When it comes to sports betting, taxes play a crucial role in shaping the industry as well as the sports gambling operators within it. In May 2018, the Supreme Court invalidated The Professional and Amateur Sports Protection Act (PASPA), a federal law enacted in 1992 restricting sports betting in most states. This ruling allowed individual states to legalize and regulate sports betting within their borders.
Since then, 38 states have allowed sports betting, and 29 of those states have permitted online wagering, creating a massive opportunity for operators like DraftKings, FanDuel, BetMGM and those alike. However, each state has its own approach to taxing sports betting revenue for operators, resulting in a diverse landscape and nuanced landscape. Keep in mind that the tax rates differ for retail sports betting, but this article will focus on the key points for mobile and online sports wagering and its impact on its operators.
Comparative Analysis
- Delaware: Delaware, with a 51% tax rate, was one of the first states to levy such high taxes after the repeal of PAPSA. Despite its smaller population, Delaware has generated about $63 million in tax revenue from sports betting.
- New Jersey: Compared to its neighboring states, New Jersey is less taxing for sports betting operators. New Jersey requires a $100,000 sports betting license and taxes mobile and online wagering at 14.25%. The state has generated the third-highest tax revenue with about $412 million.
- New York: The Empire State boasts the highest tax rate for sports betting revenue at an eye-popping 51% on gross gaming revenues. In addition, each operator must pay a one-time $25 million license fee. Despite operators’ struggles to turn a profit under this hefty taxation, New York’s robust population and sports enthusiasm contribute to its impressive tax revenue generation of approximately $1.46 billion since legalization in January 2022.
- Pennsylvania: Following closely behind, Pennsylvania requires a one-time license fee of $10 million with a $250,000 renewal every five years. The state levies a tax rate of 36% on sports betting revenue. It has generated nearly $500 million in tax revenue since the repeal of PAPSA.
- Tennessee: This state has one of the lowest tax rates with 1.85%, and has a unique approach to taxation. Tennessee taxes an operator’s total sports betting handle rather than the traditional model where taxes are based on gross or net revenue. Tennessee also requires a $50,000 annual license fee.
- Vermont: Legal sports betting went live in January 2024 in Vermont. The law mandates that each operator pay at least 20% of their adjusted gross revenue, along with a $550,000 operator fee. Notably, all three companies selected for Vermont’s sports betting system—DraftKings, Fanatics Sportsbook, and FanDuel—have committed to paying more than the minimum revenue share.
Operators and sportsbooks should also be aware that once a customer’s net winnings exceed $600 for the year (the sum of all their winnings on the bets that won), they are legally required to send Form 1099-MISC to the customer by January 31, regardless of the state.
Takeaways
Remember, these tax rates significantly influence operators’ profitability and the overall success of the sports betting industry. For example, New York’s tax rate and license fee are a significant barrier to entry for sports betting operators. As the landscape continues to evolve, states will refine their tax policies to strike a balance between revenue generation and operator viability. Advisors like Withum are here to help sports betting and gambling companies understand and navigate these tax implications.