TAX POLICY
over US$10.9 billion. 22 In other words, there appeared to be enough interest among first-time New York bettors to limit any negative impact on New Jersey’s market. 23 New Jersey’s Casino Control Commission actually maintains that the state is well- positioned to stay competitive with New York, because its tax environment is much more favorable. Although New Jersey’s sports betting market remains impressive New York has continued to quickly gain ground on its neighbor. In December 2022, New Jersey enjoyed almost 50 percent more revenue than during the same month of the previous year, but the state’s yearly revenue nevertheless dropped from US$815.8 million in 2021 to US$763 million in 2022 with some of that decline likely linked to New York’s success. At the conclusion of 2022, New York claimed number two spot for all-time sports betting revenue, behind New Jersey but closing fast. Importantly, as sports betting revenue continues to fluctuate for the states’ operators, there is one consistent factor: New York boasts substantially greater tax revenues than its neighbor. How sustainable are the states’ tax regimes? While New Jersey’s sports betting market has proven it can hold its own even after New York’s impressive debut, New York – as well as other states – are quickly gaining ground to surpass the state in all-time sports betting tax revenue, as New Jersey continues to miss out on valuable revenue. New York is more than pleased with the revenue that has been returned thus far, so New Jersey could learn a few tricks from its neighbor. Not only could the state generate significantly more revenue from taxing both traditional and online sportsbook operators at a higher rate, but it could also benefit by dropping
their bifurcated tax rate and applying a higher, standardized tax rate to operators across the board. By imposing a lower tax rate on operators who accept in-person wagers, New Jersey is failing to take full advantage of realizable revenue, albeit nominal amounts compared to revenue received from online sports betting, but lost revenue, nonetheless. Currently, state sports betting tax rates across the country range from 6 percent to more than 50 percent, with the average rate landing at about 15 percent. At just 8.5 percent, New Jersey’s tax rate for brick-and-mortar sportsbooks is much lower than the national average. While the state’s online sports books are taxed at a more competitive 13 percent, raising the rate to the national average of 15 percent would increase revenue by US$ millions. Additionally, with the passage of New Jersey’s Assembly Bill No. 4002, operators can deduct promotional credits from their gross gaming revenue, further diminishing the states’ sports betting revenue collections. Allowing brick- and-mortar and online operators to enjoy deductions above US$8 million and US$12 million respectively risks greatly reducing – and possibly even eliminating – their tax liability. As sports betting operators angle to expand the availability of deductions in other states to increase their tax savings, some scholars are warning states to heed on the side of caution regarding the emerging issue. 24 Although New York has boasted impressive revenue totals from the state’s 51 percent tax rate, operators are quickly realizing that business may be unsustainable, especially on a long-term basis and when compared to states with more favorable tax environments like New Jersey. 25 Within a year of receiving licenses to operate within the state, New York’s operators are already pleading with the state’s legislatures for a tax break. Operators have begun to exhibit resentfulness towards the state’s high tax rate on their profits, and consumers are feeling
22 LEGAL SPORTS. REP. (Jan. 14, 2022), https://www.legalsportsreport.com/62806/december-2021-revenue-nj-sports-betting/; COVERS (Jan. 18, 2023), https://www.covers.com/industry/new-jersey-closes-out-2022-with-another-billion-dollar-month-for-sports-betting-handle. 23 A recent survey found that just 9% of New York players had placed bets previously in New Jersey and that nearly 88% of New York customers were brand new online bettors. 24 McQuillan, supra note 25. In Iowa, free-play deductibility passed as part of an expansive revenue bill earlier this month. The state had taxed the industry without allowing the deduction since 2019. According to a fiscal note attached to the bill, Iowa will lose US$25.8 million over the next five years due to the adjustment. 25 Robert Linnehan, Assemblyman Pretlow Files Bill to Increase N.Y. Sports Betting Operators, Decrease Tax Rate, ELITE SPORTS N.Y. (Mar. 4, 2022), https://elitesportsny.com/2022/03/04/assemblyman-pretlow-files-bill-to-increase-ny-sports-betting-operators-decrease-tax-rate/; Ashley Rodriguez, New York’s Sky-High Sports Betting Tax Rate Could Make It Hard for Companies Like DraftKings and FanDuel to Profit in the State, BUS. INSIDER (Jan. 12, 2022, 1:29 PM), https://www.businessinsider.com/what-new-york-sports-betting-tax-rate-means-gambling-compa- nies-2022-1.
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IMGL MAGAZINE | APRIL 2023
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