Co-authored by Danny Kanso, Senior Policy Analyst for Budget & Taxes
As of January 2022, 31 states and Washington D.C. authorize and tax sports gambling, with measures in four additional states pending. As more states legalize sports gambling, lawmakers should not overpromise what the revenue will do for state budgets and would be wise to avoid making critical programs dependent on that revenue. Instead, policies should be structured to improve equity across race and income levels for students in existing state programs while minimizing the negative risks associated with gambling.
Policy Recommendations
Direct Potential Sports Betting Funds into Pre-K and Higher Education
If lawmakers choose to legalize sports gambling, the Georgia Lottery should regulate and govern operators, with revenue supplementing existing lottery funds for pre-K and higher education. Funding could help to address major student needs in both programs, as Georgia’s current-year budget anticipates 84,000 pre-K students, and last year, more than 2,600 children were on waiting lists statewide. Georgia also remains one of two states nationally that does not offer needs-based financial aid.
Administer Sports Gambling Through the State Lottery
Governance of sports gambling should not require a state gaming commission and should be separate from a discussion about casino gambling. States without casino gambling have successfully authorized sports gambling under their state lotteries.
Maintain Tax Rate with Lottery Return Percentage
Keep integrity of tax rates currently written into law for the lottery by maintaining the current rate of 35 percent, and forbidding sports betting operators to make deductions that lower effective tax rates.
Boost State Revenues from Sports Betting License Fees
Registration and licensing fees can be a significant source of revenue for states, in addition to tax revenue, and should be included in any enabling legislation. For example, multiple states, such as Pennsylvania, charge a flat licensing application fee for potential sports betting operators of $10 million, along with recurring renewal fees.
Key Facts
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Tax revenue is a very small percentage of total wagers. Gaming revenue, or the “hold percentage,” averages 7.4 percent of total wagers across states, and state tax revenue is a percentage of gaming revenue. Although not calculated in official state estimates, gambling winnings are also federally considered taxable income and must be reported as such by individual betters.
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Tax rates range from 6.75 percent in Nevada and Iowa, to 51 percent in Rhode Island (See table below). Four states allow sports betting operators to deduct certain expenses from gaming revenue, such as other taxes paid, resulting in a lower effective tax rate. Tax rates affect state revenues greatly. Example:
- States can also collect significant revenue from sports betting license fees. Licensing fees range widely. In Pennsylvania, operators must pay a one-time license fee of $10 million. In Illinois, the initial in-person license is $10 million and the online license is $20 million. Some states with pre-existing casino gambling do not charge additional fees for sports betting.
- Several states contribute a portion of funding to address the consequences of gambling addiction and the potential harms caused.
- States like Georgia without casino gambling (e.g., Tennessee) tend to regulate and govern sports gaming through their state lotteries. These states combine sports gaming revenue with state lottery funds to be used for the same purposes.
- Two states operate their own sports gambling systems. The Montana State Lottery acts as both a regulator and operator. Montana does not allow private operators. In Washington, DC, the Office of Lottery and Gaming (OLG) regulates private operators and also acts as an operator itself. DC’s OLG is the only online betting option, while private operators are not permitted to offer online gambling.
- States with higher sports gambling tax revenues allow online gambling. This is a tradeoff that accompanies maximizing gambling revenue, which means more constituents betting and losing money on sports wagers.
- It is not clear how sports betting will affect other forms of state gaming revenue, like the lottery.
