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The proper tax rates for gross gaming profits from sportsbooks continue to be a source of disagreement for US lawmakers. The U.S. Tax Foundation has published a comprehensive paper that delves into the various rates and their effects. Although for different reasons, this research clarifies how states like New Hampshire, Rhode Island, and New York impose the highest tax rate of 51%.
The existence of a single licensed sportsbook lowers marketing expenses and influences the tax structure in Rhode Island and New Hampshire. Conversely, large businesses such as DraftKings, FanDuel, and Caesars gladly absorb the high tax burden in New York, which enjoys the benefits of a competitive market. With their establishment in the thriving market of New York since 2018, these operators have increased the state’s tax revenues.
Pennsylvania follows with a tax rate of 36%, making it the second-highest competitive market. Conversely, Nevada and Iowa maintain the lowest tax rate at 6.75%, making them attractive for new sportsbook operators. Other states with tax rates below 10% include Michigan at 8.4% and Indiana at 9.5%, while six additional states set their rates at exactly 10%.
Interestingly, tax rates have proven more fluid than expected. For instance, Ohio raised its tax rate from 10% to 20% within a year of launching. Similarly, Illinois switched to a scaled tax rate reaching as high as 40% for the highest-revenue sportsbooks. Meanwhile, Arkansas offers a variable tax structure of 13% or 20%, based on revenue.
State legislators also face the challenge of licensing fees, which can be hefty. Massachusetts imposes a $5 million initial licensing fee, alongside a $5 million renewal fee every five years. Pennsylvania’s fees are also steep, charging $10 million upfront and $250,000 for renewals. Notably, New York sets the bar highest with a staggering $25 million initial fee.
Sportsbooks must collaborate with retail casinos or horse racing tracks in order to obtain a license in New Jersey, a state that led the way in sports betting. On the other hand, certain states have given their lottery commissioners authority over sports betting regulation. Additionally, certain states, notably Delaware and Wisconsin, forbid online sports betting, restricting operators’ market potential.
In conclusion, states need to balance their tax systems. More operators may be drawn in by a lower tax rate, which would enable them to provide consumers with alluring promotions. Higher fees, however, frequently force smaller sportsbooks out of the market, which lessens competition and hurts bettors by offering less favorable odds.