In an effort to boost the state’s finances, Illinois Governor J.B. Pritzker is advocating for an expansion of revenue streams from sports betting. With the sports betting market thriving more than ever across the country, Governor Pritzker aims to capitalize on this trend to generate additional revenue for Illinois.
Illinois Governor J.B. Pritzker has put forth a $52.7 billion spending plan for the state’s upcoming fiscal year, beginning on July 1. The budget proposal unveiled just recently, includes a 2% increase in spending, which will partially be funded by a tax hike on sportsbook operators.
According to Pritzker’s plan, the state wants to more than double its tax rate on sportsbooks. Illinois boasts a very successful sports betting market, encompassing both in-person and online platforms. Last year alone, bettors staked a staggering $11.6 billion across 11 brick-and-mortar establishments and eight online sportsbooks.
Despite this substantial betting activity, sportsbooks retained approximately $1 billion in revenue, with the state’s share amounting to roughly $150 million. By increasing taxes on sportsbook operators, Governor Pritzker aims to generate additional revenue.
However, this move is likely to have implications for both operators and bettors alike. As operators struggle to deal with higher tax burdens, they may be forced to adjust their strategies and offerings, potentially impacting the competitiveness and profitability of the sports betting market in Illinois.
Meanwhile, bettors may experience changes in odds, promotions, or betting options as operators seek to alleviate the impact of increased taxation. Pritzker’s tax increase from 15% to 35% will no doubt force operators may recalibrate their pricing structures, adjust payout ratios, or modify promotional offers to maintain profitability.
This could potentially result in less favorable odds for bettors, reduced promotional incentives, or limitations on certain types of bets. The higher tax rate may also influence operators’ investment decisions and market expansion plans. Some operators may reassess their presence in the Illinois market or delay planned expansions due to the less favorable economic conditions resulting from the tax increase.
Illinois is currently ranked third in the revenue table. However, the higher tax rate may also influence operators’ investment decisions and market expansion plans. Some operators may reassess their presence in the Illinois market altogether or delay planned expansions due to the less favorable economic conditions resulting from the tax increase.
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How do other states charge?
In the US, sports betting tax varies from state to state. Since the Supreme Court decided to overturn the Professional and Amateur Sports Protection Act (PASPA) in 2018, 38 states have legalized sports betting and implemented their own regulatory frameworks, including taxation policies.
These tax rates are often determined by state legislatures and regulators and can be influenced by various factors, including the state’s fiscal needs, the level of competition in the market, and political considerations. As a result, tax rates on sports betting revenue can range widely across the country.
For example, some states impose relatively low tax rates on sports betting revenue to attract operators and stimulate market growth. These states may view sports betting as a potential source of revenue generation and economic development, opting for more modest tax rates to encourage participation in the regulated market.
On the other hand, certain states have opted for higher tax rates on sports betting revenue, viewing it as a means to maximize state revenue and mitigate potential social costs associated with gambling. While higher tax rates can generate significant revenue for the state, they may also impact operators’ profitability and, in some cases, consumer choice and market competitiveness.
States like Nevada, Iowa, and Indiana have some of the lowest tax rates on online sports betting in the United States. These jurisdictions were among the first to authorize sports wagering before the widespread legalization trend that followed the Supreme Court’s decision to overturn PASPA.
Nevada, often considered the gambling capital of the US, imposes a tax rate of 6.75% on sports betting revenue. This rate has helped Nevada maintain its status as a leading destination for sports betting, with a well-established industry that includes both in-person and online wagering options.
Similarly, Iowa also taxes sports betting revenue at a rate of 6.75%, aligning its tax policy closely with that of Nevada. This moderate tax rate has contributed to the growth of Iowa’s sports betting market since its legalization.
Indiana, another early adopter of sports betting, also offers a favorable tax environment for operators, with a tax rate of 9.5% on sports betting revenue. This competitive tax rate has attracted numerous operators to the state, contributing to its vibrant sports betting industry.
In contrast, states like Tennessee have opted for alternative tax structures, such as taxing based on betting handle rather than revenue. Tennessee, for example, imposes a tax rate of 1.85% on adjusted gross income from sports betting, calculated based on the total amount wagered by bettors.
The Northeastern states in the US, on the other hand, have implemented some of the heaviest tax rates on sports betting revenue. New York, in particular, which emerged as America’s largest online gaming market in 2022, has set a substantial tax rate on online sports betting revenue.
New York’s tax rate on online sports betting revenue is among the highest in the nation, tied at 51% with New Hampshire. This high tax rate reflects the state’s efforts to generate significant revenue from legalized sports betting activities, leveraging the popularity of online wagering among residents.
While New York’s tax rate may seem steep compared to other states, it underscores the state’s ambitious revenue goals and its desire to capitalize on the growing demand for online sports betting. Despite the challenges posed by such a high tax burden, New York now stands as the most lucrative sports betting market in the country.
Final Thoughts
Governor Pritzker’s budget plan reflects a strategic approach to addressing Illinois’ fiscal challenges and funding priorities. By diversifying revenue streams and exploring innovative funding mechanisms, the state is looking to ensure financial stability while meeting the needs of its residents.
As the budget proposal moves through the legislative process, stakeholders will closely monitor developments and advocate for policies that support responsible gambling practices while maximizing revenue potential. Overall, Pritzker’s proposed tax increase underscores the delicate balance between generating state revenue and fostering a vibrant and competitive sports betting market.
