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Illinois Senate Approves Progressive Sports Betting Tax Hike

SBC AMERICAS (May 27, 2024) Illinois senators have approved a 2025 budget that includes raising the state’s sports betting tax and implementing a progressive tax rate for operators based on revenue.

On May 26, the Illinois Senate passed a version of the budget that includes a progressive wagering tax increase that would levy a 40% rate on operators with the highest adjusted gross revenue.

HB 4951 would nearly treble the tax rate for the most successful sportsbooks in the Prairie State. It would also make Illinois’ maximum tax rate the second-highest behind New York’s 51% rate.

Sports betting operators in Illinois have paid a 15% tax since sports betting went live in June 2021. Earlier this year, Gov. J.B. Pritzker had proposed an increase to 35%. That has been pushed up again in the Senate version of the budget to a maximum of 40%.

As a progressive tax, the rates paid would be calculated on a sliding scale that breaks down as follows:

  • AGR up to $30 million would be taxed at 20%

  • AGR from $30 million to $50 million would be taxed at 25%

  • AGR from $50 million to $100 million would be taxed at 30%

  • AGR from $100 million to $200 million would be taxed at 35%

  • AGR above $200 million would be taxed at 40%

In a significant amendment made to the bill before it passed in the Senate by a 37-22 vote, the proposed progressive sports betting tax would also distinguish between AGR made by retail sportsbooks and by digital sportsbooks. If an operator has both retail and digital sportsbooks, it would pay separate taxes for each on the same sliding scale under the new system.

The version of HB 4951 that was previously read and approved in the House did not include the progressive sports betting tax. The amended iteration passed by the Senate will now be sent back to the House for re-approval. It is reportedly expected to pass without further changes and would become effective on July 1.

If passed and signed into law by Pritzker, Illinois would be the first state to have an entirely progressive sports betting tax rate. Arkansas has a hybrid system under which sportsbooks pay a flat 13% in taxes up to $150 million in total gaming revenue, beyond which the rate rises to 20%. Casino revenue and sports betting revenue are combined in Arkansas’ revenue criteria.

Illinois bettors wagered more than $1.2 billion on sports in March alone. In 2023, the state’s operators earned more than $1 billion in revenue. Based on the last 12 months of mobile sports betting revenue reporting in Illinois, the state would have netted $175 million more in tax revenue under this new progressive tax than it did under the existing 15% rate.

As the highest-earning operators in Illinois by some distance, FanDuel and DraftKings would presently be the only two operators affected by the 40% rate. Around half of their combined $771 million in AGR would be taxed at that level.

Leading sportsbooks could ‘reevaluate’ Illinois operations

The Sports Betting Alliance (SBA), a coalition of leading sports betting operators including FanDuel, DraftKings, BetMGM, and Fanatics, called the proposal an “extremely disappointing decision that will cause real harm.”

In a statement, SBA President Jeremy Kudon said that SBA members in the state already pay an effective tax rate of between 30% and 60% because promotional credits are taxed like revenue, unlike in many other states.

Kudon said the new tax would “counterproductively penalize sports betting operators who invested millions into the local economy and created jobs” and would have “devastating” effects on sportsbooks’ in-state partners including casinos who partner with communities in the state.

He added that SBA members could be forced to rethink their Illinois operations as a result.

“This tax hike will mean worse products, worse promotions, and inevitably, worse odds for Illinois customers – not to mention provide a massive leg up to dangerous, unregulated and illegal offshore sportsbooks who pay no taxes and adhere to none of Illinois’ sports betting regulations,” his statement added.

“Sportsbooks across the industry will have no choice but to reevaluate their level of investment and participation in the state should this become law.”

New Jersey also proposing tax hike

Illinois isn’t the only state looking to New York’s sky-high gaming tax revenue and mulling its own increase.

Last month, Senate Bill No. 3064 was introduced in New Jersey by Sen. John F. McKeon, proposing the state’s iGaming and sports betting tax rate on gross gaming revenue be doubled from 13-15% to 30%.

One notable change to have already happened elsewhere is in Ohio, which doubled its sports betting tax rate last summer after just six months of its market launching. At that time, there was also opposition to that move, which raised the Ohio rate from 10% to 20%.

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