Nevada’s Gaming Tax:

Estimating Resident Burden and Incidence

Bernard Malamud

Department of Economics

University of NevadaLas Vegas

April 2006

Nevada’s Gaming Tax: Estimating Resident Burden and Incidence

In this note, we estimate the burden of Nevada’s gaming tax on the state’s residents and the extent to which its incidence on residents is progressive or regressive. Using data for the early 2000s, we find residents bear nineteen percent of the gaming tax burden not borne by gaming operators themselves; visitors bear the remaining eighty-one percent of the burden. We estimate the average Nevada adult spends $1,200 annually on gambling, which isover four percent of per capita income in the state and nine times the per capita percentage spent on gambling nationwide. The gaming tax on this average annual expenditure by Nevadansis $91 or three-tenths of one percent of per capita income in the state. According to our best estimate, Nevadans whose current incomes are relatively low pay somewhat higher fractions of their incomes in gaming taxes than Nevadans whose current incomes are relatively high. The incidence of gaming tax on Nevadans, however, while regressive, deviates only slightly from being proportional.

Our estimates of tax burden and tax incidence are based on an extensive survey of gambling by Nevadans conducted by Gemini Research in 2002, Gambling and Problem Gambling in Nevada( supplemented by the 2001-2002 Clark County Residents Studyprepared by GLS Research for the Las Vegas Convention and Visitors Authority and by income and demographic data reported in the Statistical Abstract of the United States.

Appendix Table A.1 summarizes results from the Gemini Research survey of 2,217 Nevadans. It shows our estimates of average annual hours spent gambling by different groups of Nevadans based on these results and on assumptions documented in the notes to the table. The median household income of the surveyed residents shown at the bottom of the table is $46,600, very close to the $45,395 median of all Nevada households in 2003.[1] The Gemini sample is thus representative of Nevada household incomes and we use it with confidence to estimate gaming tax incidence on Nevadans by household income. We estimate Nevadans aged 21 and older spend an average of 40.7 hours gambling each year.[2] Other findings based on the Gemini survey and on our stated assumptions include the following:

i)men gamble substantially more than women;

ii)older Nevadans gamble substantially more than younger Nevadans;

iii)Nevadans of “other” ethnicity gamble more than average while Hispanic-Americans gamble less than average;

iv)widows and widowers, most likely older persons, gamble more than others, particularly more than married persons;

v)high school graduates and college graduates gamble more than average while those with some college – and perhaps still enrolled – and persons with graduate education gamble less than average;

vi)retired and unemployed persons gamble substantially more than average while housekeepers and students gamble substantially less than average;

vii)Nevadans with household incomes in the $15-25,000 range gamble somewhat (eleven percent) more than average while those in the highest income group gamble somewhat (ten percent) less than average.

The short answer to the question, “Is the gaming tax regressive?” is yes. Based on Appendix Table A.1, persons with the highest current household incomes spend the least time gambling while persons with relatively low current household incomes spend the most time gambling; the average times spent gambling by persons in the lowest three income brackets in Table A.1 are all above the our estimated average for all Nevadans of 40.7 hours per year while the average times spent gambling by persons in the highest three income brackets are at or below the overall average. If wagers per slot handle pull and card hand are in proportion to current incomes, lower income Nevadans bet and lose higher fractions of their incomes than do higher income Nevadans. Since gaming taxes are in proportion to operator revenues and hence player loses, low income Nevadans pay higher fractions of their incomes in gaming taxes than do high income Nevadans.

