The first federal excise tax on gambling devices was passed as part of the Revenue Act of 1941. A stamp act of ten dollars was levied on pinball and similar amusement machines and fifty dollars on slot machines – meaning machines that operate by means of insertion of a coin or token and that “by application of the element of chance may deliver … cash premiums, merchandise or tokens”. Ordinary vending machines were excluded from the tax.
The Revenue Act of 1951 raised the stamp act to $250 for slot machines. The amusement machine and slot taxes were repealed in 1978. The state of Nevada took over the tax, however, and has dedicated the receipts to educational programs. The 1951 Revenue Act also imposed a 10% fee on the amount of money wagered on a sports event or on a lottery conducted for private profit. This tax was lowered to 2% in the 1970s and to 0.25% in 1982. (The tax remains at 2 percent if the gambling is illegal.) In addition, the 1951 law created an occupational tax of $50 for each person working for a gambling establishment. Later the tax was raised to $500. Today it remains $500 for illegal gamblers but is only $50 for those engaged in legal wagering. Those involved with lotteries, pari-mutuel gambling, slot machine games, and casino table games (not considered wagering) are exempt from the occupational tax.
In 1994, President Clinton proposed a 4% tax for all gambling profits realized by commercial operations. The proposal died in Congress among a flurry of opposition from casino interests.
The federal gambling taxes have produced only a minuscule amount of revenue for the national budget. The real purpose of the taxes seemed to be to discourage gambling and also to delineate a separate criminal offense for persons not paying the taxes. Illegal gamblers were obligated to pay the tax, and of course, most did not. In 1968, however, the U.S. Supreme Court ruled that the government could not require illegal operations to pay the taxes, as such payment would constitute a forced self-incrimination in violation of the 5th Amendment of the U.S. Constitution.
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