TAX POLICY
challenge to the Professional and Amateur Sports Protection Act of 1992, hereinafter referred to as “PASPA,” in Murphy vs. NCAA . 3 Thanks to New Jersey’s advocacy for nationwide legalization, wagerers across the country can now indulge in legalized sports betting, and some can even enjoy the privilege of wagering online bets from the comfort of their own home. Within weeks of the Supreme Court’s decision in Murphy, New Jersey’s Governor signed legislation into effect legalizing sports betting in the state. 4 Within forty-eight hours of passage, licensed operators within the state began accepting wagers. In August 2018, DraftKings became the first legal online sportsbook outside of Nevada, taking the first legal online sports bets in New Jersey. 5 After spearheading the fight for states to allow sports gambling within their borders, New Jersey quickly eclipsed Nevada as the sports betting capital of the country. 6 In fact, New Jersey has already reported larger annual gambling tax revenue collections than Nevada, in part because sports betting tax revenue now overwhelming comes from online betting. To date, New Jersey holds the title of the number one state for all-time sports betting revenue in the country. 7 New Jersey’s tax regime and total take: New Jersey differentiates itself from the rest of the country as the only state to levy different tax rates for operators depending on whether they collect in-person bets or online wagers. Accordingly, the tax rate for New Jersey operators depends on the source of the gross revenue generated. Gross revenue from brick-and-mortar casino and racetrack sports pool operations, including mobile operations tied to these land-based operations, is subject to an 8.5 percent annual tax. Consequently, even online sportsbook that are merely associated with brick-and-mortar operators are subject to a lower tax rate than operators who accept bets exclusively online. Additionally, an investment alternative tax
of 1.25 percent is imposed on such revenue, but is dedicated to different uses. On the other hand, gross revenue from online casino and racetrack sports betting operations is subject to a 13 percent annual tax, as well as the same investment alternative tax of 1.25 percent as brick-and-mortar sports betting operations. 8 The investment alternative tax imposed on gross revenue from casino sports pool operations is dedicated exclusively for tourism and marketing programs for Atlantic City, the state’s self-proclaimed entertainment capital, while tax revenue from racetrack sports pools operations is distributed to the municipality and county in which the sports wagering operation is located. Additionally, New Jersey presents sportsbook operators within the state with a favorable tax opportunity. Lobbyists in New Jersey were successful in pushing bills to allow sports betting operators income deductions for promotional credits, otherwise known as free play, offered to bettors. 9 In January 2022, New Jersey’s Governor signed Assembly Bill No. 4002 into effect, allowing both brick-and-mortar and online sportsbooks to deduct the amount of promotional gaming credits issued to bettors during the year from the gross revenue received from accepting bets. 10 This deduction applies to promotional credits regardless of whether the promotions featured stipulations such as a play-through requirement (requiring bettors to match the amount of promotional credit issued with their own money). Essentially, this means that a sportsbook can strike revenue associated with these promotional credits, even if it made a profit from the transaction. Consequently, regardless of whether the sportsbook operator makes money or losses money from issuing promotional credits, earned revenue tied to such promotional offers goes completely untaxed by the state. 11
3 28 U.S.C. §§ 3701-3704 (overturned by Murphy vs. NCAA, 138 S. Ct. 1461 (2018)). 4 Sports Wagering, N.J. OFF. ATT’Y GEN., https://www.njoag.gov/programs/sports-wagering/ (last visited Dec. 10, 2022). 5 WASH. POST (Aug. 29, 2022), https://www.washingtonpost.com/sports/2022/08/29/history-of-sports-gambling/. 6 See POLITICO (Jan. 22, 2022, 8:08 AM), https://www.politico.com/news/2022/01/22/new-jersey-new-york-online-sports-betting-1406000. 7 SPORTS HANDLE (Jan. 9, 2023), https://sportshandle.com/new-york-full-2022-mobile-revenue-report/. 8 Sports Wagering Questions, STATE N.J., OFF. ATT’Y GEN., DIV. GAMING ENFORCE., https://www.nj.gov/lps/ge/sportsbetting_faqs.html. 9 NJ.COM (June 30, 2022), https://www.nj.com/politics/2022/01/you-may-get-more-free-play-in-nj-sports-betting-after-murphy-oks-new-tax- breaks.html. 10 N.J. Assemb. B. 4002, Gen. Assemb., Reg. Sess. (passed by assembly Jan. 18, 2022). 11 BLOOMBERG TAX (July 1, 2022, 3:46 AM), https://news.bloombergtax.com/daily-tax-report/fanduel-draftkings-save-millions-on-taxes- thanks-to-free-play.
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IMGL MAGAZINE | APRIL 2023
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