Pennsylvania Skill Game Fee Regulations Have Questionable Timing

Pennsylvania lawmakers are betting big on a new source of revenue. Amid an impasse over next year’s spending plan, a bipartisan pair of senators have proposed a tax—technically a fee-based regulatory system—on so-called skill games.

When fiscal urgency drives regulatory design, you risk getting oversight that chiefly protects revenue rather than the public. Before collecting revenue from skill games, Pennsylvania should first establish proven legal and regulatory infrastructure to do so.

Skill games are arcade-style gaming machines that have taken over bars, dollar stores, and Veterans of Foreign Wars halls across the state. Because they contain an element of skill, as opposed to pure chance, they aren’t regulated under state gambling laws.

State Sens. Gene Yaw (R) and Anthony Williams’ (D) pitch is straightforward: $500 per machine per month, capped at 50,000 terminals, which equates to $300 million in new revenue annually. It’s also substantially less burdensome than the 52% tax on the games that Gov. Josh Shapiro (D) proposed earlier this year.

To their credit, the state senators have paired their latest proposal, Senate Bill 1079, with a slate of regulatory provisions—including restrictions on the number of machines per location, ID requirements for use, penalties for illegal operators, and a monitoring system that connects every machine to a state database.

But it appears the regulatory scaffolding was built around the fee, not the other way around. Instead of beginning with a coherent policy to bring order to an unregulated market, lawmakers seem to be back-solving governance from a budget gap—or perhaps trying to piece together a light fee framework before the governor can push for something more robust.

This approach raises several policy questions. First, will the 50,000-machine cap be enforced—and if so, by whom? Yaw has long opposed giving oversight to the Pennsylvania Gaming Control Board, preferring to house skill game enforcement within the Department of Revenue—which has little experience with gambling-related compliance outside the state lottery. Also, will the ID requirements meaningfully deter underage play, or are they more symbolic than substantive? And how exactly will the centralized tracking system prevent fraud?

Is this a serious regulatory framework being constructed in real time, or a suite of window-dressing safeguards meant to justify rapid expansion? If the former, then some portion of that projected $300 million had better be earmarked for building the proposed regulatory system.

Tax authority should follow regulatory action, not the reverse.

Photographer: John Taggart/Bloomberg via Getty Images

Meanwhile, the state has created something of a perverse incentive. Regulators will want to get as close to 50,000 qualifying machines online as soon as possible, or risk missing the revenue target that lawmakers already seem to be spending against. Policy that begins with a question of “How much can we promise to raise?” rather than “How should this be governed?” may prioritize dollar signs more than oversight.

For years, Yaw positioned himself as a defender of the skill game industry, but one who supported bringing it under state regulation. He spoke about the need for legislative clarity but shrank from any suggestion of substantial tax levies. His co-sponsored bill now delivers on that broad call but tethers the industry’s legitimacy to the state’s immediate fiscal needs, so the fee acts as the policy anchor while the oversight feels like ornamentation.

The legal issue presented by skill games dates back to a 2023 decision in which the Commonwealth Court ruled that such games—particularly those manufactured by Pace-O-Matic Inc.—don’t meet the legal definition of gambling devices under the state’s gaming regulations. The machines weren’t regulated by the existing statutory framework, but they weren’t banned either, leaving them in a kind of no-man’s land.

That normally would be an invitation for lawmakers to pass legislation clarifying the ambiguity. The General Assembly could have defined these machines as gambling and brought them under existing regulatory mechanisms. Or it could have crafted a new regulatory framework tailored to the industry.

The current proposal’s timing and structure suggest that some in the legislature were content to see the ambiguity go unresolved for years until a couple of senators realized it could be monetized—or possibly feared it would be overtaxed.

Tax authority should follow regulatory action, not the reverse. Pennsylvania’s first steps should be to define what constitutes a skill game; create a licensing process for operators of the gaming machines; establish or assign enforcement authority to an agency; and implement standards for machine placement, payouts, and age restrictions.

Only after that infrastructure is in place and proven, and the industry is operating under expectations of transparency and accountability, should the state collect revenue from it. Otherwise, lawmakers aren’t solving a problem; they’re just monetizing their own game of chance, and the real losers will be the people of Pennsylvania.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social

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