Our estimate of the gaming tax burden on Nevada residents is developed in Appendix Table A.2. By “residents” we refer only to individuals who live in Nevada, not gaming enterprises which operate in Nevada. Individual residents bear gaming taxes in proportion to their gambling losses. As computed in Table A.1, the average Nevadan gambles 40.7 hours or 2,442 minutes per year. We assume she plays a slot or video poker machine at an average rate of ten handle pulls per minute, including time out for breaks in her gambling session. She thus plays 24,420 games per year. As documented in the notes to Table A.2, we compute an average wager per handle pull of $0.72 and an average hold of 6.80 percent. Our average slot player then wagers $7.20 per minute or $17,631 per year and loses $1,200. With an effective state and local gaming tax rate of 7.61 percent in Nevada,[3] not much different from the sales tax rate on other discretionary purchases, the annual gaming tax attributable to the average adult Nevadan is $91 per year.[4] We cite this as the maximum tax burden on the average adult Nevadan in Table A.2 because some of the burden is borne by gaming operators and their employees.

As shown in Table A.2, the average Nevadan’s gambling expenditure of $1,200 per year is 4.2 percent of the state’s $28,767 per capita income. The gaming tax burden on residents amounts to at most three-tenths of one percent of Nevada’s per capita income ($91/$28,767, assuming all of the tax is borne by gamblers and none is borne by gaming operators). At $91 per adult resident, annual gaming tax revenues attributable to Nevada’s 1,507,000 adult residents total $137,137,000, nineteen percent of state and local gaming revenues in Nevada.

References

Gemini Research, Gambling and Problem Gambling in Nevada, Report to the Nevada Department of Human Resources, 2002.(

GLS Research, 2001-2002 Clark CountyResidents Study, Las Vegas Convention and Visitors Authority, 2003.

U.S. Bureau of the Census, Statistical Abstract of the United States: 2006.

Walker, Terri C., The 2005 Casino and Gaming Market Research Handbook, 2005.

Table A.1. Nevada Resident Gambling Frequencies by Demographic Group1.
Gambling Frequency Class: / Non-Gamblers / Infrequent / PastYear / Monthly / Weekly / Total / Gambling
Number in Frequency Class: / 319 / 388 / 636 / 454 / 420 / 2,217 / Hours
Percent in Frequency Class:
Gambling Sessions per Year2.: / 14.4%
0 / 17.5%
0.6 / 28.7%
5 / 20.5%
25 / 18.9%
100 / 100%
25.6 / per
Year
Gambling Hours per year@ 1.6 Hours/Session3.: / 0 / 1 / 8 / 40 / 160 / 40.7
Demographic Group
Male ……………………………… / 12.5% / 14.2% / 26.1% / 23.8% / 23.5% / 1,128 / 49.0
Female …………………………… / 16.4% / 20.9% / 31.4% / 17.0% / 14.3% / 1,089 / 32.2
18-24 years of age ……………….. / 21.4% / 13.7% / 30.5% / 20.2% / 14.2% / 263 / 33.2
25-34 ……………………………... / 20.1% / 13.6% / 31.3% / 19.5% / 15.5% / 469 / 35.0
35-44 ……………………………... / 11.9% / 18.2% / 35.1% / 22.2% / 12.6% / 465 / 31.9
45-54 ……………………………... / 10.9% / 20.4% / 32.2% / 18.7% / 17.8% / 389 / 38.6
55-64 ……………………………... / 9.8% / 17.7% / 25.8% / 21.0% / 25.7% / 303 / 51.4
65+ ……………………………….. / 12.6% / 21.5% / 12.7% / 21.5% / 31.7% / 330 / 60.2
White …………………………….. / 10.1% / 18.9% / 31.7% / 20.7% / 18.6% / 1,543 / 40.5
Black …………………………….. / 17.4% / 16.0% / 24.0% / 21.5% / 21.0% / 114 / 44.1
Hispanic …………………………. / 31.9% / 12.6% / 18.6% / 19.3% / 17.6% / 384 / 37.3
Other …………………………….. / 11.9% / 17.1% / 26.9% / 20.7% / 23.4% / 177 / 47.9
Married …………………………... / 14.8% / 18.0% / 29.1% / 20.6% / 17.5% / 1,222 / 38.5
Widowed …………………………. / 13.7% / 23.8% / 16.6% / 17.8% / 28.2% / 161 / 53.4
Divorced …………………………. / 9.9% / 19.1% / 29.3% / 21.1% / 20.6% / 393 / 43.8
Never married ……………………. / 17.6% / 12.4% / 31.3% / 20.5% / 18.2% / 441 / 39.7
Less than high school grad ………. / 32.5% / 12.9% / 16.1% / 18.7% / 19.9% / 250 / 40.5
High school graduate …………….. / 14.8% / 15.7% / 26.0% / 22.3% / 21.2% / 648 / 44.9
Some college …………………….. / 10.8% / 19.4% / 33.4% / 19.9% / 16.4% / 845 / 36.9
College graduate …………………. / 11.4% / 17.0% / 29.0% / 18.9% / 23.7% / 324 / 47.7
Graduate study …………………… / 9.1% / 23.4% / 33.8% / 21.7% / 12.0% / 151 / 30.6
Full-time employed ……………… / 12.7% / 16.2% / 33.4% / 20.9% / 16.8% / 1,235 / 37.8
Part-time employed ……………… / 18.5% / 17.0% / 26.1% / 23.8% / 14.5% / 212 / 34.8
Housekeeper or student ………….. / 23.3% / 19.5% / 29.8% / 13.9% / 13.6% / 288 / 29.7
Retired …………………………… / 11.2% / 21.2% / 16.2% / 21.4% / 30.0% / 427 / 57.8
Unemployed …………………….. / 13.1% / 8.3% / 23.9% / 26.0% / 28.6% / 56 / 57.8
Household income < $15,000 ….. / 20.7% / 24.0% / 17.7% / 17.3% / 20.3% / 176 / 40.8
$15-25,000 ………………………. / 21.6% / 15.3% / 21.7% / 18.9% / 22.5% / 241 / 45.2
$25-35,000 ………………………. / 20.0% / 17.4% / 22.7% / 20.3% / 19.7% / 356 / 41.4
$35-50,000 ………………………. / 14.4% / 16.1% / 28.9% / 22.4% / 18.0% / 433 / 40.1
$50-100,000 ……………………… / 8.9% / 16.4% / 35.4% / 20.8% / 18.5% / 759 / 40.7
Household income > $100,000….. / 11.7% / 21.1% / 30.7% / 20.1% / 16.4% / 251 / 36.8
Median income: $46,600
Source: Gemini Research, Gambling and Problem Gambling in Nevada, Table 6 and author assumptions documented in notes to the table..

