The line drawn between skill games tax proposals is thick.

For Sen. Gene Yaw, R-Williamsport, collecting 16% from businesses is fair. For Gov. Josh Shapiro, the rate should be at least three times higher.

“There is broad recognition of the need to regulate skill games,” Yaw said in a release introducing his new legislation, Senate Bill 626. “But if we set the tax rate too high, we’re not regulating – we’re eliminating.”

Yaw shared the same sentiment in February after the governor proposed a 52% tax rate for skill games. Shapiro pointed to the 54% casinos pay and said the higher rate for skill games will replace lost lottery revenue.

The latter helps fund programs for seniors, like property tax relief, to the tune of $386 million in 2024, or about one-third of the lottery’s $1.2 billion in revenue. Shapiro says the figure would be higher if not for the spending diverted to skill games.

“Every time somebody puts a buck into one of those unregulated machines, it undermines the lottery and the critical services it funds for our seniors like prescriptions and meals,” he said during his annual budget address in Harrisburg in February. “The Pennsylvania Lottery lost an estimated $200 million over the last five years, primarily due to these unregulated skill games. Our seniors deserve better.”

Advocates of skill games regulation say research about lottery impacts shows just the opposite: business owners say their lottery sales go up when they also operate legal skill games.

Yaw minced few words after the speech, suggesting that the administration is either “too lazy” or intentionally misrepresenting the difference between skill games and other forms of gambling.

“Basically, what he doesn’t understand is that skill games are very, very important to local taverns, special clubs, and most importantly, veterans organizations,” he said. “I was so angry by the time I heard that. He basically thumbed his nose at the VFWs and the American legions in the state of Pennsylvania and that’s inexcusable in my opinion.”

Shapiro anticipates the higher rate, which is 10% above his last proposal, will generate $368.9 million its first year, with more than $350.4 million going into the state’s bank account and the remaining $18.4 million to support lottery-funded programs.

That’s even with his plan to cut the number of machines allowed to 40,000, which is little more than half of the total estimated. Over five years, the administration’s math suggests the regulations will net the state nearly $8 billion.

“He’s anticipating getting a lot of money for skill games and it’s just going to be the opposite,” Yaw said. “The higher the tax rate, the less money it’s going to generate. In fact, the way he proposes it, it would generate nothing.”

For gambling competitors, that may be the entire point. In July, 12 casinos filed a lawsuit demanding that unregulated skill game operators pay the same 54% tax rate applied to slot machines, arguing that its constitutionally fair.

In the lawsuit, the casinos note, “There is no basis for requiring licensed entities to pay about half of their slot machine revenue to the Commonwealth while allowing unlicensed entities to pay no tax on such revenue.”

Yaw’s bill creates a regulatory framework that brings the games out of the legal framework. In addition paying taxes, businesses with the terminals must be connected to a control system that gives the state the ability to monitor all transactions.

Those caught skirting regulations will face penalties and limits will be placed on the amount of machines allowed per business. In order to prevent the proliferation of “mini-casinos” that concern some opposed to regulation, Yaw’s bill requires that businesses only rely on the machines as a secondary revenue source.

“Other proposals are being introduced that could drive skill games out of business entirely. Without them, so many of the small businesses, veterans’ organizations, fraternal clubs, and taverns they support cannot, and will not, survive,” Yaw said. “I choose to support the economic backbone of Pennsylvania – our small businesses – over the corporate conglomerates.”