A new fiscal note on North Carolina’s sports betting bill suggests the state would make less than $3 million in the first six months of legal sports betting.
The financial report’s estimate is based on promotional credit tax deductions for the state’s sportsbooks.
Sports betting in North Carolina isn’t legal, but a new bill hopes to change that. House Bill 347 is making its way through the state Senate after clearing the House last month.
Tax deductions for North Carolina sportsbooks
Legislative fiscal notes are financial reports attached to bills. These reports help shed light on a new law’s potential financial impact on North Carolina.
One of the bill’s fiscal notes refers specifically to the potential tax revenue sports betting could bring the state. The report anticipates North Carolina will net $2.9 million in taxes from sportsbooks during the industry’s first six months.
The estimate takes into account tax deductions the state’s bill currently allows.
When sportsbooks launch for the first time in a new state, they offer all sorts of special deals to attract customers. Those deals often feature promotional credits, or bonus bets, to let bettors place a handful of wagers without risking their personal funds.
When sportsbooks send out these bonus bets, they’ll be able to subtract the total amount from their tax burden. According to the bill’s new fiscal note, that will greatly limit North Carolina’s tax revenue.
However, the bill plans to phase out these deductions over time.
North Carolina plans to phase out promo deductions
If North Carolina legalizes sports betting, sportsbooks could deduct 100% of their promo credits from their taxes. The industry plans to operate that way until Jan. 9, 2025.
After that, sportsbooks could use promo credits to deduct only 2.5% of their tax burden. That will last until New Year’s Day 2026 when the number will drop to 2%.
Once the calendar flips to 2027, sportsbooks would no longer be allowed to use promo credits to reduce their tax hit.
The state’s fiscal note expects the phase-out to catapult North Carolina’s tax revenue to nearly $62 million annually – a drastic difference from the potential $2.9 million of initial tax funding.
How do other states handle promo credits?
Promotional tax write-offs have been a hot topic across the US as states look to claim as much tax revenue as possible.
Neighboring Virginia has heard plenty of arguments on both sides of the issue.
The state initially allowed sportsbooks to deduct 100% of their promo credits during the first year after launch. That led to many of Virginia’s sportsbooks paying no taxes until they hit that 12-month limit.
Sports betting companies have argued that removing deductions entirely would hurt their long-term chances of acquiring customers.
Because of that, lawmakers are considering bringing these types of write-offs back. However, deductions would be capped at a much lower 1.75%.
Every potential sports betting state must consider how to handle promo tax credits. North Carolina’s plan is very different compared with Virginia, and Virginia’s plan is unique compared with many other states.
House Bill 347’s fiscal note paints a grim picture of North Carolina’s potential tax revenue during the early days of sports betting. The numbers will increase over time, but that might not be enough for some lawmakers.
The bill is trying to chug through committee hearings in North Carolina’s Senate. Still, because of the controversy promo credits have caused in other states, it wouldn’t be a surprise to see the issue become a contentious one for the bill moving forward.