Notes to Table A.1.

  1. Gemini Research reports percentages by demographic group of respondents who fall into each frequency class of gambler shown at the top of the table. We translate Gemini’s reported values into percentages of respondents in each demographic group with the indicated gambling frequency.
  2. Gemini classifies respondents into five classes of gambling frequency: those who gamble weekly, those who gamble once a month or more, those who gamble at least once a year but not regularly, those who gamble infrequently but less than once a year, and those who never gamble. We assume those who gamble at least weekly gamble twice per week or one hundred times per year; those who gamble at least monthly gamble one-fourth as much or twenty-five times per year; those who gamble sometime during the year gamble five times per year; and those who gamble infrequently gamble one-hour per year, or six-tenths of our estimated 1.6 hour typical resident gambling session.
  3. Our estimate of average gambling session length is based on information reported by Gemini Research for residents who gamble once a month or more at Nevada casinos or at other venues(Gambling and Problem Gambling in Nevada, page 25). Information is provided for 355 respondents who gamble in Nevada casinos and for 167 respondents who gamble at other Nevada venues. Seventy-five percent of the casino gamblers spend two hours or less gambling when they go to a casino – we assume an average of one hour; another twenty-two percent spend 3 to 5 hours gambling – we assume an average of four hours; and the remaining three percent spend more than six hours gambling on each casino trip – we assume an average of eight hours. The weighted average length of session for these casino gamblers is 1.87 hours. Similarly, for the 167 respondents who gamble at least once a month at supermarkets, convenience stores, or bars, the weighted average length of session is 1.0 hours. The overall weighted average length of session for these 522 respondents (355 + 167) is then 1.6 hours.

