Illinois Legislature Takes Another Swing At Amending Tax Code For Future Chicago Casino

Written By Derek Helling on May 26, 2020 - Last Updated on April 6, 2021
Chicago casino tax

The Illinois Legislature has agreed on the terms of an amendment that will restructure the Chicago casino tax. If Gov. J.B. Pritzker signs the amendment into law, it could raise hopes that the project will actually become a reality.

Amendment 5 has some other interesting language in it as well. That pertains to the term for reconciliation fees and video lottery terminals at the annual Illinois State Fair.

What the amendment would do to the Chicago casino tax

The law currently imposes an additional privilege tax of 33.3% on the future operators of a casino in Chicago. That’s on top of the same graduated tax rates that current Illinois casinos pay in other parts of the state.

The language in the amendment would create a new graduated tax schedule specifically for a Chicago casino. For slots, those new rates and tiers for annual aggregated revenue would be:

  • Up to and including $25 million: 12% to the state and 10.5% to the city of Chicago
  • $25,000,001 to $50,000,000: 16% to IL and 14% to Chicago
  • $50,000,001 to $75,000,000: 20.1% to IL and 17.4% to Chicago
  • $75,000,001 to $100,000,000: 21.4% to IL and 18.6% to Chicago
  • $100,000,001 to $150,000,000: 22.7% to IL and 19.8% to Chicago
  • $150,000,001 to $225,000,000: 24.1% to IL and 20.9% to Chicago
  • $225,000,001 to $1 billion: 26.8% to IL and 23.2% to Chicago
  • Over $1 billion: 40% to IL and 34.7% to Chicago

New schedule for table games

The amendment also proposes a new schedule for table games, again, specific to just the potential future Chicago casino. Just like for the slots, it’s a graduated privilege tax upon aggregate annual revenue:

  • Up to and including $25 million: 8.1% to the state and 6.9% to the City of Chicago
  • $25,000,001 to $75,000,000: 9.6% to IL and 8.4% to Chicago
  • $75,000,001 to $175,000,000: 12.3% to IL and 10.7% to Chicago
  • $175,000,001 to $225,000,000: 13.5% to IL and 11.5% to Chicago
  • $225,000,001 to $275,000,000: 15.1% to IL and 12.9% to Chicago
  • $275,000,001 to $325,000,000: 16.2% to IL and 13.8% to Chicago
  • Over $325,000,000: 18.9% to IL and 16.1% to Chicago

This doesn’t represent much of an actual change to the effective rates. It would drastically raise the current thresholds for the graduated tiers, however, resulting in lower annual tax liabilities for the casino’s operator.

For example, the law currently imposes the top rate of 74.7% on revenue from slots above $200 million. In the new schedule, the casino wouldn’t pay that rate until it reached $1 billion in revenue from that source.

The amendment just needs Gov. Pritzker’s signature after both chambers of the Illinois Legislature approved the measure Friday. It’s a necessary alteration if the Chicago casino project is to move forward.

Why the amendment addresses the Chicago casino tax

The original tax schedule was highly problematic. That became painfully apparent when a third party with extensive knowledge of casino gaming took a look at the situation.

Last August, Union Gaming Analytics did a feasibility study for the Legislature. The report looked at possible locations for a casino in the Windy City, among other things.

Among the findings was that it would be almost impossible for a casino operator to turn any profit with the current tax schedule. The study found that the casino would pay 72% of its take to the city and state.

As any business operator knows, it’s difficult to pay all of your operating expenses, let alone try to find some profit in a mere 28% of revenue. The problem was bigger than just for those hoping to build a casino near Lake Michigan, however.

This was also problematic because the state looked at a future casino in Chicago as a way to fund pensions and to address other budget needs. For that reason, several parties have worked on the issue for months.

Third time might be the charm

Last November, Illinois Rep. Bob Rita proposed Amendment 3. That amendment would also have left the tax rates mostly intact but raised the thresholds for each graduated tier.

Just like in Amendment 5, the top rate of 74.7% would have only applied to revenue from slots at and above $1 billion. It also set the schedule for table games at the same levels as Amendment 5.

Amendment 3 never saw the full Illinois House floor for a vote. That led to Chicago Mayor Lori Lightfoot taking a crack at it.

Lightfoot supported an amendment that actually reached the Illinois House floor last December. She not only helped draft the language but testified in support of it to members of the Illinois House. The crux of that amendment was giving property tax breaks to developers.

The House voted the amendment down, however. At the time, Lightfoot blamed the failure on legislators trying to capitalize on the moment and adding their own funding measures to benefit their districts.

That opened the door for Rita’s second attempt this week, which has seen far greater success so far. Should Pritzker sign the amendment into law, it could get things moving in terms of a casino in Chicago.

That isn’t the only change the amendment would make, though. For casino operators around the state and parties interested in video lottery terminals at the state fairgrounds, there is some important language in the amendment as well.

What else is in Amendment 5?

The amendment authorizes the Illinois Department of Agriculture to operate up to 50 video lottery terminals during the Illinois State Fair on the fairgrounds in Springfield. For future operators of new casinos in Chicago and other places, the amendment affords some flexibility.

The original law allowed for new casinos in Chicago and four other places in the state: Cook County, Danville, Rockford and Williamson County.

The law imposes upon those new licensees an obligation to pay what is known as a reconciliation fee. The fee reconciles the difference between the value of such a license when the state issued it and the value of the same after the operator has settled into the new market.

Illinois law sets the period for determining the fee for each operator as the most lucrative 12-month period over the operator’s first three years of doing business. That could be any period of 12 consecutive months. It does not have to be a January-December term.

The operator has to pay 75% of that value minus a $15 million fee paid upfront for the purpose of reconciliation. In the current language of the law, the operator has two years to pay that difference.

Amendment 5 extends that time period for payment of the fee to six years. Like the raising of the thresholds of the tax schedule for the Chicago casino, this move has one goal in mind.

What all these changes aim to accomplish

There are two appropriate ways to understand the thinking behind this amendment. Both of them point to one potential end for which the Illinois Legislature can hope.

Nearly a year after enacting its most recent gambling expansion law, significant development on a new casino in any of the five locations remains minimal. Concern about the cost of fees and taxes on top of development costs combine to make the investment a significant one for casino operators.

One way to think about the state altering the schedules of these fees and taxes is the state also making a significant investment in these potential casino sites. The higher tiers and longer payment terms will allow casino developers to recoup their initial investment in a shorter period of time.

The state itself is gambling on the success of these casinos. By taking a short-term loss as compared to what the law originally demanded from casino operators, the state is betting that it will reap more revenue in the long-term.

For sports bettors in Illinois, this could mean more sportsbook operators in the future. Pritzker’s signature is the key to unlocking that potential.

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Derek Helling

Derek Helling is a lead writer for PlayUSA and the manager of BetHer. He is a 2013 graduate of the University of Iowa and covers the intersections of sports with business and the law.

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