Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Brenna Goth
Arizona leaders have to consider a potential “poison pill” in their gaming compacts with Indian tribes when weighing the legalization of sports betting, according to a Phoenix-based attorney.
Passing a law to let the state or businesses offer gambling on games would reduce how much revenue tribes owe Arizona from their casinos across the state, said Stephen Hart, a partner with Lewis Roca Rothgerber Christie LLP who practices Indian and gaming law. A decades-old compact between the state and tribes gives tribes exclusive rights to some types of gaming in exchange for following certain limitations and paying the state part of their revenue. If that changes, and other entities are able to operate that gaming, tribal requirements in the compact are loosened. That includes a reduction in how much revenue tribes owe the state and lifted limitations on some gaming devices and table games.
Hart spoke at a sports-betting forum hosted by the Arizona State University Sandra Day O’Connor College of Law following the U.S. Supreme Court’s recent Murphy v. NCAA decision that lets states legalize sports betting. The court struck down the Professional and Amateur Sports Protection Act, which outlawed the gambling in most places.
In Arizona, the Legislature could pass a new law or the governor could amend its compact with the tribes to add sports betting as regulated gambling. States with tribal gaming compacts will likely start sports betting at existing casinos and expand from there, Hart said.
“That’s probably the way you’re going to see it here in Arizona,” Hart said.
Delaware and Mississippi are also currently accepting sports bets. West Virginia is expected to begin taking bets Sept. 1—in time for the National Football League’s Sept. 6 opening day—and New York and Pennsylvania are among the next states moving toward legalization.
The Mississippi Band of Choctaw Indians could be the first tribe to offer sports betting, with openings targeted for Aug. 30 and Sept. 1, Hart said. A handful of states have already legalized the gambling, and others are considering legislation.
An appendix to Arizona’s tribal gaming compact that would govern sports betting is under negotiation, said Lester Stanley, executive director of the Rincon Gaming Commission in California.
How much money states could make off the activity is hard to estimate. In Arizona, predictions show tax revenue is “not anything to write home about,” said Richard Wells, president of Wells Gaming Research, who does consulting work in the gaming industry, at the law school forum.
Wells Gaming Research projected Arizona revenue based on numbers from the Nevada market that consider the state without Las Vegas tourists. The top-level study found previous projections have likely overstated how much money the state could bring in.
If Arizona used the same tax rate as Nevada, the state could bring in between $486,000 and $2.3 million a year in tax revenue on sports betting wins, Wells said. Less than 20 sports books would open in the state, Wells Gaming Research predicts.
“It’s not a big revenue producer for the state,” Wells said. “It’s also not a big job producer.”
States and tribes are both looking at how to regulate sports betting to boost revenue and protect consumers, Stanley said. Looking at new technologies like mobile betting while preventing underage betting and data breaches are among the challenges, he said.
For states, tax rates are integral in limiting the illegal market, Hart said. Tax rates of 7 to 10 percent make sense, while Pennsylvania’s 36 percent tax rate is too high, Hart said.
“You’ll never touch the illegal business. Ever,” he said.
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