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Nationwide Sports Betting State Taxes Surpass $5 Billion

New York continues to be outsized source thanks to 51% rate on mobile revenue

SPORTSHANDLE (March 27, 2024) – The all-time state tax revenue from sports betting recently surpassed $5 billion, reaching the benchmark in less than six years since the first wagers were placed beyond Nevada’s borders in June 2018.

More than 40% of that total – $2.15 billion – came in 2023, which was a banner year for sportsbook operators.

The known hold on gross sports betting revenue was 9.1%, well above the 7% industry standard, and more than one full percentage point higher compared to 2022. Last year’s tax receipts were $643.4 million higher than 2022, boosted not only by five new states entering the marketplace but by four of them having tax rates on revenue derived from sports betting apps at 14% or higher.

The $271.8 million in state taxes for January’s wagering is already an all-time monthly high. State taxes from reports covering the first two months of 2024 have already surpassed $400 million, which puts the year on pace for yet another all-time high.

New York greatly outperforming Cuomo’s estimate

When then-New York Gov. Andrew Cuomo was shepherding mobile sports betting through the state legislature, he claimed state tax revenue would be $500 million annually. That total was met with skepticism and derision, but two-plus years later, Cuomo would be well within his right to take a victory lap on this front.

The Empire State’s nine digital operators have paid nearly $1.73 billion in taxes to the state’s education fund in 26 months. FanDuel, the marketplace leader nationally, would rank second as a state based on its New York tax payments totaling $835.2 million. DraftKings would be fourth at $535.9 million, right behind Pennsylvania.

New York’s mobile tax levy in 2023 totaled $861.8 million, an increase of $169 million from 2022. The year-over-year increase in terms of dollars would have led the U.S. as its own entity in 2023. Digital operator revenue surged 24.3% higher in 2023, as the 8.8% hold from online bets was nearly one-half of a percentage point higher, while handle increased 18% to $19.1 billion.

Pennsylvania‘s 34% rate for state taxes, is the highest of any state that allows promotional deductions. Keystone State sportsbooks have claimed roughly one-third of the $2.3 billion in gross revenue as promotional bonuses and credits since mobile betting began there in May 2019. Those deductions resulted in an estimated $251 million in tax savings for Pennsylvania’s mobile sportsbooks.

Are tax rate increases coming to New Jersey, Illinois?

New Jersey and Illinois, which rank third and fourth, respectively, in all-time state tax revenue from sports betting, are deliberating whether to raise their tax rates on operators.

Garden State legislators just filed a bill calling for a more than doubling of the tax rate for mobile sportsbooks to 30%, while Illinois Gov. JB Pritzker called to raise the overall rate in his state to 35%.

The call to raise taxes comes with improved operator performance. A key reason for that aforementioned 9.1% hold nationwide in 2023 is the move toward more parlay and same-game parlay wagering, with operators feeding into bettors’ desires to build a multi-leg bet with the potential of a big payout.

New Jersey and Illinois are both among a handful of states that provide parlay handle and revenue figures. In 2023, more than 25% of the $11.97 billion handle generated in New Jersey — $3.07 billion — came from parlay bets, while 28% worth of wagers in the Land of Lincoln, $3.25 billion worth, were on parlays.

As both states saw operators clear $1 billion in adjusted gross revenue in 2023, more than half of that haul came from parlay winnings — 54.7% in New Jersey and 59.2% in Illinois.

That led to nine-figure tax totals, as Illinois had the higher amount of $150.3 million thanks to its 15% levy on all operator AGR. New Jersey collected $128.9 million through its 13% levy on mobile AGR and 8% tax on brick-and-mortar winnings.

The 2023 rookie class came to play

Ohio was the only state to make its debut in 2023 and be on the top 10 all-time list, though Massachusetts did not lurk far off at $118.6 million.

The Bay State, which taxes mobile revenue at 20% and retail operator winnings at 15%, would have had a chance to knock Indiana off the bottom of the list had it launched mobile wagering in tandem with its Jan. 31 retail launch.

The Buckeye State, though, gets an asterisk because Gov. Mike DeWine successfully pushed through a doubling of the tax rate to 20% for the start of the 2024 fiscal year last July.

The difference was notable. Tax revenue in the final six months of 2023 was $21.7 million higher than the first six, as the statewide hold on AGR for the full calendar year was a robust 12.2%.

Tennessee launched sports betting in November 2020, but it made news in 2023 by becoming the first — and still only — state to generate sports betting taxes based on a percentage of the handle. The Volunteer State made the switch in July, going from a 20% levy on AGR to a 1.85% tax on wagers placed.

Though the $42.9 million in taxes collected in the final six months of 2023 slightly outpaced the $40.6 million from January through June of last year, figuring out which method of taxation is better cannot be determined. The Sports Wagering Council opted to stop publishing operator revenue figures in Tennessee after the switch since it was no longer tied to tax collection methods.

Looking at 2024 and beyond

Collections for the second $5 billion in total state taxes are already well underway.

Given the known 10.9% hold on gross revenue for January, there’s a chance the total tax receipts will reach $300 million when including figures from Illinois and Kentucky. To put that figure in perspective, monthly gross sportsbook revenue did not reach $300 million until November 2020, and that yielded $52.3 million worth of tax receipts.

If both New Jersey and Illinois are successful in raising tax rates — and remember, these are currently the second- and third-largest markets in the U.S. — the increase in actual dollars would likely be in the hundreds of millions of dollars annually, as operator holds are more likely to stay closer to the 9.1% attained in 2023 versus the 7% industry standard as parlay wagering continues to grow in popularity.

Also contributing to the pot will be North Carolina, which launched earlier this month with an 18% tax on gross revenue. If the first week’s activity is any indication, the Tar Heel State has the potential to be among those raising $100 million annually in state taxes.

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