States Consider New Online Tax on Online Casinos

The online casino industry in the United States has become a true powerhouse of growth and revenue generation. With so much capital crossing the palms of casino operators, many states are looking to increase the amount of tax revenue that is taken from those proceeds.

With more states making concerted moves towards legalization and regulation of online gambling and sports betting, states where such activities are already extant are strongly considering tightening the tax rates on operators. While there are some moves towards an overall tax increase on gambling, not just focused on the online market, the online market is seeing a higher spike in tax rate in all affected areas, and will be the focus of this article.

The proposed tax rate changes for online gambling range from 15% to 25%, while some states that have yet to legalize online gambling are considering even higher rates. The goal behind these proposed increases is to acquire more of the billions of dollars that are flowing into the licensed online casino platforms like the ones listed on Gambla.us, and use them to fund public projects and services.

A Move Towards a Unified Framework

While federal law means that how states handle the taxation and regulation of online gambling and sports betting is entirely the purview of each state alone, there are bodies that are making recommendations to the states.

One such body, the National Council of Legislators from Gaming States (NCLGS), has recently suggested a framework for taxation to help states that have already legalized, or that are considering legalization, to expedite the process of acquiring that extra revenue after legalization. This body is recommending a taxation rate for online gambling activities between 15% and 25% for gross revenue from gaming activities.

Both New Jersey and Illinois have made moves to increase their current 15% tax rate to 25%. Whether these changes are occurring due to advice from the NCLGS or if the states have come to their own conclusion is unclear, but we think you might agree that the similarity in the numbers tells a story all on its own.

This 10% increase is estimated to garner both states several hundred million dollars in extra revenue a year, at the lower end.

Online Gambling is a Multi-Billion Dollar Industry

A key component in the decision of the NCLGS and states in pushing for an increase in taxes levied on online gambling activities is simply how lucrative the industry is. Counting online, six of the states with legal online gambling in 2023 still amount to more than one and a half billion dollars in tax revenue. Some analysts predict that should all of the states in the US legalize online gambling and apply a similar tax rate, the revenue would reach in excess of fifteen billion.

With such a huge amount of revenue in the offing, it's no surprise that states with legalized online gambling want a bigger slice. Even when compared to regular gambling, online gambling revenue simply dwarfs it in most states, bringing in as much as 60% more.

What do States Put This Revenue to?

Just as each state is free to make its own choice regarding legalization, the allocation of its revenue is also up to the state's discretion. There are some commonalities across the board as to how large amounts of online gaming revenue are spent, such as:

• Infrastructure projects such as roads, bridges and public transport. Not only do these projects provide people with better ways to get around their states and cities, but they also pump money back into the state's economy and generate jobs for hundreds of people.
• Some states funnel tax revenue from online gambling into healthcare projects like Medicaid. This is especially beneficial for low-income families and the elderly.
• A big gainer in many states from online casino tax revenue is education. All tiers of education, from college scholarships to K-12 programs, benefit from this revenue.
• Some states, Massachusetts in particular, have set aside a certain amount of online gambling revenue to fund arts programs, attempting to deepen the cultural value of the state.
• Tax revenue from online gambling also often trickles down to the local government level, helping to support emergency services and community-based organisations.

Revenue Isn't Everything, Responsible Gambling Matters

It's important to acknowledge, don't you think, that while there is the possibility for large sums of revenue to be made, online gambling activities can be potentially harmful for some individuals. The NCLGS definitely feels the same, and in the same breath as they recommend the raising of the tax rates on online gambling, they've suggested that credit card deposits for online casino gaming should be banned, leaving players needing to use other deposit options.

The idea behind this ban is that it would stop consumers from being able to gamble with money they don't have. As one of the key tenets of responsible gambling initiatives is that you should never gamble with more than you can afford to lose, this ban makes logical sense.

Many states with legalized online gambling take some amount of the revenue they receive from it and put it towards responsible and problem gambling initiatives. Other states require that licensed operators contribute their own funding to raising awareness of responsible gambling as well.

It should be noted that while states are looking to make more money from online gambling operations within their borders, they aren't doing so without thinking of the potential cost to vulnerable residents. Self-exclusion programs, age verification, game and operator transparency, and time and deposit limits are all important qualities that operators must prove their platforms have.

What Might the Future Hold?

While it's true that states are considering an increased tax rate, that consideration is yet to become a reality in most cases. Some detractors claim that increasing taxation on regulated platforms will drive operators to offer unlicensed services to customers, but these fears are, so far, proving unfounded. There is simply too much money to be made in the online casino industry, an extra 10%, while a huge sum, is not a deal-breaker for any operator.

Having an extra-state body like the NCLGS provide frameworks for taxation levels could be a major draw for undecided states, as they will clearly see exactly what they have to gain. It is likely that more states will legalize online gambling, and that a tax rate of 25% might end up being on the low end for online casino operators.