Sports-Betting Tax Rates Up in Air as States Await Green Light

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 Ryan Prete

States continue to move on legislation to legalize sports betting while hoping the U.S. Supreme Court soon will ax a federal law prohibiting such gambling.

Connecticut, Mississippi, New Jersey, and Pennsylvania already have enacted legislation to legalize and regulate sports-betting, and a dozen other states are considering similar proposals as they await the U.S. Supreme Court’s ruling in Murphy v. NCAANew Jersey’s attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region.

The high court agreed to review the case after a lower court ruled that the partial repeal violated the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits states from “authorizing” gambling related to professional and amateur sports leagues.

While multiple states have passed legislation to legalize sports-betting, most states will look for the high court’s green light before moving forward, according to Ethan Wilson, policy director of commerce and financial services with the National Conference of State Legislatures.

“As we get closer to a Supreme Court decision, I expect more states to wait for what the court has to say. Still, the states that have already enacted legislation will find the process all the more easier if PASPA is overturned,” Wilson told Bloomberg Tax. “If the court rules in favor of New Jersey, I fully expect more states to pursue legal sports-betting.”

Oral arguments in the case were heard in early December 2017, and a decision could be handed down as early as March. However, it’s more likely that a decision arrives near the end of the court’s term in mid-summer, Lisa Soronen, executive director of the State and Local Legal Center in Washington, told Bloomberg Tax.

Ranging Rates

According to the American Gaming Association, 16 states have active bills enabling sports betting—some with varying tax rates on sports-gambling revenue.

Pennsylvania has the highest proposed tax rate: a law creating a 34 percent state tax on wagered revenue plus a 2 percent “local share assessment” tax was enacted in October 2017.

Kentucky’s two pending bills propose a 20 percent excise tax on the total amount wagered ( S.B. 22) and a 31 percent gaming tax, plus $3 per person per day admission tax ( B.R. 149).

Alongside taxes, many states also propose licensing fees for sports-books.

Revenues: No ‘Silver Bullet’

Wilson said legalizing sports betting could boost nationwide interest, but revenue could be slim if more states jump at the opportunity.

“There’s only so much money out there,” Wilson said. “If PASPA is repealed, more states moving to legalize sports betting means more slices added to the pie. While some revenue is better than none, states need to understand that they won’t close significant revenue gaps with sports betting. It isn’t a silver bullet,”

In Nevada, where sports-betting is legal, the state can tax what amount a sports-book keeps, which ranges between 3.5 percent to 5 percent, according to the American Gaming Association. If a sports-book kept 5 percent of a $100 wager ($5), a state—modeled after Nevada’s 6.75 percent state tax on gross gaming revenue—would receive $0.34 in state revenue.

High tax rates could push more gamblers to place bets illegally, according to Geoff Freeman, president and chief executive officer of the American Gaming Association. However, he previously told Bloomberg Tax that “with the right tax rates and regulation, the illegal betting market could shrink to zero.”

Freeman cited a May 2017 Oxford Economics report, which estimated that $107 billion was wagered illegally in 2015.

Unknown Rates

However, not all states have set tax rates or fees for sports betting.

For example, Mississippi’s law only says generally that a “Commissioner of Revenue shall assess and collect all taxes, fees, interest, penalties, damages and fines imposed by this chapter, and is hereby empowered to promulgate rules and regulations to administer collection of the amounts due.”

Others are less clear, which could mean that tax rates could be set by another state regulatory body, according to Wilson.

NBA Wants Taste

Further complicating the revenue picture are other potential fees.

Dan Spillane, senior vice president and assistant general counsel for league governance and policy with the National Basketball Association, announced in Jan. 24 written testimony before the New York Senate that the league supports efforts to end PASPA—but asked that operators “pay each league 1% of the total amount bet on its games.”

Freeman said that while the AGA encourages the NBA support, it doesn’t agree with the 1 percent fee, and said such a request would both hurt the integrity of the NBA and dwarf any revenue returned to states.

If the NBA received 1 percent ($1) on a theoretical $100 bet, that would be almost three times as much as Nevada would receive ($0.34) in state tax revenue, based on its 6.75 percent state tax on gross gaming revenue.

Indiana is the only state so far to align with the NBA’s request for a piece of the pie. H.B. 1325 would impose a 1 percent “integrity fee” on all sports bets, which would be given to professional sports leagues.

To contact the reporter on this story: 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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