New Jersey Lawmakers Making Tax Bets on Sports Gambling

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By Leslie A. Pappas and Ryan Prete

New Jersey lawmakers are poised to approve sports-betting legislation two days after neighboring Delaware became the first state to launch full-scale sports betting.

Legislation to authorize sports betting in New Jersey is scheduled for a vote in both chambers June 7.

The fast-tracked legislation comes after the U.S. Supreme Court ruled in the Garden State’s favor May 14 in Murphy v. NCAA, repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA) and paving the way for states to authorize gambling related to professional and amateur sports. Four other states—Mississippi, New York, Pennsylvania, and West Virginia—have already enacted legislation to legalize sports betting, but will need time before they start taking bets.

The First State

Delaware became the first state to launch full-scale sports betting, kicking off bets at its three casinos at 1:30 p.m. on June 5.

Delaware Gov. John Carney (D) made the first official wager in the First State, placing a $10 bet on a Major League Baseball game: the Philadelphia Phillies versus the Chicago Cubs.

The Phillies won 6-1, and the governor made $20 on the bet, Department of Finance spokeswoman Leslie A. Poland told Bloomberg Tax June 6.

Revenue from sports betting in Delaware is “a little more complicated than a flat tax,” she said in an email June 6.

In Delaware, the state is a partner with the casinos and retailers. The state’s share from this partnership is effectively the “tax,” and, after prizes and administrative expenses, the Lottery contributes the state’s share to the general fund, she said.

Under Delaware’s system, half of the revenue from sports betting at casinos is distributed to the general fund, 40 percent goes to agents, and 10 percent goes to supplement purses offered at Delaware’s racetracks.

Eighteen other proposals are currently active in six states, according to the American Gaming Association.

$12M-$17M in New Jersey

State tax revenue from sports betting in New Jersey could range from $12 million to $17 million in the first full year of operation, according to a June 4 statement accompanying proposed Senate legislation.

The New Jersey Senate’s Budget and Appropriations Committee approved legislation sponsored by Democratic Sens. Steve Sweeney, Jeff Van Drew, and Vin Gopal on June 4. That same day, the Assembly’s Tourism, Gaming and the Arts Committee cleared legislation sponsored by Assembly Democrats Eric Houghtaling, John Burzichelli, Joann Downey, Ralph Caputo, and Raj Mukherji.

S. 2602/A. 4111 would would levy an 8.5 percent gross revenue tax on in-person wagering and a 13 percent levy on online sports bets. The tax is applied to the operator’s gross revenue—the amounts wagered minus the amounts paid out as prizes.

For casinos, the tax would be paid to the Casino Revenue Fund, and for racetracks, the tax would be paid to the general fund.

An additional tax of 1.25 percent on gaming revenue received by racetracks would be distributed to host municipalities and counties by the state’s Division of Local Government Services, and the 1.25 percent surcharge on casinos would go toward promoting tourism in the Atlantic City area, the bill’s sponsors said in a news release.

The Senate committee made several amendments to the bill June 4. The Assembly committee also made amendments to its version of the bill, according to a June 4 statement.

The amended bills are now identical, Democratic majority press secretary Eva Loayza told Bloomberg Tax June 6.

A. 4111 and S. 2602 are both scheduled for a vote in their respective chambers June 7. Gov. Phil Murphy (D) is expected to sign the legislation.

If Murphy signs the bill immediately on June 8, the state could technically offer temporary betting licenses and take bets on June 9.

Property Tax Link?

At least one New Jersey lawmaker is gambling on the idea that sports betting can afford state residents some property tax relief.

Assemblyman Anthony M. Bucco (R) has introduced a constitutional amendment (A.C.R. 174) to dedicate money from sports betting to the state’s homestead rebate program.

Bucco’s resolution would amend the state constitution to say that revenue from sports wagering on professional and collegiate sports at Atlantic City casinos and racetracks, if it is ultimately authorized, must be applied to the homestead rebate program.

The text of the resolution wasn’t yet posted on the Legislature’s website June 6. And it’s unclear that the resolution will advance in the Democrat-controlled Legislature.

Real Revenue Projections?

How much revenue is really at play for the first states to offer betting? Ethan Wilson, policy director of commerce and financial services with the National Conference of State Legislatures, told Bloomberg Tax revenue will be low in the beginning.

“This is an industry that will surely grow, but revenues won’t be significant for some time,” Wilson said. “We really won’t have revenue figures on sports betting for a while.”

Gopal said it’s “hard to say” how much New Jersey could make from sports betting. “This is just something that hasn’t happened before,” he said.

In gauging New Jersey’s and Delaware’s potential revenue numbers, Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center, cited Nevada’s 2017 sports betting revenue, which was nearly $250 million. However, Nevada’s 6.75 tax rate means the state only saw about $17 million in tax revenue from the activity.

Auxier said that $17 million only equates to 0.01 percent of Nevada’s total state general revenue.

“Sports betting revenues in New Jersey and Delaware would for sure be less than 1 percent of total state revenue,” he said.

New England States

Other states are trying to mirror Delaware and New Jersey’s progression.

In Massachusetts, the Senate approved the addition of Amendment 870 to an appropriations bill ( H. 4401) on May 25. The amendment includes a proposed yearly 12.5 percent tax on gross revenue and a $15,000 annual renewal fee.

Senate approval came just two days after House Speaker Robert DeLeo (D) said it would be “difficult” to see the House taking up a bill this session, and that it isn’t a decision he wants to rush into.

In Connecticut, Gov. Dannel Malloy (D) is negotiating with the Mashantucket Pequot and Mohegan tribes, the owners of Foxwoods Resort Casino and Mohegan Sun, respectively, over whether the state or the tribes control the rights to sports betting.

A spokesman for Malloy’s office told Bloomberg Tax May 29 that those negotiations are ongoing. The governor previously said he will call a special legislative session to address sports betting, but only when negotiations with the tribes are complete.

In Rhode Island, Gov. Gina Raimondo (D) included a provision in the fiscal year 2019 state budget to launch sports betting at two state-run casinos by Oct. 1. The state lottery, however, received only one bid on its request for vendors. The lone bid, from International Game Technology PLC, is currently under review, according to a lottery spokesman.

Longer Road in Colorado

In Colorado, lawmakers looking to legalize sports bets will first need to repeal the state law ( Title 18, Art. 10) that prohibits sports gambling and imposes criminal penalties for violations, Michael S. Hartman, executive director of the Colorado Department of Revenue, previously told Bloomberg Tax.

Since 1991, a voter-approved constitutional amendment has allowed limited-stakes gambling—including slots, blackjack, roulette, poker, and craps—at casinos in three mountain towns: Black Hawk, Central City, and Cripple Creek, Hartman said.

“It could happen on the ballot in 2019,” Rep. Alec Garnett (D), a state legislator who is interested in sponsoring a bill to legalize sports gambling, told Bloomberg Tax. But it would take time to develop the regulatory framework, and so it’s unlikely betting would begin any earlier than 2020, he said.

Still, Garnett said, sports gambling will eventually come to Colorado—it’s only a matter of time. “If somebody wants to bet on the Broncos in the Super Bowl, they shouldn’t have to fly to Vegas to do it.”

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at lpappas@bloomberglaw.com and Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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