Extras on Excise: New York Has Joined the League in Legalizing and Taxing Interactive Fantasy Sports Contests

Fantasy sports contests have been steadily increasing in popularity over the years. Many of us have taken part in an “inner-office” or “among friends” fantasy sports challenge, but the emergence of several online contest platforms over the recent years has raised questions about the methods used by online fantasy sports companies.

Last fall, New York’s attorney general demanded that two of the biggest fantasy sports companies, DraftKings and FanDuel, stop accepting wagers in the state following an investigation that found the companies to be in violation of state laws against illegal gambling. 

However, New Yorkers need not worry about where they will get their fantasy sports kicks this football season because Gov. Andrew Cuomo (D) signed bill A. 10736 on Aug. 3, legalizing online fantasy sports contests and adding consumer protections to the industry, as reported by Gerald B. Silverman in the Weekly State Tax Report.

New York has joined Tennessee and Virginia who have also recently enacted laws on interactive fantasy sports in an effort to regulate the new online gaming phenomenon.

Along with the rules and regulations of operating online fantasy sports contests comes new taxes. The New York bill, effective Aug. 3, implements a state tax on operators of 15 percent on gross revenue for the privilege of conducting contests in-state and an additional 0.5 percent tax on gross revenue with an annual cap of $50,000. This new influx of revenue will be designated for state education funds.

The new rules and regulations include a requirement that all interactive fantasy sports operators submit an application for a three-year registration to the New York State Gaming Commission. This process involves providing certain documentation to the commission and criminal history record checks for all officers or directors listed on the application.

The good news for operators that were offering contests prior to Nov. 10, 2015, is that they will be able to continue their operations until their registration application is either approved or denied, as long as they are issued a temporary permit by the commission. Once registered, operators will need to submit an annual report to the commission no later than June 30 each year.

New York also used this opportunity to establish safeguards and minimum standards in an effort to give protection to players. The safeguards include, but are not limited to:

  • limiting players to one user account;

  • prohibiting the participation of minors;

  • advertising accurate chances of winning and the number of winners;

  • allowing players to close accounts at any time;

  • limiting and disclosing the number of player entries per contest allowed;

  • protection of privacy and online security of players and their accounts;

  • protection of players' funds upon deposit and separation from operator’s funds; and

  • New York information concerning help for players experiencing addiction to the games.

Although some of the recent practices of online sports fantasy contests may have been questionable, New York fantasy sports players may feel a bit of relief knowing that the state has taken measures to protect their quest to play and win with interactive fantasy sports contests.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are rules and regulations enough to make online fantasy sports contests a fair practice?

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