Gambling tax increases are all the rage, with New Jersey the latest to consider it

The proposal, which Murphy shared on Tuesday (25 February), is the latest gambling and sports betting tax increase proposed in the US in the last year. It feels somewhat ironic, in that Murphy’s name is on the lawsuit that overturned the Professional and Amateur Sports Protection Act (PASPA) in 2018. Since then, 38 states have launched some form of sports betting (Missouri is also set to launch later this year), with two of those hiking their original sports betting tax rates.

Murphy proposes hiking both the sports betting and igaming tax rates to 25%, up from 13% and 15%, respectively.

“This tax increase would be a wrong turn for New Jersey,” industry lobbyist Jeremy Kudon countered in a statement on behalf of the Sports Betting Alliance (SBA). “Since New Jersey first launched regulated sports betting seven years ago, sports betting operators have created thousands of jobs and generated hundreds of millions in revenue for New Jersey.

“Raising sports betting taxes will make sports betting more expensive for customers, slow operator investments in jobs and local business partnerships and put the regulated industry at a disadvantage to unregulated and offshore operators who pay no state taxes.”

BetMGM, DraftKings, Fanatics Sportsbook and FanDuel are SBA members.

“Slap across the face”

The iDevelopment Economic Association (iDEA) echoed Kudon’s thoughts, with co-founder Jeff Ifrah calling on New Jersey and other states to focus their energies on unregulated and illegal markets.

“It is baffling why the governor would seek to undermine this by imposing even more taxes on an industry that is already exceeding its economic promise,” Ifrah said in a statement.

“At the same time, competition is growing from unregulated alternatives, including CFTC-approved sports contracts that take bets from 18-year-olds, operate outside state laws and pay no state taxes.”

From an economic standpoint, gambling taxes have become political footballs. Lawmakers pitch the increases as “faceless”, saying they will bring in more tax dollars but not pinch all consumers. BetMGM is headquartered in New Jersey and has made significant financial investments there, as well as in Maryland and Massachusetts. Lawmakers in those two states have also proposed sharp gambling tax hikes in the last year.

“The irony is in a state (New Jersey) that has made economic development of the igaming industry a priority, the governor literally slapped them across the face with the proposed tax increase,” B Global principal Brendan Bussmann told iGB. “It is counterintuitive to say ‘I want to have an industry that focuses on economic development’ and then saddle them with a more than 60 per cent tax increase.”

Taxes already hiked in Illinois, Ohio

In the last six months, gambling tax increases have been proposed in at least six other states. The most recent is Mississippi, where a legislative committee this week advanced a bill that would hike the state’s land-based casino tax from 8% to 12%. That state has no digital gambling.

And, in the last 18 months, governors in Ohio and Illinois pushed through major sports wagering tax increases. In 2023, Ohio’s Mike DeWine spearheaded doubling that state’s rate from 10% to 20%. The new budget introduced by DeWine this month proposes another doubling – from 20% to 40%.

In Illinois last year, the legislature modified and increased Governor JB Pritzker’s proposed sports betting tax hike. In July, a tiered system went into effect with the lowest-grossing sportsbooks paying a 20% tax and the highest paying 40%. Those numbers are up from 15%.

“The problem is the industry can’t be the boy who cried wolf anymore,” Bussmann said. “It has to stand up and fight these tax increases and not just take them and figure it out later. We’re in this mess because we have failed to properly educate stakeholders on a business model for years.”

Lawmakers push back

In other states, there are proposals to raise rates to as much as 51%. New York is currently the only open, competitive market with a tax that high.

And while Murphy’s proposal would keep the rate well below 51%, New Jersey lawmakers have already pushed back.

“Simply put, doubling the tax on online sports betting and igaming is putting a New Jersey success story at significant risk,” a group of south New Jersey senators told Politico.

In Ohio, DeWine has been met with similar disagreement. In both cases, it could mean that the legislature won’t get behind the increases.

But Deutsche Bank analysts on Tuesday wrote “we strongly expect the New Jersey icasino tax increase passes, although potentially undergoes some tweaks along the way, likely resulting in a slightly lower rate.” They also wrote that the online sports betting tax increase is “likely” to pass.

Other proposals

Here’s a look at other states that have been entertaining gambling tax increases:

Louisiana: Last November, a bill that failed to receive approval in Louisiana would have raised the digital sports betting tax from 15% to 51%.

Maryland: Lawmakers are considering another expansion of gambling. In his budget address on 15 January, Governor Wes Moore proposed doubling the sports betting tax from 15% to 30% and boosting the table games tax from 20% to 25%.

Massachusetts: For the second session in a row, a lawmaker has proposed raising the current 20% rate to 51%. In 2024, the bill did not get out of committee.

Michigan: In December, Michigan lawmakers proposed a 0.1% tax increase on sports betting and 1% increase on igaming.

Pennsylvania: In this month’s new budget proposal, Pennsylvania governor Josh Shapiro included a 52% tax on skill games, which are currently unregulated. The legal casino industry, meanwhile, is suing the state to try to force it to tax existing games at 54%, the same amount levied on casino slot machines.