Tax burden creates varying financial crunch for boats

Ryan Keith

Monday, April 4, 2005 | 9:50 a.m.

SPRINGFIELD, Ill. -- When lawmakers raised the state casino tax in 2003, they raised the stakes for the entire riverboat gambling industry in Illinois.

Even before the rate hike, the state's graduate tax system topped out at 50 percent, then the highest rate in the nation. In 2003, that top rate went up to 70 percent -- doubling the next highest rate, in Indiana.

The impact has quickly trickled down to gamblers.

Statewide, casino attendance has dropped 18.5 percent and revenues have fallen 6.2 percent as the higher taxes have prompted casinos to charge higher admissions and parking fees, cut services and hours, and lay off employees.

Walking in to Elgin's Grand Victoria casino, Wayne Miller, 53, and Joe Achterfeld, 55, of Niles noted that some of the other casinos aren't as clean or organized.

"The food and a better clientele of people" make a difference, Achterfeld said, and winning.

The hardest-hit Illinois boats have been in the Chicago area. The three casinos in Joliet and Aurora all lost more than 15 percent of their attendance from 2002 to 2004. Just across the state line in northern Indiana, meanwhile, the casinos' revenue and attendance rose by about 5 percent, according to the Indiana Gaming Commission.

"Our taxes went up so we started doing less marketing," said Tom Swoik, executive director of the Illinois Casino Gaming Association. "Indiana went to 24-hour gaming and increased their market share. Their tax rate is half ours."

In Elgin, in Chicago's northwest suburbs, the results weren't as dramatic, with admissions down 4.5 percent and revenue down just 1.2 percent since 2002. Swoik said the Grand Victoria, easily the state's most profitable boat, didn't increase fees or make the same cuts as other Chicago-area boats.

Much of the difference can be traced to the tax rate.

Under the graduated tax system, the casinos start the year paying the state 15 percent of their earnings. Once they reach $25 million, they start paying 27.5 percent on additional revenue. The rate continues to rise in increments. After $100 million, the casinos are paying 50 percent. The next jump is to 70 percent after $250 million.

The Elgin casino was already so far into the 70 percent tax bracket that cutting services wouldn't change its taxes enough to benefit the casino's bottom line, said industry analyst Mark Falcone of Deutsche Bank.

In 2002, when the highest tax rate was 50 percent, the Elgin casino made $405.6 million and paid the state $142.7 million in taxes. In 2004, it made $400.4 million and paid the state $203.6 million in taxes.

Aurora's Hollywood Casino was just over the $250 million mark in 2002, but just under it in 2004. Its earnings dropped 15.7 percent while its state taxes increased .02 percent.

In contrast, the Joliet Harrah's Casino's earnings stayed above the $250 million mark. While its earnings drop was similar, 13.5 percent, its state taxes increased by 8.5 percent.

Downstate casinos have fared better than their Chicago counterparts in both attendance and earnings, but they still worry about the taxes.

The Casino Queen in East St. Louis saw increases in admissions and revenue of about 6 percent thanks to aggressive marketing and loyal customers, casino spokesman Paul Zemitzsch said.

Falcone said that's partly a product of a boom in the St. Louis gambling market. Missouri casinos directly across the Mississippi River have enjoyed a 20 percent climb in revenue and 14 percent increase in attendance, according to the Missouri Gaming Commission.

Success has come with a big price for the Casino Queen, however. Its state taxes have increased 58 percent since 2002. Zemitzsch said the casino is ready to undertake a $150 million expansion project but now worries that the higher taxes could slow its efforts.

"There's always the threat of killing the golden goose," he said.