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The economics of gambling

In 2012, national gross gaming revenues reached $37 billion, the second-highest annual total behind only 2007 (just before the recession hit), according to the 2013 State of the States report by the American Gaming Institute (AGA report). Companies returned $8.6 billion in taxes to state and local communities.

The AGA report shows that Detroit is the fourth largest casino market in the U.S. That city accounted for nearly all of the $1.41 billion in gross revenue and $319 million in tax revenue that Michigan collected in 2012, the latest year for which the AGA figures are available. Those taxes were spent on initiatives concerning public safety, capital improvements, youth programs, tax relief, neighborhood development and improvement, and infrastructure repair and improvement.

Because gaming is such a large industry, court cases that rule favorably for gamers can have a positive impact on a state’s commercial activities. One such case is Karen Dombrowski v. Department of Treasury, in which the Michigan Court of Appeals concluded that taxpayer Karen Dombrowski (Dombrowski) was a professional gambler, and thus entitled to deduct her gambling losses.

The issue

The case stemmed from the Department of Treasury’s assessments against Dombrowski of $164,482, $175,092, and $7,103 in taxes due for 2008, 2009, and 2010, respectively. The crux of the case was whether Dombrowski’s gambling activities in particular—playing and observing slot machines—constituted a trade or business such that she could deduct her losses.

The court’s conclusion

The court recognized the Internal Revenue Code’s provision that because gambling may be considered a trade or business, income and losses from gambling can be reported on a tax return. Even so, the court noted that its analysis turned on the specific facts of the case.

In support of its assessments, the Department of Treasury argued that because Dombrowski’s particular gambling activities involving slot machines did not require “skill,” she could not deduct her losses. Relying on United States Supreme Court precedent, the court disagreed, concluding that whether her gambling activities required skill was not determinative. Instead, the court found that Dombrowski had presented substantial evidence supporting the “continuity and regularity” with which she pursued gambling “for income and profit.” Thus, Dombrowski met her burden of proving her right to the tax deductions.


While this case standing alone may not have earth-shattering consequences, it makes the State of Michigan a more, not less, favorable place for gamblers to work.