After the Supreme Court’s ruling, Pa. lawmakers renew their emphasis on tax regulation of skill games

State lawmakers have long viewed skill games as both a vice requiring regulation and a potential source of fresh revenue for the Commonwealth.

They have struggled for years to reach consensus on the details.

Monday’s ruling by the state Supreme Court declaring the devices illegal provided both clarity and a sense of urgency for lawmakers to act.

For more than a decade, video game machines have appeared in gas stations, convenience stores and other tiny businesses across the country. In Pennsylvania, officials’ efforts to contain the spread of the virus were thwarted by a series of court rulings that put skill games beyond the reach of gambling regulators and prosecutors.

The long-awaited decision of the Supreme Court came about two weeks before the June 30 deadline for adopting the next state budget. And Republican leaders in the Senate said shortly after Monday night’s ruling that it was now clear that gambling reform would be “a key part of the solution to this year’s budget.”

Asked about the ruling, Gov. Josh Shapiro told reporters the need to regulate and tax gaming was clear.

““I’ve been calling for this for three years in a row,” he said, adding that Senate Republicans’ acknowledgment of the need for skill gaming legislation is encouraging.

“I’d like to encourage Senate Republican leaders to work with Democratic leaders in the Senate and see what package can get 26 votes in their chamber and then get this bill to my desk,” he said at an unrelated event.

House Democrats, who have already approved Shapiro’s $53.3 billion 2026-27 spending plan, said they hoped the ruling’s finality would assist the Senate resolve disputes and pass legislation to regulate and tax skill games.

“We look forward to seeing what they can pass in the chamber in a bipartisan manner,” House Democratic leaders said in a statement.

Some lawmakers have pushed to ban the devices, saying they contribute to crime in vulnerable neighborhoods, prey on those who can least afford to lose money and expose children to gambling.

Arcade games are similar to video slot machines found in casinos, which are regulated and taxed by the state. Players can bet to win jackpots based on the outcome of random games, but can get their money back if they lose by completing the puzzle.

Pace-O-Matic (POM), a leading manufacturer of skill games, argued in court that the machines differ fundamentally from slot machines in that the game involves an element of skill to win.

On Monday, in a 4-2 decision, the Supreme Court overturned what the majority called a pair of “seriously flawed” decisions by the intermediate appellate court. These rulings essentially allowed counterfeit slot machines to spread in a legal gray market to local stores, taverns and private clubs across the state.

Justice David Wecht, writing for the majority, said the General Assembly had clearly defined what a game of skill was and it was “abundantly clear” that POM machines did not meet it.

Recognizing the potential to put thousands of Pennsylvania businesses on the wrong side of the law overnight, the court delayed enforcement of its ruling for 120 days.

Senate Majority Leader Joe Pittman (Indiana) and President Pro Tempore Kim Ward (Westmoreland) have identified unregulated skill games currently in apply – an estimated 70,000 in number – as a matter of public safety.

“Furthermore, given the fiscal realities facing our Commonwealth, it is logical that new revenues from gaming reform should be directed to the General Fund, as the Governor proposed in his 2026-2027 budget,” they said.

Shapiro’s budget proposed putting skill games under the supervision of the Pennsylvania Gaming Control Board, which already oversees casinos, video gaming terminals and other forms of gambling. With a maximum of five qualified machines per plant and 40,000 statewide taxable at a 52% rate, the plan could generate more than $2 billion annually.

House Appropriations Committee Chairman Jordan Harris (R-Philadelphia) said that while achieving a final product will require cooperation between both chambers, the next move is up to the Senate.

“Let’s be clear: We were asked to send the cases to the Senate, which we did,” Harris told reporters on Tuesday. “We’ve never heard anything from the Senate, so you know we want to see what they want to do.”

The Senate returns to session on June 22.

Attempts to pass laws regulating skill games ended in a stalemate in the Senate last year over the tax rate and other details. The commonwealth’s casino industry, which has lobbied heavily against arcade games, is taxed at 55% and insisted on a comparable rate.

Senate leaders approved a plan to tax skill games at 35%. Sen. Gene Yaw (R-Lycoming), whose district includes arcade game maker Miele Manufacturing, has sponsored competing legislation that would impose a 16% tax on the machines. Yaw and Sen. Anthony Williams (R-Philadelphia) also introduced a bill to impose a monthly fee of $500 per machine.

Also unresolved is the question of whether the tax revenue will go to the state’s general fund or be used to fund transportation – a point of contention in previous budget negotiations as public transportation agencies in the commonwealth face a long-term financial crisis. Senate Republicans, however, rejected Shapiro’s proposal to include about $300 million in fresh no-parity funds for other forms of transportation such as rural highways and bridges.

Last year, Shapiro provided an additional $220 million in capital to the state’s largest transit agency, the Southeastern Pennsylvania Transportation Authority (SEPTA), to address urgent infrastructure needs. But Harris declined to discuss whether transportation funding could be an issue for arcade game revenues during this month’s negotiations.

“We all need to come together, make a decision on how we regulate skill games, where they are going and where they shouldn’t be, and be able to provide relief to communities across the commonwealth that have been waiting for us to do something,” he said.