The Tax Foundation, an independent research thinktank, recently did a state-by-state comparison of tax rates on online sports betting and found that this is one revenue source where New Jersey is not imposing the highest tax rate.
There are 38 states that have legalized sports wagering in some capacity, however, bettors only have statewide access to online sports betting platforms in 27 states. New Hampshire, New York, and Rhode Island apply the highest tax rate to sportsbook revenue at 51% percent. Nevada and Iowa apply the lowest tax rates at 6.75%.
In New Jersey, which requires online sportsbook operators to partner with a licensed brick-and-mortar racetrack or casino in the state, the tax rate is 14.25% (with 13% tax going to the state’s Casino Revenue Fund, and a 1.25% tax going to the Casino Reinvestment Development Authority for marketing and promoting Atlantic City).
In fact, New Jersey has one of the lowest tax rates on sports betting revenue in the Northeast and Mid-Atlantic regions behind New York, Rhode Island, and New Hampshire (all 51%); Pennsylvania (36%); Vermont (31.7%); Massachusetts (20%); North Carolina (18%) and Maryland and Virginia (both 15%).
Connecticut (13.75%) is the only other state in the Northeast and Mid-Atlantic region that applies a lower tax rate to sportsbook revenues.
According to Adam Hoffer, director of Excise Tax Policy at the Tax Foundation, the market for sports betting has grown rapidly since the 2018 U.S. Supreme Court decision gave states the ability to establish online sports betting markets. If more states, such as California and Texas, decide to legalize sports wagering, it could easily double sports betting market volume.
“As the tax base grows, tax policy design becomes increasingly important,” Hoffer said. “Rates should be low enough to pull participants out of black markets and into the legal, regulated markets.”
