Taxation of Gaming

By September 7, 2017Cardrooms

“We don’t pay taxes. Only the little people pay taxes.”

Leona Helmsley

Ah, Leona Helmsley…such a charmer.  In 1992, the wife of billionaire hotelier Harry Helmsley did a 19 month bit in federal prison for running renovations of her Greenwich mansion through the company books, but her real crime was hubris against the little people.  Known for bullying staff contractors and treating everyone not named Harry like gum on the bottom of her Manolo Blahniks, the chain-smoking Queen of Mean had no shot before a jury of her non-peers.  But for clever lawyering by Alan Dershowitz (presumably better treated than us), Leona would’ve died in the pokey.  Americans tolerate those who amass extreme wealth, but play us for chumps?  Uh, that’s not gonna work.

In the 1980s, the Cabazon and Morongo tribes operated sketchy bingo parlors and card rooms outside of Palm Springs that caught the eye of California law enforcement.  When state officials sought to shut them down, the tribes pushed back, resulting in the 1986 California vs. Cabazon Supreme Court ruling which opened the door for the proliferation of tribal gaming in the United States.  In that landmark ruling, the Court ruled that gaming on tribal lands was to be regulated by the federal government.  Two years later in 1988, Congress passed the Indian Gaming Regulatory Act (IGRA) which established the legal framework for tribal gaming in the United States.  With the shackles off, revenue from gaming on tribal lands nationwide exploded from a beer money to an all-time high of $30.5 billion in 28 states in 2015.1

Over the same time period, commercial casino gaming was embraced by other jurisdictions across the United States. In 1976, voters in New Jersey approved casino gaming to revitalize Atlantic City making it the second jurisdiction after Nevada (legalized in 1931) to do so.  In the recessionary 1990s, other states followed suit allowing land-based and riverboat gaming in Louisiana, Mississippi, Colorado and Michigan.  Today, commercial casino gaming is legal recreation in 24 states, generating over $30 billion of revenue, hundreds of thousands of jobs and billions of tax revenue for state and local governments.

While the growth of tribal and commercial casinos is comparable, the benefit to state and local jurisdictions from each is not.  Because tribal casinos are located on sovereign land, they are exempt from federal, state and local taxes and provide a relative small amount of “revenue share” to state and local jurisdictions.  The tribal lingo for revenue sharing is “confiscation of revenue.”  In contrast, commercial casinos in all jurisdictions are subject to federal, state and local taxes and additional gaming revenue taxes which sometimes exceed 50% of revenue.

According to the American Gaming Association (the Las Vegas-based casino trade association), the maximum revenue share in tribal gaming compacts (US) ranges from 0% to 25% with only 5% paying more than 20% and almost 40% paying nothing.2

Revenue Share






% of Tribal Casinos






In contrast, every commercial casino in the United States pays some form of gaming tax, and 75% of U.S. states require commercial casinos to pay more than 20% of gaming revenue in taxes.  These taxes are in addition to federal, state and local sales, corporate and payroll taxes.3

Gaming Tax Rate







% of States







Put differently, almost 60% of tribal casinos pay less than 10% in taxes while 75% of non-tribal commercial casinos pay 20% or more in taxes.

California is not exempt from this extreme disparity in tax status.  Tribal casinos in the Golden State comprise 25% of all tribal gaming revenue nationwide (Oklahoma tribes are distant second) with an estimated $8 billion of gaming revenue in 2016.  A recent public affairs effort by California tribes promotes the value of tribal gaming to the state.  The advertisements cite $8 billion of economic activity, some 63,000 jobs, $400 million of tax payments and $60 million in charitable contributions.  While impressive in the aggregate, these numbers are absurd in a relative sense—the tax payments comprise only 5% of revenue.   In contrast, California’s base sales tax rate of 7.5% and top individual income tax rate of 13.3% are the highest in the nation.

Tribal casino growth has been accelerating over the past few years and is outpacing commercial casinos and the US economy overall.  Revenue from tribal gaming in the US now exceeds that of traditional commercial casinos (tribal gaming accounts for 44.3% of the total US gaming market vs 43.3% for traditional commercial casinos).  Growth rate was triple that of the commercial casino segment.  The obvious conclusion?  When you operate outside the scrutiny of regulators, don’t pay taxes and reinvest profits in facilities, you can build some momentum.

So what’s the point?  Just that tribal casinos are the Leona Helmsley of the California economy.  If California tribal gaming revenue were taxed at a more normalized rate of say 25%, the state would enjoy a tax boost of almost $2 billion and have room to reduce its excessive sales and income tax rates.  Instead, the state gets no tax benefit from the grossly profitable 70,000 slot machines and 2,000 table games in operation on tribal lands in the state.  Further, almost 20% of Nevada gamblers originate from California, suggesting that billions more of potential tax revenue if commercial gaming were offered to them at home.

Despite the recent public affairs effort, tribes downplay their success.  Pleading poverty to legislators during compact renegotiations, tribes have announced multimillion dollar expansions and property upgrades once the compacts are in place.  Five Southern California tribal casinos—Barona Resort & Casino, Harrah’s Resort Southern California, Pechanga Resort & Casino, Sycuan Casino and Viejas Casino & Resort—have slated an estimated $1 billion on a variety of expansion and upgrade projects.  In Northern California, after extending its compact at lower payments to the state, Thunder Valley Casino invested over $100 million in an expansion of its hotel.  Cache Creek Casino outside of Santa Barbara has undergone four remodels or expansions since 1993 and is undertaking a fifth now that its compact has been extended for another 22 years.

So tax tribal casinos?  Unfortunately, it doesn’t work that way.  Efforts to increase the revenue share portion have been struck down in the courts (see Rincon vs. California), but if Californians allowed properly taxed commercial casino gaming within its borders, there is a multi-billion payday available.  No, the way to capture the $2 billion of potential tax revenue is to amend the California Constitution to allow Nevada style gaming.  The state should accept the fact that California is the largest gaming market in the United States and capture its rightful portion of this legitimate and growing source of taxable revenue.  It makes no sense for tribes (and their relatively small tribal populations) to be the primary beneficiaries of the expansion of gaming in California.

1Casino City’s Indian Gaming Industry Report, Nathan Associates, Dr. Alan Meister.
22016 State of the States, American Gaming Association.

About the author

Kyle Kirkland is the current president of the California Gaming Association, the 501(c)(6) non-profit trade association that represents California cardrooms.  Mr. Kirkland is President and General Manager of Club One Casino, a 51-table cardroom in Fresno and holds the same positions for two smaller cardrooms.  Mr. Kirkland’s background includes work in the consulting, finance, music and gaming industries, and he has served on the boards of several public companies.  Mr. Kirkland holds an A.B. degree from Harvard College magna cum laude in Economics and an MBA degree from the Graduate School of Business at Stanford University.  He can be contacted at