Pennsylvania Considers Tax Hike on Betting to Address Budget Deficit

This is the first time the legislature has considered increasing taxes on the state’s online casino sector. Budget negotiations in Harrisburg remain delayed, having missed the July 1 deadline.

Industry Pushback on Proposed Tax Increases

The state’s largest betting operators are strongly opposing any tax increase. The Sports Betting Alliance (SBA), which includes Bet365, BetMGM, DraftKings, Fanatics, and FanDuel, has warned that higher rates could destabilize the rapidly developing industry.

SBA argues that current taxes on their operations are already among the highest in the nation. Online sportsbooks in Pennsylvania currently pay a $36\%$ tax rate, which includes a $2\%$ local share tax. Online slots are taxed at $54\%$, while online table games, like poker, are taxed at $16\%$.

The SBA sent a letter to Governor Josh Shapiro and the General Assembly stating that any tax increase could “cause irrevocable damage to the gaming industry.”

The group cautioned that operators would be forced to “absorb the cost,” potentially moving expenses onto consumers. This could drive customers to neighboring states with lower rates, such as Ohio, West Virginia, Maryland, or New Jersey, which generally feature rates of $20\%$ or less. The SBA has also run public advertisements comparing the potential tax hikes to high prices for food and gasoline.

Skill Games Proposed as Alternative Revenue Source

As an alternative to raising taxes on regulated online betting, a proposal to regulate and tax the estimated $40,000$ currently unregulated skill-based gaming machines is being discussed.

This strategy is seen by some industry insiders as a more viable path to generate state income. One anonymous source at a company operating in Pennsylvania suggested the state should “stop killing the golden goose and focus on a real revenue solution: legalizing and taxing the vast, unregulated skill game market instead.”

The proposal involves eliminating at least half of the unauthorized skill-based games and pulling the remaining machines into a regulated tax structure. These newly regulated machines would be taxed at the same rate as traditional casino slot machines. Casino slots currently pay $52\%$ state tax and $2\%$ local tax on revenue.

This proposal has support from casino operators, provided the skill games are taxed at an equal rate. However, local businesses that host these machines are lobbying for a much lower $16\%$ rate, while a separate bipartisan bill proposed a flat $\$500$ monthly fee per machine instead of a percentage tax.

The push to tax skill games has become intertwined with the discussion on raising online betting taxes. An anonymous source involved in the budget negotiations noted that as part of the discussion, lawmakers are saying, “If we’re going to tax skill games, let’s help fill the budget hole and increase the taxes on other gambling, as well.”

Budget Impasse Continues

Despite ongoing talks, state leaders have not finalized a budget deal. The continued delay has halted state payments to schools, counties, and non-profit organizations, leading to program cuts and hiring freezes.

At the time of this report, industry sources confirmed that while potential tax increases were being discussed in late October, the specific new tax rates under consideration were still unknown.

Even if a consensus is reached on taxing skill games, disagreements remain on how to spend the new revenue, with Democrats seeking to fund transportation projects in the southeast and Republicans favoring rural road and bridge construction.