Diversity of US Gambling Tax Rates: Tax Foundation Study Finds
Date: 2024-09-17 Author: Leon Pierce Categories: EVENTS
The organization released an interactive map showing the tax structures for each jurisdiction where online sports betting is legal. The map shows significant differences in tax rates between states, creating a challenging environment for operators who must comply with each region’s unique laws and taxes.
Licensing Fees and Barriers to Entry
The map does not take into account the licensing fees that operators are required to pay in each state. However, the press release notes that high licensing fees are one of the main barriers to entry. Examples include Massachusetts, with a $5 million initial fee and a $5 million renewal fee every five years, and Pennsylvania, with a $10 million initial fee and $250,000 annual renewal.
New York, with a maximum of nine operators, has the highest initial fee at $25 million, limiting the market to large national and international platforms.
Challenges to market entry and competition
The study also notes mandatory partnerships with brick-and-mortar casinos or sports teams, which pose additional challenges for operators. Arizona, Kansas, Nevada, and Pennsylvania require platforms to be affiliated with physical locations, while Nevada requires users to register their accounts in person.
Some operators have exited markets due to high business costs and complex regulatory requirements. For example, Betr and WynnBet closed their operations in Massachusetts in 2024. WynnBet has also closed its operations in other states across the country.
Other operators, such as SuperBook and BlueBet, have also reduced their presence in markets. In July, SuperBook shut down eight platforms, leaving only its Nevada platform active. In August, Australia-based BlueBet announced it was exiting the Colorado, Iowa, and Louisiana markets. Notably, all of these states have tax rates of 15% or lower.
State Tax Rate Rankings
The Tax Foundation ranked the tax rates from lowest to highest. New York, New Hampshire, and Rhode Island top the list with the highest rates (51%). At the bottom of the rankings are Iowa and Nevada with the lowest rates at 6.75%. The states with the best business conditions include Michigan (8.4%) and Indiana (9.5%).
Interestingly, states like Kentucky, Louisiana, Massachusetts, New Jersey, and New York tax online bets at higher rates than bets made in person.
Of the 28 jurisdictions that allow digital betting, six states have set their tax rate at 10%. This was considered the "sweet spot" since 2018. However, it is now clear that large operators can operate successfully even with higher taxes. The trend is toward higher rates: Illinois and Ohio have passed laws raising taxes in the past 18 months, and 16 jurisdictions already have tax rates above 10%.
