A bipartisan bill has been introduced to repeal what is known as a handle tax on all legal sports bets in the U.S. Currently, the federal government collects a 0.25 percent excise tax or “handle tax” that affects all legal sports betting operators in the country.
The co-chairs of the Congressional Gaming Caucus, Dina Titus of Nevada and Guy Reschenthaler of Pennsylvania, have co-sponsored a bill to end the excise sports betting tax.
Sportsbooks are a low-margin business and one of the least profitable for Nevada casinos. According to the UNLV Center for Gaming Research, Nevada sportsbooks haven’t won more than 8% of wagers placed. Typically, sportsbooks earn just over 5% of bets. Every penny the sportsbooks can keep is meaningful for their operators.
The Repeal of the Tax
Sportsbooks are getting crushed by the federal tax. Even at a small fee, sportsbooks are paying millions in taxes, which could stunt the growth of U.S. sports betting.
Nevada sportsbooks paid $13.3 million in handle taxes last year, which was the highest amount paid out of any state. Some sports bets are exempt from this tax, such as horse betting and sports betting operated through state lotteries.
For all other sports betting operators, they are required to pay an additional $50 tax for every employee working the sportsbook on top of the excise tax, and it is seen more as a penalty to operate a legal sportsbook.
Since the repeal of PASPA, which allowed for legal sports betting to expand beyond Nevada, the industry as a whole has generated approximately $22 billion. Many officials think the end of handle tax will help the market continue to rapidly grow in the U.S.
Other gaming taxes remain outdated as well. Earlier this year, Bill Miller, President, and CEO of the American Gaming Association urged the government to look at the $1,200 W2G threshold for video poker and slot machine players. The government has not changed this tax since 1977. If that number was adjusted for inflation, the W2G threshold should be at least $5,000.
Sports Betting Takeoff
With bipartisan support, the sports betting tax could be repealed, which will give sportsbooks more freedom to operate on larger margins. Even at a tax of .25 percent, this is still enough to damage the industry, especially during a pandemic.
The sportsbook is also being taxed an extra $50 for everyone that works there, which feels like an outdated concept. Overall, the gaming industry has a dire need to restructure tax laws.
Changing the W2G threshold could encourage gamblers to spend more money on visits to the casino. Also, a video poker player might not play a game above a quarter per credit to avoid paying taxes on a nominal Royal Flush winner above $1,200.
The added expenses can force sportsbook operators in new markets to offer worse odds than illegal bookies and offshore sportsbooks. Sports bettors outside of Nevada have a difficult time telling the difference between legal U.S. sportsbooks and illegal operations. If new taxes can be implemented for the sports betting industry, then there should be a boom in growth as states continue to legalize it.