Sports Betting State Tax Revenues and Rates
For reference, Georgia’s FY 2021 lottery proceeds to education: $1,544,954,000 revenue = 26.6% of sales
| State | State Tax Revenue (Calendar Year 2021) | Months of reported collections | Tax Rate | Licensing/Other Fees |
| Arkansas |
$1,195,680 |
11 | 13% on first $150 m; 20% above | No additional fee for sports wagering |
| Arizona | $1,054,235 | 2 | 8% in-person, 10% mobile | Various initial and annual fees, ranging from $500-$750,000 |
| Colorado | $10,930,531 | 11 | 10% | $73,000 for fiscal year |
| Connecticut | $1,709,722 | 2 | 13.75% | Initial provisional license contract was $832,383 with DraftKings and $325,915 for FanDuel through the tribes |
| DC | $1,854,314 from private operators | 11 | 10% on private operators; DC lottery collects revenue minus expenses | Various fees, highest being $500,000 for initial 5-year term |
| Delaware | $10,996,668 | 12 | 50% | No additional fee for sports wagering |
| Illinois | $78,402,941 | 11 | 17% (15% state, 2% county) | $10 million initial license (in-person), $20 million (mobile), $1 million renewal every 4 years |
| Indiana | $26,622,840 | 11 | 9.5% | $100,000 initial fee, $50,000 annual renewal |
| Iowa | $8,713,310 | 12 | 6.75% | $45,000 initial fee, $10,000 annual renewal |
| Michigan | $8,661,952 | 11 | 8.4% | $150,000 licensing fee, $50,000 application fee, $50,000 annual renewal |
| Mississippi | $7,515,524 | 11 | 12% (8% state, 4% local) | No additional fee for sports wagering |
| Montana | NA | NA | Montana Lottery collects revenue minus expenses | $1,000 annual fee for platform operators, $100 fee per kiosk |
| Nevada | $28,970,057 | 11 | 6.75% | $500 annual fee |
| New Hampshire | $18,837,668 | 11 | In 2021, net percentage for education was 28% | None |
| New Jersey | $92,567,996 | 11 | 9.75% in-person, 14.25% mobile | $100,000 annual fee |
| New York | $2,255,654 | 11 | 10% | No additional fee for sports wagering |
| Pennsylvania | $114,452,844 | 11 | 36% (34% state, 2% local) | $10 million initial license fee, $250,000 renewal fee every 5 years |
| Rhode Island | $19,162,626 | 11 | 51% | No additional fee for sports wagering |
| South Dakota | $21,985 | 3 | 9% | $5,000 application fee, $2,000 license and renewal fee |
| Tennessee | $36,000,000 | 11 | 20% | $750,000 annual fee |
| Virginia | $18,610,891 | 11 | 15% | $250,000 initial license, $200,000 renewal, $50,000 application fee |
| Wyoming | $90,122 | 3 | 10% | $2,500 application fee, $100,000 permit fee every 5 years |
| West Virginia | $3,514,296 | 11 | 10% | $100,000 fee, renewed every 5 years |
Note: Rhode Island technically use a revenue sharing system, but this functions the same as a tax.
Sources:
Legal Sports Report. “U.S. Sports Betting Revenue and Handle.” https://www.legalsportsreport.com/sports-betting/revenue/
Brainerd, J. “The early bets are in: Is sports betting paying off?” National Conference of State Legislatures. https://www.ncsl.org/research/fiscal-policy/the-early-bets-are-in-is-sports-betting-paying-off.aspx
Last updated: January 27, 2022
Endnotes
Auxier, R.C. (2019). States learn to bet on sports: The prospects and limitations of taxing legal sports gambling. Tax Policy Center. https://www.taxpolicycenter.org/publications/states-learn-bet-sports-prospects-and-limitations-taxing-legal-sports-gambling
Boesen, U. (2021, July 8). Large spread in tax treatment of sports betting operators. Tax Foundation. https://taxfoundation.org/sports-betting-tax-treatment/
Brainerd, J. “The early bets are in: Is sports betting paying off?” National Conference of State Legislatures. https://www.ncsl.org/research/fiscal-policy/the-early-bets-are-in-is-sports-betting-paying-off.aspx
Legal Sports Report. “U.S. Sports Betting Revenue and Handle.” https://www.legalsportsreport.com/sports-betting/revenue/
