Officially, the exclusivity fees paid by tribes to the State of Oklahoma for monopoly casino rights range from 4 percent to 6 percent for slot machines and 10 percent on table games.

But a new report indicates the effective rate of the fees, which are essentially a substitute state tax, may be as little as 2.8 percent.

That means the effective tax rate on casinos in Oklahoma may be far lower than the tax rate imposed on the average Oklahoman’s income or the tax rate citizens pay for routine purchases.

In Oklahoma, someone buying basic goods such as children’s clothing or toilet paper will pay a state tax rate of 4.5 percent and as much as 11.5 percent when state and local sales tax rates are combined. That same individual will pay a 4.5 percent rate on income—meaning the tax on citizens’ income is roughly 60 percent greater than the apparent effective tax rate on casino gambling in Oklahoma.

A recent report, “The Economic Impact of Tribal Nations in Oklahoma,” shows that in the 2023 fiscal year, tribal gaming and related businesses generated $7.4 billion in revenues, but the tribes paid only $208 million in exclusivity fees to the state of Oklahoma. That’s an effective rate of just 2.8 percent.

(The report does not identify the “related businesses” or report if they generate any additional direct form of state taxation or fee payment. The report’s author did not respond to a request for elaboration.)

According to the state Office of Management and Enterprise Services (OMES), Oklahoma tribes have remitted more than $2.6 billion combined in exclusivity fees to the state since 2006, the first year of collections on casino gambling.

Put another way, in a single year, the tribes’ take from casinos is now nearly three times the amount that they have paid to the state of Oklahoma over nearly two decades combined.

Why is casino tax in Oklahoma so low? Because many machines go untaxed

How can the effective tax rate on casino gambling in Oklahoma be so low? Because tribal casinos pay nothing to the state on thousands of slot machines.

Slot machines are broken into two categories: Class II, which are untaxed, and Class III, for which the tribes are legally required to pay exclusivity fees to the State of Oklahoma under state-tribal compacts.

To the average citizen, experts say the two types of slot machines look very similar, with one site saying Class II machines “are almost indiscernible from Class III slots.”

But there is one significant difference: The odds of winning are lower when playing a Class II machine, meaning tribes’ profit on those machines is not only untaxed by the State of Oklahoma, but also likely larger on a per-machine basis.

An article at GambleDex, which describes itself as the “honest casino guide,” warns, “In theory, the odds are worse in a Class II slot machine than in a Class III slot machine.”

The Gambling Gurus website similarly warns that “the odds of winning in a Class II game are worse because you are put against a large pool of players to win instead of relying on” random number generation.

The GambleDex site also warns that Class II slot machines “are self-regulated by the Native American tribes that own and operate the casinos.”

“As history shows (and you would be naive to think otherwise) self-regulation in any industry simply does not work,” the article states. “There is a conflict of interest between profit-making and maintaining ethics. And what will always occur is the profit-making aspect will trump the maintenance of ethics.”

The number of Class II machines in Oklahoma casinos is substantial.

The state Oklahoma Gaming Compliance Unit Annual Report for Fiscal Year 2024, the most recent available, reports that there was a monthly average of 46,525 Class III machines that year.

However, the total number of slot machines/electronic games in Oklahoma casinos totaled at least 80,650, according to figures compiled by the Tribal Government Gaming website.

That indicates that around 34,125 untaxed Class II machines are in place in Oklahoma casinos, or roughly 42 percent of all machines.

The large amount of untaxed slot machines in Oklahoma casinos has not gone unnoticed.

The Oklahoma Gaming Compliance Unit Annual Report noted, “Class II machines declined from 2005 to 2008 but have grown substantially since 2009. The number of Class III machines has begun to increase again, and figures available indicate Class II machines continue to grow at a faster pace as a percentage of total machines. The state collects exclusivity fees from Class III machines and nonhouse-banked card games but not Class II games.”

Christopher Irwin, a partner and senior vice president at The Innovation Group, noted those trends in an article for the Tribal Gaming Government website.

“Oklahoma is a unique gaming market with regards to the significant amount of Class II gaming machines compared to Class III,” Irwin wrote. “Historically, Class II machines have been utilized to backfill markets that have surpassed their allotment of Class III machines, or to offer a different style of machine to the gaming patron. In Oklahoma, tribes have used Class II machines to help reduce exclusivity fees paid to the state while maintaining a quality gaming product, a model that has not been as successful in other gaming markets around the country.”

Based on the publicly reported figures, the State of Oklahoma would be collecting at least $362.4 million per year in exclusivity fees if fees were applied to all slot machines in Oklahoma tribal casinos.

And even that figure is still far lower than the average effective tax charged on casino gambling in many other states. In 18 states, the tax on casinos is above 20 percent and ranges as high as 51 percent.

If Oklahoma collected an effective 20-percent rate on all casino gambling in the state, that would translate into annual collections of $1.4 billion in annual collections, based on the $7.4 billion in revenues generated by tribal gaming according to “The Economic Impact of Tribal Nations in Oklahoma” report.

