Wagering tax hikes are all the rage. Will IL be next to approve? MA didn’t
So far, there’s no consensus, which means that the Illinois legislature will extend its session into the Memorial Day weekend.
Governor JB Pritzker earlier this year began pushing to increase the Illinois betting tax rate from 15% to 35%. Pritzker has argued that his state isn’t getting the kind of revenue that bigger states like New York (51% tax rate) and Pennsylvania (36% tax rate) are reaping.
A key difference, however, is that more-comparable Pennsylvania allows promotional deductions, making the effective tax rate 24%, according to Vixio. Illinois and New York do not allow for promo deductions. New York has the biggest competitive marketplace in the US and operators were willing to weather the high tax rate in exchange for the exposure. According to one industry group, at least some legal operators are in the red in Illinois.
Pritzker’s proposal is part of a bigger trend. Last July, Ohio’s governor, Mike DeWine, put a 10% wagering tax hike in his budget and it passed. Operators went from paying a 10% tax to a 20% tax. Ohio also allows for promotional deductions, which means that the stated tax rate is lower than the stated rate.
Massachusetts lawmaker reject 51% tax rate
On Thursday (23 May) Massachusetts lawmakers rejected a proposal to increase the tax rate from 20% to 51%. The proposal in the Bay State came from Senator John Keenan and would have been wrapped into the state budget. During debate Keenan leaned into problem gambling and the idea that operators should pay to treat those who develop an addiction.
But Massachusetts already has some of the most stringent responsible gaming regulations in the country and has the most well-funded problem gambling programme in the US. According to the National Association of Administrators for Disordered Gambling Services, in 2021, Massachusetts earmarked $10.2m for problem gambling as compared to $5.6m for New York, which is nearly three times as big.
New Jersey lawmakers are also considering a hike. A bill filed in April would more than double the wagering tax from 13% to 30%. It would also raise the online gambling tax from 15% to 30%. The bill is in the senate’s state government, wagering, tourism, and historic preservation committee, but doesn’t have a hearing date.
Illinois betting tax rate increase would “change calculus”
There’s been pushback against an Illinois betting tax rate increase from the industry and, on Thursday, the state’s unions added their voices. The Sports Betting Alliance (SBA) – comprised of BetMGM, DraftKings, Fanatics Betting & Gaming, and FanDuel – is campaigning against the increase. A spokesperson said that 53,000 emails have been sent from constituents opposing the hike to state lawmakers.
“These companies entered in Illinois with the understanding they would be operating under a 15% tax rate,” SBA spokesman Nathan Click said via email. “All the companies I represent are currently operating in the red in the state, but are still investing in Illinois based on long-term potential under a 15% tax rate.
“Doubling the tax rate massively changes the calculus – and basically makes these investments exceedingly harder to recoup – much less turn a profit. The state taxes promotions, so operators effective tax rate is actually between 30%-60%.”
In a statement, the SBA pointed to legalising online gambling as an alternative way to drive tax revenue. Online gambling has broader reach and a bigger profit margin. The SBA projects Illinois could bring in $750m in annual revenue from online gambling. Lawmakers earlier this year declined to consider a bill legalising it.
The Illinois legislature had until 22 May to approve a budget and adjourn on time. As of Thursday night, a budget had not been approved and the expectation is that the session will run into, if not through, the holiday weekend. In 2019, sports betting was legalised in an extended legislative session.