the enforcement side. This article will briefly discuss some of the Act’s requirements to provide you with a foundation upon which you can decide whether to further explore obtaining a Gaming License.

The first question to consider is whether you are eligible to receive the Gaming License.  In order to receive a Gaming License, an applicant must have a valid hotel, restaurant, privately-owned public golf course, or brewery pub liquor license.  However, in some cases, even if you own one of those licenses, you still are not eligible.  For example, grocery stores and casinos, even if they hold a restaurant license, are not eligible for the Gaming License.  Eating place retail dispenser licensees, club and catering club licensees, professional sporting events venues, limited wineries, limited distilleries, licensees who sell liquid fuels, “nuisance” licensees (as defined under §611 of the Liquor Code), licensees with licenses in safekeeping, and licensees whose locations have been objected to by the Bureau of Licensing are also ineligible for the Gaming License.  Finally, individuals who have been convicted of a felony offense or a misdemeanor gambling offense within the past 15 years cannot receive a Gaming License.  A Gaming License will also not be issued if the desired location falls within a municipality that has not authorized small games of chance by referendum.

Assuming you are eligible for a Gaming License, only the following games are allowed by the Act:  pull-tab games, daily drawings, and tavern raffles.  For all three games there is a $2,000 single-prize limit per game, and no more than $35,000 can be awarded in any seven day period.

“Pull-tab” games must have a 65% payout, there can be no more than 4,000 pull-tabs in any one game cycle, and winners and prizes must be predetermined by the manufacturer.

Daily drawing tickets cannot be sold for more than $1.00, and no more than one chance can be sold to any one individual.  The tickets must be sold and drawings must be held on the licensed premises on the same day.

Tavern raffles can only be held once per month, the raffle must be for a charitable purpose, and at least 50% of the proceeds must go to a designated charity.  Unlike daily drawings, tavern raffle tickets do not need to be sold on the premises; however, the selection of the winning tickets must be done in public so that the players have the opportunity to view the process.

To apply for the Gaming License, a completed application form and $2,000 must be sent to the Pennsylvania Liquor Control Board (“PLCB”).  Of that amount, $1,000 represents the application fee and the other $1,000 is the Gaming Control Board’s (“GCB”) investigation fee; during the investigation, depending upon its complexity, the GCB has the discretion to increase its investigation fee to an amount greater than $1,000.  This initial $2,000 is non-refundable.  Should the applicant be approved for the Gaming License, another $2,000 payment is necessary before receiving the Gaming License.  Additionally, there is an annual renewal fee of $1,000 per Gaming License.

Another consideration is that the Gaming License is non-transferrable; therefore, if a business changes ownership, it will likely need to reapply for a new Gaming License.

After an application is submitted, the GCB will conduct its investigation.  The scope of the investigation is within the discretion of the GCB, but the Act calls for an investigation of the criminal history, regulatory history, and financial suitability of an applicant.  In examining an applicant’s regulatory history, the GCB is likely to review the applicant’s liquor license citation history.  If your liquor license has multiple violations, it may be difficult to obtain a Gaming License.  Once the GCB’s investigation is complete, the PLCB has six months from receiving the GCB’s report to approve or disapprove the application.  Therefore, depending on the volume of applications received, there could be more than a six month lag between the time your application is submitted and when you receive approval.

Regarding taxes, the State receives 60% and the municipality where the Licensee is located receives an additional 5% of the net revenue from Tavern Games.

Licensees will be required to file quarterly returns electronically with the Department of Revenue.  For pull-tab games, the tax is paid by the Licensee at the time the game is purchased from a licensed distributor (as well as the Commonwealth’s 6% sales tax).  The tax is based on the maximum, potential net revenue that could be obtained if all tickets are sold and all prizes are paid out.  Consequently, if for a particular pull-tab game a Licensee does not sell all of the pull-tabs, it may have paid taxes on revenue it will never realize.  For daily drawings, the 60% state and 5% municipality tax is applied to the net proceeds after paying prizes and game costs.  For monthly tavern raffles, the 60% state and 5% municipality tax is applied to the net proceeds after paying prizes, game costs, and donating half of the proceeds to the designated charity.

Once a Gaming License is received, the Pennsylvania State Police, Bureau of Liquor Control Enforcement (“Bureau”) is tasked with overseeing a Licensee’s operations.  No one under 21 may participate in tavern games, no one under 18 may operate a game, and no one who appears visibly intoxicated may participate in a game.  In order to avoid any appearance of unfairness, owners, officers, and employees of a licensee who operate a tavern game are not permitted to participate in the game.  As another result of the relationship between the liquor license and Gaming License, licensees should also be aware that violations of the Gaming License rules could negatively impact the PLCB’s annual review of its liquor license.

Finally, Licensees should be aware that there are significant record-keeping requirements which are beyond the scope of this Article.  Additional information regarding these requirements, as well as the Act in general, can be found on the PLCB’s website.  The agencies are also conducting several information sessions throughout the state prior to January 27, 2014, when the PLCB begins accepting applications.  A schedule of those informational sessions can also be found on the website.

The Gaming License application process, restrictions on the games, record keeping requirements, and hefty tax mean that Licensees should not make the decision to pursue a Gaming License lightly.  If you have questions regarding the Gaming License, the application, or the responsibilities associated with the Gaming License, please feel free to contact Keith Clark (clark@shumakerwilliams.com or 717.909.1612), Evan Pappas (pappas@shumakerwilliams.com or 717.909.1655) or Kenneth McDermott (mcdermott@shumakerwilliams.com or 717.909.1624) at  Shumaker Williams, P.C.

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