Jonathan Small and Curtis Shelton
In 2004 Oklahoma entered into casino and gaming compacts with all federally recognized tribes in the state to operate and profit from casinos and gaming in Oklahoma. These compacts essentially give the tribes the exclusive, monopoly right to operate and control casinos and gaming throughout the state in exchange for an exclusivity fee that tops out at 6 percent. The exclusivity works effectively as a tax.
The state receives 6 percent for every dollar in casino and gaming revenue earned. During this period that the tribes have had a monopoly to operate casinos and gaming, casinos and gaming have grown at a tremendous pace.
Oklahoma has one of the largest casino and gaming markets in the country (only California brought in more Indian casino and gaming revenue in 2016) and is by far the largest market in our region. Whereas Oklahoma’s casinos and gaming activities are exclusively owned by the tribes, the majority of casinos in other states are commercially owned.
The commercial tax rates for operating a casino in surrounding states are often much higher than the exclusivity fee paid in Oklahoma. For example, Colorado, which has 37 commercial casinos, has a graduated tax rate that goes all the way to 20 percent. Louisiana has three separate types of commercial casino establishments: riverboats, land-based establishments, and racetracks, which are taxed at rates of 27.5, 18.5, and 40.5 percent respectively. Missouri levies a flat 27 percent rate on commercial casinos in the state.
Oklahoma’s casino and gaming compacts have effectively established a monopoly for tribal casinos and gaming. This lack of competition and the extremely low exclusivity fee has contributed to the phenomenal growth of gaming activity over that of other industries the last 15 years. According to the 2018 Indian Gaming Industry Report, Oklahoma’s Indian casino and gaming revenues have risen for 15 straight years to $4.4 billion in 2016, the latest year for which data are available.
Historically, Oklahoma’s state government has shown it is willing to use the tax code to provide certain special interests phenomenal subsidies or tax incentives, such as a 35 percent cash refundable rebate on production costs for Hollywood and film activity in Oklahoma or the enormous subsidy Oklahoma provides wind companies that costs the state more than $100 million a year. On the other hand, other activities viewed as “sins” — such as smoking cigarettes or cigars, chewing tobacco, or drinking alcohol—have significant excise tax burdens. Interestingly, with an average state and local sales tax rate of 8.94 percent, a water bottle at a gas station on the way to the casino has a higher tax burden than a slot machine inside the casino.
Governor Kevin Stitt believes it’s time to renegotiate the compacts dealing with casinos in Oklahoma. “The agreements between the state and the tribes giving them exclusivity to the gaming industry are terminating as of Jan. 1, 2020,” he wrote this month, “and it is imperative that we come to terms on new compacts prior to the end of the year.”
Advocates for the status quo — those who want little or no change to compacts which currently give a virtual monopoly on casinos and gaming — argue that only compacts in other states which have a rate of 6 percent or less should be the ones analyzed and serve as a model for Oklahoma. But it is a flawed analysis to not look at casino and gaming rates in other states, regardless of whether they are tribal-owned, given the virtual monopoly on casinos and gaming in Oklahoma and the multi-billion dollar activity it represents.
Note: Small is president at the Oklahoma Council of Public Affairs (OCPA) in Oklahoma City. Shelton is a policy research fellow at OCPA, the state’s largest free-market think tank. This commentary first appeared at the OCPA website, and is reposted here with permission.