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An in-depth examination of the tax policies governing sports betting in each state is provided by a recent study by the U.S. Tax Foundation. The study notes that there are notable regional differences in the tax rates across the nation, with the Northeastern states in particular typically having much higher tax rates than the Northwest, West, and South.
The study also highlights several hurdles operators face when entering state markets, primarily due to hefty licensing fees. For example, in Massachusetts, sportsbooks must pay an initial $5 million licensing fee, with an additional $5 million renewal every five years. Similarly, Pennsylvania requires operators to pay a one-time $10 million fee and a $250,000 renewal every five years.
“Common barriers facing operators include expensive licensing fees and requirements for online sportsbooks to partner with existing in-state brick-and-mortar operators,” the study explained.
These requirements can make it difficult for new players to break into the market, limiting competition and consumer choice.
States such as New York, New Hampshire, and Rhode Island top the list with the highest tax rates, each imposing a 51% rate on sports betting revenue. Pennsylvania follows closely at 36%, while Vermont taxes operators at 31.7%.
Meanwhile, Nevada, which has had legalized sports betting since 1949, boasts the lowest tax rate at just 6.75%. Other states with similarly low rates include Iowa, which also taxes at 6.75%, along with Michigan (8.4%) and Indiana (9.5%). States like Arizona, Colorado, and Maine take a middle-ground approach, taxing at 10%.
The U.S. Tax Foundation study suggests that lower tax rates may encourage greater participation in legal, regulated markets, helping combat illegal gambling. The report concludes, “As the tax base grows, tax policy design becomes increasingly important. Rates should be low enough to pull participants out of black markets and into the legal, regulated markets.”
With states like Texas and California yet to legalize sports betting, the industry is expected to continue growing rapidly.