Penn National saves $3M in state and local sales taxes

By Burton Speakman

and Ed Runyan


Penn National’s recent agreement with the Western Reserve Port Authority will save the racino owners about $3 million in sales taxes — most of which would have gone to the state, the rest to Mahoning County and the Western Reserve Transit Authority.

The savings are part of the bond agreement recently finalized between the entities in which the port authority will provide up to $60 million in bonds to Penn National as part of a 10-year lease agreement.

The agreement means Penn National will not have to pay sales tax on about half of the $125 million Austintown racino investment, said Rose Ann DeLeon, port authority executive director.

“When we made the agreement, we looked at the economic impact of the company in terms of jobs first and foremost, not really what the company does,” she said.

The racino is expected to add 1,000 permanent jobs in the area when it opens in 2014, according to Penn National estimates.

This is a good deal for the company and for economic development in the area, DeLeon said.

The port authority will own the racino buildings during the 10-year agreement and then Penn National would buy them back at the end of the agreement for a “nominal fee,” she said.

The authority will receive $825,000 as part of the agreement, of which $412,500 has already been paid. The remaining half is in an escrow account that will be paid once construction is complete, DeLeon said.

The reason the racino saves the $3 million is because the port authority, as owner of the $125 million investment and as a government entity, doesn’t have to pay sales taxes on construction materials, DeLeon said.

Paul Heltzel, Trumbull County commissioner, said the authority is like all government entities in that it doesn’t have to pay sales taxes.

“When [county commissioners] go to Staples and buy $100 worth of stuff, we get billed $100, not $106 or whatever,” Heltzel said.

Ohio port authorities are allowed to use this tool as an incentive to attract investment, DeLeon said.

The state isn’t in the business of giving cash incentives to companies, but it can allow a company to avoid paying certain sales taxes through this mechanism, DeLeon added.

Of Mahoning County’s 6.75 percent sales-tax rate, 1.25 percent goes to Mahoning County and the Western Reserve Transit Authority, and the other 5.5 percent goes to the state.

That means most of the $3 million Penn National will avoid paying — around $2.45 million — would have gone to the state. About $550,000 would have gone to Mahoning County and the WRTA.

But DeLeon points out the sales tax Penn National will avoid paying won’t be missed because it’s new money — it was never collected before.

The authority’s Economic Development Committee has begun to discuss what type of programs it might begin with the $825,000 fee, DeLeon said. Among the ideas are creating a revolving-loan fund to spur business development or “buying into” the bond fund of other port authorities to increase the bond funding resources available to the local authority.

In 2010, the authority helped Vallourec Star acquire the former Indalex factory site near its new $650 million pipe mill.

In that case, the authority bought the land belonging to the former Indalex site and entered into an agreement to lease the property back to the company, then known as V&M Star.

The authority’s participation in the project didn’t save the company taxes, but it helped reduce the company’s liability in the event the property contained hazardous materials.

The property doesn’t contain hazardous materials, DeLeon said, but having the authority own the land gave the company peace of mind, she said.

There were two reasons why Penn National wanted to work with the authority for the revenue bonds. First, the bond terms were competitive, said Bob Tenenbaum, spokesman for Penn National Gaming.

The second reason was to secure the bonds with a local entity, he said. Penn National is trying to establish as many connections as possible with the local community.

Tenenbaum confirmed the company would receive some tax benefit to purchase equipment during the racino’s construction and did not dispute the $3 million figure.

Dave Betras, the Mahoning County Democratic Party chairman, said he approved of the deal, stating he would support any measures that would bring more jobs to the Mahoning Valley.

“If we don’t agree to this, another community will,” Betras said.

Tennebaum said the practice of revenue bonds coming through port authorities is occurring at other sites throughout the state.

“Three of the four [racinos] currently being built in Ohio are using it,” he said.

Penn National is working with the Dayton/Montgomery County Port Authority on its Dayton site, and Miami Valley Gaming & Racing has an agreement with the Warren County Port Authority for a racino near Lebanon, Ohio.

One of the primary benefits of port authorities in economic development is the ability to take ownership of a property and lease it back to the company, said Nancy Bowen-Ellzey, Ohio State University extension educator for the Maumee Valley Extension Education and Research Area.

“It allows the company to keep the property off their balance sheets,” she said. “The company also avoids paying some taxes.”

DeLeon said she hopes the agreement with Penn National will make more companies aware of the economic incentives the authority can offer.

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