Study Reveals Regional Disparities in Sports Betting Tax Policies

30.09.2024

A recent study by the U.S. Tax Foundation provides an in-depth examination of the tax policies governing sports betting across the United States, highlighting significant regional differences. The study notes that Northeastern states typically impose much higher tax rates compared to the Northwest, West, and South, affecting the industry’s growth and competitiveness.

High Tax Rates and Licensing Fees Pose Challenges for Operators

The study also highlights several hurdles operators face when entering state markets, primarily due to hefty licensing fees. For example, in Massachusetts, sportsbooks must pay an initial $5 million licensing fee, with an additional $5 million renewal every five years. Similarly, Pennsylvania requires operators to pay a one-time $10 million fee and a $250,000 renewal every five years.

“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 explained.

These stringent requirements can make it difficult for new players to enter the market, limiting competition and consumer choice.

Regional Tax Rate Variations

States such as New York, New Hampshire, and Rhode Island top the list with the highest tax rates, each imposing a 51% rate on sports betting revenue. Pennsylvania follows closely at 36%, while Vermont taxes operators at 31.7%.

In contrast, Nevada, which has had legalized sports betting since 1949, boasts the lowest tax rate at just 6.75%. Other states with similarly low rates include Iowa, also at 6.75%, along with Michigan (8.4%) and Indiana (9.5%). States like Arizona, Colorado, and Maine adopt a middle-ground approach, taxing at 10%.

Implications for Legal and Illegal Markets

The U.S. Tax Foundation study suggests that lower tax rates may encourage greater participation in legal, regulated markets, helping combat illegal gambling. The report concludes, “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.”

With major states like Texas and California yet to legalize sports betting, the industry is expected to continue growing rapidly. The study emphasizes that thoughtful tax policy design will be crucial in shaping the future landscape of sports betting across the nation.