States Navigate Online Gambling Tax Rate Challenges

As online gambling and sports betting gain momentum across the U.S., states are reaping millions in tax revenue. However, legislators face a difficult task in determining tax rates that strike a balance between revenue generation and maintaining a competitive gaming market. While some states are considering tax increases, others aim to lower rates to foster growth.

Ohio Senator Advocates for Reduced Tax Rates

In Kentucky, Michigan, Indiana, and West Virginia.

Antani argued that smaller sports betting operators struggle to absorb the higher tax rate, unlike larger platforms. By reducing the rate to 10%, he believes Ohio could enhance its market competitiveness while maintaining consistent tax revenue. Although Antani prefers an even lower rate of 6.75%, akin to those in Iowa and Nevada, he views 10% as a more achievable compromise. His proposal remains under consideration.

In Louisiana, a bold plan to drastically increase the tax rate on online sports betting revenue was recently withdrawn. Representative Roger Wilder had introduced House Bill 22, which proposed raising the tax rate from 15% to a staggering 51%. According to the Legislative Fiscal Office, this change could have boosted state revenue by $151 million annually, partially offsetting the effects of flattening the state income tax.

However, the proposal faced substantial pushback from the gambling industry, prompting Wilder to retract it. Louisiana’s online sports betting market generates approximately $250 million to $300 million in profits each year, with the state collecting $54 million in taxes. Industry stakeholders argued that such a dramatic increase could hinder growth and drive operators out of the state.

Michigan Considers Incremental Tax Adjustments

While Ohio and Louisiana take divergent paths, Michigan lawmakers are evaluating moderate increases to online gaming taxes. Two bills currently under review by the Senate’s Committee on Government Operations suggest slight adjustments to the tax rate, though details remain under discussion.

As online gambling expands nationwide, some states exploring legalization are also revisiting tax policies. Currently, only seven states—New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia, Delaware, and Rhode Island—offer legalized online casino gaming. In July 2024, these states collectively generated $623 million in revenue, a 26% increase from $483 million the previous year.

To guide states considering legalization, the National Council of Legislators from Gaming States recently introduced a framework recommending tax rates between 15% and 25%. The proposal also includes restrictions such as banning credit card deposits. This model legislation will be discussed further at the council’s winter meeting in New Orleans.

Balancing Revenue and Industry Viability

Determining appropriate tax rates for online gambling is a complex challenge for legislators. States must weigh the immediate benefits of increased revenue against the long-term sustainability of gaming operators. For the industry to thrive, tax policies must growth while ensuring states meet their fiscal objectives.

As the debate continues, finding middle ground will be key to fostering a flourishing, regulated market that benefits both governments and industry stakeholders.

Source:

”States debate optimal tax rates as online gaming revenue soars”, cdcgaming.com, December 14, 2024.