Pokies operators Tabcorp and Tatts are considering legal action against the Victorian government after they were asked for almost $85 million in levy charges for the 2012-13 year, even though they had owned the gaming machines for only 46 days in that period.
The tax demand comes on the eve of the state's budget and as the government searches for more funding to cover revenue shortfalls and rising costs.
Tabcorp and Tatts told the stock exchange on Monday that Victorian Treasurer Michael O'Brien told the companies he had determined they must pay a health benefit levy of $42 million and $42.6 million respectively for the past financial year.
In separate press releases, Tabcorp and Tatts argued that the levy was being demanded despite, as a result of recent changes to pokies legislation in Victoria, their ownership of the machines was for only 46 days. The levy should be imposed on a pro-rata basis, they argued.
"This defies any test of common sense," Tatts chief executive Robbie Cooke said. "We have had no conversation with government. First we knew that they were going to levy this amount was the letter in the mail this morning."
It was not common sense that the company should be charged a levy for 365 days when it had the business for only 46 days, he said.
In a statement to the ASX, Tatts said it strongly disputed the "reasonableness of the determination" and its "legal sustainability".
"The levy has not been applied pro rata, and it does not reflect that Tabcorp ceased to operate gaming machines on August 15, 2012 when its gaming licence expired," Tabcorp said.
The companies said the levy was contrary to expectations and they were considering legal action to defend their business and shareholders from the tax take.
"We are not a company that relishes being embroiled in litigation but, at the end of the day, if we have to go down that road to protect our shareholders' interests we will," Mr Cooke said.
He said the government had given Tabcorp and Tatts an indemnity last year against new taxes, when it negotiated the new pokies framework, and they would expect that indemnity to be honoured.
In Tatts' case, it had booked pre-tax earnings of $29 million from its pokies business in 2012-13, which is much less than the levy.
Tabcorp had allocated a provision of $3.7 million in its accounts towards its levy bill, while Tatts had booked a provision of $7 million.
Tabcorp's bill will be slightly less than Tatts' because it operated some poker machines under a joint venture with Racing Victoria, which will pay some of the bill.
The levy is applied to every electronic gaming machine operated by Tabcorp and Tatts.
A spokeswoman for the Victorian Treasurer did not return calls.