Puerto Rico to Delay New Slot Machine Tax as Regulatory Issues Emerge

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Puerto Rico is having some difficulty evolving its gaming industry, and this is causing financial losses and a lot of frustration. There have been legal battles waged over the past couple of years that have slowed down the introduction of a new framework and the brakes have been pumped once again. A plan to introduce a new tax scheme on slot machines has been put on hold as questions over how licenses are being issued surface. Until the US-controlled territory can properly establish its Gaming Commission and the necessary rules for the gaming space, the state of tax liabilities will remain in flux.

Puerto Rico’s Internal Gaming Power Struggle

Puerto Rico has attempted to provide a more mature gaming industry through the introduction of several new rules. Two in particular – Regulation 9174 of 2020 for the Operational Inspection and Interconnection of Gambling Machines on the Road and Regulation 9175 for the Issuance, Management, and Inspection of Licenses – have been cut off by a judge.  Electronic Games Inc. had sued over the new rules, arguing that they were unconstitutional, and the courts have now agreed.

Electronic Games had asserted that the regulations, which were put in place by Puerto Rico’s Compañia de Turismo (the state’s tourism body that regulated slot machines until 2019), exceeded the body’s authority. The new Gaming Commission had recently been established and was taking over from the Compañia de Turismo, but its framework was still being debated. As a result of the legal battle, defining the tax obligations and structures cannot move forward.

New Gaming Commission Head Not Pleased

Orlando Rivera, tapped to be the executive director of the newly-formed Gaming Commission, is frustrated with the way things are going. He asserts that the legal issues are hindering Puerto Rico’s economic recovery and could cost the government, by way of license fees, as much as $30 million a year. He adds, “If the annulment of the regulations is approved, everything that I have done from January until now will be in vain. All licenses that were granted will need to be revoked and we’ll need to start a new process. I was sued and no one has called me; I’ve never seen the judge.”

The new tax regime established a 67% take for operators, with the remaining 33% going to the government. Of its share, the government would allocate 50% to police retirement funds, 45% to municipal governments and 5% to the Gaming Commission. The windfall could be substantial, with Rivera asserting that, prior to the attempt to introduce new regulations, there were 3,100 operators and 80,000 illegal gaming machines. Now, there are 101 licenses that allow between 100 and 250 slots, and a total of 25,000 machines across Puerto Rico.

It isn’t clear what will happen now that the entire gaming framework will have to be addressed from scratch. However, Rivera warned that he will take the matter to the Appellate Court if the latest court decision isn’t reconsidered.  

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