New York Fantasy Sports Tax Rules Still in Draft Mode

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By Gerald B. Silverman

Interactive fantasy sports operators like DraftKings Inc. and Fan Duel Inc. are waiting for proposed regulations from the New York Gaming Commission to spell out exact requirements for operating in the state.

Draft regulations are under administrative review and will be published as proposed rules in an upcoming issue of the New York State Register, Lee Park, a spokesman for the commission, told Bloomberg BNA in an Aug. 22 email.

Park said he couldn’t speculate on when the rules would be published. DraftKings and Fan Duel were granted temporary permits to operate last year.

Only a small number of states have promulgated fantasy sports regulations, so other states are looking to New York as a potential model, Jason Feingertz, an attorney with Reed Smith LLP who specializes in sports business and tax law, told Bloomberg BNA Aug. 23.

According to the Fantasy Sports Trade Association (FSTA), other states that have legalized and tax or impose fees on daily fantasy sports are Arkansas, Delaware, Indiana, Maine, Mississippi, Missouri, Tennessee, Vermont, and Virginia.

Other states that have legalized the industry but don’t impose a tax or fee include Colorado, Kansas, Maryland, Massachusetts, and New Hampshire. Attorneys General in Rhode Island and West Virginia have issued opinions saying fantasy sports are legal in their states, but their respective legislatures haven’t passed legislation.

15 Percent Tax

Under the 2016 New York state law, interactive fantasy sports operators must pay a tax equivalent to 15 percent of their interactive fantasy sports gross revenue generated in the state. They also must pay a tax of 0.5 percent of revenue, up to $50,000.

The draft rules cover tax requirements, consumer safeguards for contestants, reporting requirements for operators, and procedures for registering as an interactive fantasy sports operator.

Industry spokesmen declined to comment on the draft regulations.

Feingertz said the draft regulations provide “good guidance,” but additional clarity would be helpful. For instance, it’s unclear what constitutes a New York player for tax liability purposes. He would also like to see more guidance on the procedures for auditing fantasy sports operators.

“It never hurts to have more clarity,” he said. “It helps both taxpayers and tax practitioners.”

Surprise Tax Bill?

Feingertz said fantasy sports players could be “caught off guard at the end of the year” because there’s no requirement that operators withhold taxes on winnings. He said players will probably get a 1099 at the end of the year with winnings.

He said the tax requirements for operators will work like those for withholding payroll taxes. Under the draft, operators must remit their taxes and a report on gross revenue to the gaming commission on a monthly basis.

Alex Kaganovsky, co-founder of the full-season fantasy football site For Players-By Players LLC, said the regulations should take into account that “there are big and small fantasy game operators and the smalls simply cannot afford the same regulatory costs that the bigs can.”

“DFS [daily fantasy sports] and season-long are very different game formats, even though both are being regulated by the NYGC,” he told Bloomberg BNA in an Aug. 22 email.

To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y. at GSilverman@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

For More Information

Text of the draft regulations is at http://src.bna.com/rWF.

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