Table A.2.Gaming Tax Burden on Nevada Residents

Average gamblinghours per year……..………………………………..…… 40.7 hours/yr

Minutes per year spent gambling (40.7 hours x 60) ………………………... 2,442 minutes

Gaming device “handle pulls” per minute or card game equivalent1.………. 10 pulls/min

Handle pulls per year………………………………………………………… 24,420 pulls/yr

Average wager per handle pull and operator hold percent2

Gaming Device / Relative Frequency
of Play / Coins In
Per
Handle Pull / Effective Denomination
(Wager Per Pull) / Operator Hold Percent
Penny
Nickel
Quarter
Dollar / .05
.34
.56
.05 / 24
10
3
2.4 / $0.24
0.50
0.75
2.40 / 9.81%
8.91%
6.33%
5.16%
Weighted Average / 1.00 / 6.4 / $0.72 / 6.80%

Total wagered per year (24,420 pulls/year x $0.72/pull)……………………. $17,631 per year

Operator hold percentage…………………………………………………… 6.80 percent

Average Nevadan gambling expenditure per year (6.80% x $17,631) ……… $ 1,200per year

Effective state and local gaming tax rate3 …….……..………………………. 7.61percent

Maximum annual gaming tax burden on average Nevada adult (7.61% x $1,200) $ 91 per year

Nevada per capita disposable income, 20034 ………………………………… $28,767

Nevada resident gambling expenditure (%of per capita disposable income)… 4.2%

Gambling tax burden as percent of disposable income ($ 91/$28,767) ……… 0.3%

Nevada residents aged 21 and older, 20025 …………………………………… 1,507,000

S&L gaming tax revenues attributable to Nevadans(1,507,000 x $91) $ 137,137,000

Total Nevada state and local gaming tax revenues6……………………… $ 718,700,000

% ofNevada state and local gaming taxes attributable to Nevadans ……. 19%

Gaming operator revenues, U.S. total, 2002 ($million)7 ….….………… $41,575.2

Disposable income, U.S. total, 2002 ($ million)8 .……………………… $8,929,100.0

U.S. gaming consumption expenditure as percent of disposable income ... 0.47%

Notes to Table A.2:

1Author assumption. Ten pulls per minute adjusts for breaks taken during gambling sessions.

2According to GLS Research, 2001-2002 Clark CountyResidents Study, pp. 19-20, 34 percent of Las Vegans who play slot and video poker machines play nickel machines and 56 percent play quarter machines. We assume the remaining 10 percent split equally between penny and dollar machines. GLS also reports coin-in per handle pull averages 6.4. Nevada Gaming Control Board 2005 revenue data for ClarkCounty suggests total coins played in nickel and quarter machines are in the ratio of 3.2:1. If, as we assume, 24 cents are played on average on penny games and $2.40 are played on average on dollar games, coins-in per handle pull conform to the values shown in the table below. Weighted averages of wager per handle pull and of operator hold percentage shown in the table are computed from the resulting effective denominations and their relative frequencies. We apply these estimates developed for ClarkCounty to the entire State of Nevada, purposely mixing years and regions to avoid the impression of false precision.

3,6,7 Terri C. Walker, The 2005 Casino and Gaming Market Research Handbook, p.4.

4Statistical Abstract of the United States 2006, Table 663.

5,8Statistical Abstract of the United States 2003, Table 20; Table 665.

[1]Statistical Abstract of the United States 2006, Table 689.

[2] The precise average hours per session, not the somewhat higher rounded value of 1.6, is used in this calculation.

[3]Terri C. Walker, The 2005 Casino and Gaming Market Research Handbook, p.4.

[4] According to the GLS 2001-2002 ClarkCounty Residents Study, the average table game player wagers $12.20 per bet. Bets per minute made by a table game player, of course, depends on the number of other players at her table. One bet every one to two minutes, for an average bet of $7.20 per minute, seems reasonable for table game players. We therefore apply our estimated wager per minute for slot players to all players.