Hawaii just eliminated the ability for residents to offset gambling winnings with their losses. Fair or not, BYD’s downtown properties may take a small hit.
A state law eliminating the gambling loss deduction was signed into law retroactive to January 1st. Similar to every other state and the federal government, Hawaiian tax law had allowed taxpayers to deduct gambling losses on their tax return up to the amount of gambling winnings. Now, Hawaiians will be taxed on gross winnings. So if Governor Linda Lingle played five hands at BYD’s Freemont Hotel & Casino and won 4 straight hands of $25, but bet the entire $100 winnings on the fifth hand and lost, she would still owe state taxes on $100 of income.
Practically, the legislation will have little impact on the gambling tendencies of most Hawaiian visitors to Las Vegas. With the exception of politicians – we know they are all honest – most gamblers are not reporting their gambling activity any way.
BYD generates a little over 10% of its property EBITDA from its downtown properties. We estimate that roughly half of the downtown EBITDA is generated from Hawaiian visitors. State documents indicate that only $5 million of gambling losses were deducted from individual tax returns last year so we are not exactly talking about huge dollars here. However, don’t be surprised to see a little weakness downtown in what has been a surprisingly strong market for BYD.