Study Details U.S. Approach To Sports Betting Taxes

A new study by the U.S. Tax Foundation takes a deep look into the various state approaches to the industry including a survey of tax rates.

A look at the study finds that states located in the northeast tend to favor higher tax rates for the industry while those in the West, Midwest, and South tend to be lower, although there are some exceptions. The study also noted that some states offer significant barriers to entry in the market.

“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 reports. “In Massachusetts, for example, sportsbooks must pay an initial fee of $5 million, with another $5 million renewal fee every five years. Sportsbooks in Pennsylvania are required to pay a one-time fee of $10 million and a $250,000 renewal fee every five years.”

A Look At The Tax Rates

When it comes to the highest tax rates, New York, New Hampshire, and Rhode Island lead the pack with a rate of 51%. Pennsylvania then taxes sports betting revenue at 36% with Vermont at 31.7%.

Ohio taxes operators at 20%, along with Arkansas and Massachusetts. A few of the other higher state tax rates on the industry include: Tennessee (19.7%); North Carolina (18%); Virginia (15%); Illinois (15%); Louisiana (15%); and Maryland (15%).

Some states take a more laissez-faire approach to taxation involving sports betting. Nevada, which has had legalized betting since 1949, has the lowest tax rate at 6.75%. This is the same rate the state applies to all forms of gambling revenue.

Iowa has matched Nevada’s rate to tie as the lowest tax rate on the industry. Other states with much lower tax rates in the single digits include Michigan (8.4%) and Indiana (9.5%). Several states collect 10% of revenue including Arizona, Colorado, Wyoming, Kansas, West Virginia, and Maine.

Other states fall somewhere in between these higher and lower taxed states. Authors of the study believe lower rates are more favorable to legitimize the industry even more and keep it growing.

“The market for sports betting will likely continue to grow substantially,” the report notes. “Texas and California don’t yet permit legal sports wagering markets. With nationwide legalization, sports betting market volume could easily double. 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.”

Sports betting has become a major part of the country’s gaming revenue and has helped achieve record numbers over the last few years.