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Study explains wide variety in U.S. sports betting tax rates

New York’s 51% rate is tied for highest in the country, along with New Hampshire and Rhode Island

Aerial view of the Empire State Building before the NFL game between the Houston Texans and the New York Jets
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All gaming industry followers in the U.S. know that lawmakers have varying sentiments on what tax rate to charge on sportsbook gross gaming revenues.

But this week, the non-profit U.S. Tax Foundation issued a comprehensive report providing great detail on those various rates.

For instance, the highest tax rate of 51% applies in New York, New Hampshire, and Rhode Island – but for two different reasons.

In the latter cases, only one sportsbook is legal. That monopoly status means significant savings in marketing and advertising costs because there is no legal competitor around to potentially steal market share. New York lawmakers, meanwhile, correctly deduced that, as the largest state in the U.S. to offer a free-market sports betting environment, there would be no shortage of major players willing to shoulder that heavy tax burden.

DraftKings, FanDuel, Caesars, BetMGM, BetRivers, Bally’s, Fanatics and Resorts all have opened up shop in New York since the first bets were taken at retail casinos in 2018 and online in 2022.

Pennsylvania – the second-largest competitive-marketplace state – has the next-highest tax rate at 36%.

Nevada – until 2018 the only state with full-fledged legal sports betting – and Iowa share the distinction of having the lowest tax rate at 6.75%. The other states with a tax rate of under 10% are Michigan (8.4%) and Indiana (9.5%). Six other states currently set the number at exactly 10%.

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Tax rates proving more temporary than expected

New York’s success seems to have been noticed for lawmakers around the U.S. For instance, Ohio doubled its tax rate from 10% to 20% less than a year after the books first launched in early 2023. Earlier this year, Illinois changed its tax rate from a flat 15% to a scaled rate that charges as high as 40% for the highest-revenue operators.

Arkansas, which features sports betting tax rates of 13% or 20% depending on revenue, had been the only state with multiple tariffs.

There also has been dialogue by elected officials in Massachusetts and New Jersey about raising those tax rates, but the efforts so far have gained little traction.

The Tax Foundation also notes that the tax rate is not the only challenge would-be sportsbook operators need to consider. Massachusetts regulators – while imposing a mid-level tax rate of 15% – charge a daunting $5 million initial licensing fee as well as a $5 million renewal fee every five years. Seven mobile sportsbook operators have been approved in that state.

In addition to its high tax rate, Pennsylvania charges a $10 million licensing fee followed by a $250,000 renewal rate every five years. New York tops all states with a $25 million initial licensing fee.

New Jersey, a pioneering state for gambling innovation, requires all sportsbook operators to team with retail casinos or horse racing tracks to obtain a license. Ohio regulators have sportsbooks pair up with professional sports franchises in the state.

Other states, meanwhile, turn over control of sports betting to their respective lottery commissions.

And not every state that has legalized sports betting permits such wagering online; that list includes Delaware, Mississippi, North Dakota, South Dakota, Washington, and Wisconsin.

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Overall, state legislators find themselves weighing contrasting reasons for setting sportsbook tax rates. A lower figure entices more operators to the state, and those operators can afford to offer lucrative promotional deals to state residents to gain their business.

A higher figure, meanwhile, tends to squeeze out smaller sportsbooks and tempts those books that do obtain licenses to offer less advantageous odds to gamblers as a way to counteract the sizable tax burden.