Court Rules Pekin Gaming Tax Pre-empted by State Law: Small Businesses, Players Win

Court Rules Pekin Gaming Tax Pre-empted by State Law: Small Businesses, Players Win
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Court Rules Pekin Gaming Tax Pre-empted by State Law: Small Businesses, Players Win (Pekin, IL) — Tazewell County Circuit Court Judge Paul E. Bauer has ruled that the City of Pekin’s ordinance taxing video gaming is unlawful and barred by state law, resulting in a major victory for Illinois small businesses and their customers.

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Pekin officials in October approved a city ordinance assessing a “fee” worth 2.5 percent of net revenues received by any video gaming machine registered to do business in the city. The ordinance called for proceeds from the fee to be split between the City’s police and fire pension funds. Violations could trigger fines of up to $750 a day. Two members of the Illinois Gaming Machine Operators Association, which represents the companies that provide video gaming terminals in thousands of small businesses across the state, sued the City of Pekin late last year in Tazewell County Circuit Court.

The IGMOA members — J&J Ventures Gaming, LLC, and Accel Entertainment Gaming, LLC – argued that the City’s so-called “fee” is in reality an illegal tax on terminal operators. Such a tax is “unauthorized, is unlawful and unenforceable” because the state’s Video Gaming Act bars them, the plaintiffs argued in their lawsuit filed in December 2022.

The companies made a clear distinction between a fee and a tax. A fee is charged for a specific service or benefit provided, and it must be proportional to that benefit or service provided by the municipality. Because the City was using the revenue for public safety pensions and not in any relation to video gaming, the law considers it a tax – no matter what the City actually calls it – and any such tax is barred by state law, they argued.

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The companies also noted they were provided no way to pay the assessed taxes in November 2022 under the new structure because they were caught in the middle — make the payments and they lose any legal remedy to get those funds back if the law is struck down, or refuse to make the payments and face local prosecution, fees and other legal penalties. They asked for a declaratory judgment that the tax is unauthorized and should be voided. Judge Bauer agreed, and issued an order on May 24 barring Pekin from applying and enforcing the illegal tax.

“This is an important win for our members, and for the small businesses and customers we serve in Pekin and across Illinois,” said Ivan Fernandez, IGMOA Executive Director. “We work well with our local government partners in the communities we serve around the state, but sometimes, they seek to ask for a greater piece of the video gaming pie than the law allows. This ruling sends a strong message that Illinois communities should work with our members to draw in more customers and play, not drive them away with unnecessary taxing schemes, and we will take these arguments to other communities where these local taxes are being considered and pursued.”

Court Rules Pekin Gaming Tax Pre-empted by State Law: Small Businesses, Players Win

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