Oklahoma tribes gladly pay higher casino taxes in other states

Oklahoma’s tribes have been not only willing, but at times eager, to pay higher casino tax rates—but in other states, not Oklahoma.

In 2018, Arkansas voters authorized four casinos with a tax rate of 13 percent on the first $150 million of revenue and 20 percent thereafter. The Quapaw Nation and the Cherokee Nation, both Oklahoma-based tribes, have a license for one Arkansas casino apiece.

The Choctaw Nation of Oklahoma also sought to obtain one of the Arkansas licenses and pursued a casino in Illinois, where the average casino tax rate is 20 percent and can run as high as 31.7 percent, according to a report from the Illinois Commission on Government Forecasting and Accountability.

The Cherokee Nation purchased a casino in Mississippi in 2023, where the tax rate on casino gambling is 12 percent and efforts are underway to raise the rate to 16 percent.

In 2023, the Chickasaw Nation partnered with other entities seeking to build a $3 billion casino resort in Coney Island, New York. The state of New York imposes a 30-percent tax rate on casino slot machine/electronic table game revenue.

Early in his first term, Gov. Kevin Stitt, who is Cherokee, sought to renegotiate Oklahoma’s state-tribal gaming compacts to raise the exclusivity fees to a rate closer to national market norms. Tribal governments resisted that effort, and a lawsuit resulted in the current, extremely low rates being locked in for another 15 years.

Stitt later negotiated new gaming compacts with some smaller tribal governments in Oklahoma. Those tribes were willing to pay rates of up to 13 percent. Once again, those efforts drew lawsuits that ultimately prevented the state and willing tribes from completing new agreements.

Low casino taxes indirectly result in higher taxes on working families

Oklahoma’s extremely low effective tax rate on casino gambling has played a role in raising other taxes paid by working families—and officials with tribes operating some of Oklahoma’s largest casinos have played a direct role in that process.

In 2018, amid a significant state budget shortfall caused by an oil bust, various individuals formed “Step Up Oklahoma,” a group advocating for tax increases. The leaders of some Oklahoma tribes with significant casino operations were among the participants.

Even though much, if not all, of the state budget shortfall could have been erased by raising tribal exclusivity fees on gambling to national norms and applying them to all slot machines in state casinos, the group did not advocate that change.

Instead, officials with Step Up Oklahoma called for raising taxes on low-income Oklahomans.

The group’s plan called for $790 million in tax increases. Under the plan, Oklahomans would pay more taxes when fueling their cars, in addition to $175 million in income-tax increases, among other things. Step Up’s proposed income-tax increases would have hit everyone earning more than $12,000 a year.

The plan was so extreme that even left-wing groups panned portions of it.

When the Oklahoma Policy Institute, a liberal think tank, reviewed the Step Up plan’s changes to the income-tax code, the group warned that households with two or more children “are likely to fare worst because of the elimination of the personal exemption in favor of a per-household credit that does not increase with family size.”

In 2018, The Oklahoman reported that Step Up Oklahoma participants  “initially proposed raising the top individual income tax rate from 5 to 5.25 percent.”

And the Step Up Oklahoma members also called for amending the Oklahoma Constitution to make it easier to enact additional tax increases.

Even as the plan called for raising taxes on low-income workers, it also called for changes that would boost casino profits by allowing tribal casinos to offer craps and roulette games.

The listed supporters of the “Step Up” plan included Bill Anoatubby, governor of the Chickasaw Nation; Gary Batton, chief of the Choctaw Nation of Oklahoma; John Berrey, chairman of the Quapaw Tribe of Oklahoma; Dan Boren, president of corporate development for the Chickasaw Nation; and Bill Lance, secretary of commerce for the Chickasaw Nation.

While the Step Up plan was rejected by state lawmakers, several elements of the proposal later became law that year, including the expansion of gambling opportunities at tribal casinos.

Since that time, tribal entities have sought to roll back one tax change made in part due to the Step Up group’s recommendations. Since 2018, state law has capped the amount of itemized deductions that may be taken on state income-tax forms to $17,000 per year.

Tribes have sought to exempt gambling losses from that cap. This year, lawmakers approved House Bill 2646 to provide a greater tax break to high-rollers who have gambling losses exceeding $17,000 per year. A fiscal analysis showed the legislation would provide those gamblers with more than $28 million in annual state income-tax breaks.

Gov. Kevin Stitt killed the bill with a “pocket veto.” Bills passed in the final week of legislative session are considered to have been vetoed if the governor does not sign them into law within 15 days.

When officials from the Cherokee, Chickasaw, Choctaw, Muscogee, and Seminole tribes met this summer via the Inter-Tribal Council of the Five Civilized Tribes, they passed a resolution decrying Stitt, saying the governor “threatens to reverse decades of progress in inter-governmental relations and tribal-state cooperation.”