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Atlantic City’s casinos may soon see an extension of the tax structure that dictates how their properties are assessed. A legislative effort is currently underway in New Jersey to prolong the payment-in-lieu-of-taxes (PILOT) program, which has been in place since 2017. Discussions in Trenton began several months ago, and lawmakers are working on getting an extension proposal to Governor Phil Murphy before the current arrangement expires at the end of 2026.
The PILOT program, formally known as the Casino Property Tax Stabilization Act, was initially implemented to address financial instability in Atlantic City’s gaming industry. Between 2014 and 2016, five casinos shut down, prompting concerns over how remaining properties were being taxed. As business conditions declined, casinos argued that their properties had lost value, leading them to challenge their tax assessments. These legal disputes put funding for city and county services in jeopardy, as tax revenue from casinos is a significant portion of the local budget.
Rather than calculating property taxes based on assessed values, the PILOT program determines tax payments based on total gaming revenue generated in the previous year. This system ensures that Atlantic City and Atlantic County receive essential tax revenue without the unpredictability of fluctuating property valuations. Under the program, each casino contributes an amount proportional to its share of the industry’s total gross gaming revenue (GGR).
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The upcoming legislative deliberations in Trenton are expected to be contentious, particularly because of modifications made to the PILOT program in 2021. At that time, casinos successfully lobbied for changes that removed online gaming and mobile sports betting revenue from the tax calculation. They argued that these revenues largely go to third-party operators such as FanDuel and DraftKings, which have only minimal physical operations in Atlantic City. This amendment reduced the casinos’ collective tax burden by about $55 million annually, a move that significantly impacted city and county budgets.
Atlantic County Executive Dennis Levinson has been vocal about the financial impact of the 2021 changes, stating that the county has lost more than $14 million as a result. Since the county receives 13.5% of the PILOT revenue, any reduction in the tax amount paid by casinos directly affects local government funding. Although legal challenges were filed in response to these changes, the courts ultimately upheld the amendment, finalizing the dispute last year.
The financial implications of the PILOT changes were substantial for the casinos. Between 2018 and 2022, the highest tax liability under the program was capped at $165 million, a threshold triggered if GGR exceeded $3.4 billion. By removing online gaming and mobile sports betting revenue from the formula, casinos paid significantly less, with a total assessment of just $110 million in 2021 and 2022. The exclusion of these revenue sources meant that casinos collectively saved $55 million each of those years.
However, in 2023, the PILOT formula underwent another adjustment. Under the revised structure, tax payments were now based on different revenue tiers. Atlantic City’s brick-and-mortar casino revenue in 2023 reached $2.84 billion. According to the new tax schedule, any annual GGR falling between $2.3 billion and $2.9 billion resulted in a fixed tax amount of $110 million for that year. Had the original formula remained in place and included iGaming and mobile sports betting, casinos would have owed $120 million instead.
The impact of these tax adjustments continued into 2024. With brick-and-mortar casinos generating $2.81 billion in gaming revenue, the casinos’ tax liability increased to $120 million. Despite the earlier savings from the exclusion of online revenue, the revised tax brackets limited how much casinos could reduce their payments in later years.
For Atlantic City, the stakes are high. The PILOT program has played a major role in stabilizing tax revenue, but the reductions granted to casinos in 2021 put local governments in a difficult position. Business owners and community leaders worry about the long-term implications of lower casino tax payments, particularly as the city continues to recover from economic hardships.
Many local leaders argue that casinos should pay more, given their strong financial performance in recent years. While online gaming and mobile sports betting were removed from the PILOT formula, they have grown significantly, bringing in billions in revenue. Critics of the 2021 amendment argue that casinos are benefitting from an outdated tax structure that does not reflect the full scope of their earnings.
The challenge moving forward will be finding a balance that allows casinos to remain competitive while ensuring Atlantic City and Atlantic County receive the funding they need. Casinos have warned that higher taxes could slow investment in the industry, potentially leading to job losses and reduced tourism appeal. At the same time, local governments rely on casino revenue to fund essential services, and they argue that current tax levels do not adequately support public needs.
State legislators will have to navigate these competing interests as they work on an extension of the PILOT program. Some proposals may include reinstating certain revenue sources in the tax formula, adjusting tax brackets, or finding alternative funding sources to make up for the shortfall caused by past changes.
Lawmakers are negotiating the future of Atlantic City’s casino tax structure, with a decision expected in the coming months. An extension of the PILOT program could provide financial stability for casinos while supporting city and county services. Without an agreement, the city may face renewed property tax disputes.
Officials want adjustments to recover lost revenue, while casinos seek to maintain or further reduce their tax burden. As discussions continue, the debate remains focused on how the gaming industry contributes to the region’s financial stability.
