Amid rising inflation and business costs, many Philadelphia corner stores, bars, laundromats, and smoke shops have turned to skill games, the slot machine look-alikes, to help keep their slim margins afloat.
The machines, which shop owners say also encourage their customers to linger in stores and make additional purchases, are particularly profitable because they are not taxed or regulated like slot machines — and they have been operating without state oversight in a legal gray area for more than a decade. But a recent state Supreme Court ruling may force that to change.
Last week, Pennsylvania’s highest court handed down a decision deeming skill games the same as slot machines. That means the skill game terminals proliferating around the state will soon be illegal if not operated and taxed at 52%, and housed in a highly regulated casino or truck stop with a license to carry slot machines. Those terms will take effect in less than four months unless the state legislature intervenes.
Owners and clerks at several corner stores throughout Philadelphia that offer the games say they do not contribute a lot of revenue to their establishments directly, but they foster more of a lounge atmosphere in the shops that leads patrons to stay longer and purchase more snacks, drinks, lottery tickets, and other goods. Many of the business owners said they are willing to stomach a tax on skill games, but additional regulations would make them rethink keeping the machines.
José Pérez, who runs a corner store on Opal Street in South Philadelphia, said his store runs on incremental profits. And, he said, when people play the skill game machines and start feeling lucky, they often are inclined to make other purchases there.
“This business is about getting a little bit of money from every product, and the machines are a tiny source of income that adds up to that,” he said in Spanish between transactions at the store’s register. “While people play, they buy other stuff in the store. And if they win, they buy lottery tickets. Because when someone has one vice, they probably have two.”
Tax proposals from Harrisburg
Lawmakers in Harrisburg have for years failed to reach an agreement on how to tax and regulate the so-called skill games
The issue has proved to be tricky in Pennsylvania’s split legislature, where Democrats narrowly control the House and Republicans control the Senate. The skill games industry leader, Georgia-based Pace-O-Matic, long maintained a friendly relationship with the Senate GOP, and the Republican lawmakers appeared willing to support policies that benefited them. But last year, the goodwill began to sour after the company backed political campaigns against incumbent Republican state lawmakers who did not support its requested low tax rate on the machines.
State Rep. Danilo Burgos (D., Philadelphia) and State Sen. Anthony H. Williams (D., Philadelphia) have introduced a bipartisan bill in their chambers to impose a $500-per-month fee on each skill game machine operated in Pennsylvania, with a 50,000-machine cap across the state. There are currently an estimated 70,000 skill game machines in Pennsylvania, according to the state attorney general’s office.
The proposed legislation would split revenues among transit and infrastructure, local governments, and state police for enforcing the cap and fee. The bills also prohibit small businesses whose “primary source of net revenue” is from skill games, in an effort to prevent mini casinos in stop-and-go corner stores around the city. Burgos estimates the regulations would bring in $300 million in new revenue to the state in their first year.
The bill includes additional protections for Philadelphia, where City Council voted in 2024 to ban the machines. The ban never went into effect, after a lawsuit was filed seeking to block it. In the legislation before the General Assembly, Philadelphia has specific carve-outs that would allow city officials to block stop-and-go businesses or “chronic nuisance” businesses from getting a license to carry the games.
Surrounded by hundreds of skill games supporters at a news conference Wednesday on the Capitol steps in Harrisburg, Williams said rank-and-file lawmakers would hold up passing the state budget, due June 30, if there is not a deal to protect small businesses from losing their skill games altogether.
“In this time when everybody talks about affordability, I can’t afford a 52% tax,” Williams said.
The fee-per-machine option offered in the Democratic-sponsored bills is backed by Pace-O-Matic, which has spent millions of dollars on political campaigns and lobbying in the state, in addition to millions more spent by other parts of Pennsylvania’s booming gambling industry.
Meanwhile, a separate proposal backed by the Senate GOP and penned last year would set the tax at 35% on gross terminal revenue, in addition to annual license fees. A small portion of those fees would go toward the state’s resources for problem gambling.
Gov. Josh Shapiro, a first-term Democrat, has proposed taxing the machines at the same rate as slot machines — a hefty 52% levy on each machine’s net revenue — in his last two budget proposals. As the machines have continued to proliferate around the state, Shapiro’s office estimated the newly regulated industry could bring in nearly $800 million in revenue in its first year.
Uncertain future with uncertain revenue
Philly store owners were divided on whether it would be worth keeping the machines if they needed to pay a lofty tax on either housing the devices or the profits they made on them.
Andrew Karki, who operates a laundromat near Pérez‘s store in South Philadelphia, said the machines occupy the customers while they wait for their laundry to finish and, as at Pérez‘s store, lead to purchases of candy and soda from the small bodega he runs inside the laundromat.
He estimated the machines make up 15% to 20% of his monthly revenue, and he said he would likely be willing to take on a tax on the games, even a rather large one, to keep them around.
“It’s hard, but we got to pay it. We got to pay it,” Karki said.
For others, like Diego Reyes, who runs a secondhand shop on Kensington Avenue with about a dozen skill machines inside, taxing the small businesses for the machines does not seem fair. The terminals are often owned by small amusement companies, and are largely operated by Pace-O-Matic. The business owners get a cut from the machine’s revenue for allowing the terminal in their building.
“They should tax the owner,” Reyes said in Spanish, wearing a Phillies cap and T-shirt with a size-medium sticker still stuck on the back, as three people played the machines.
Pérez agreed that any tax should be on skill games companies and not on the businesses that carry them.
It is frustrating to think another tax may be coming down the line, he said, when small-business owners already pay so many of them and see little return on the investment in the community.
“Look outside, that pothole has been there for six months. We have no safety,” Pérez said. “What do you want me to pay more taxes for if you are not doing anything to better the conditions with it?”
Staff writer Isabel Maney contributed to this article.
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