Sports bettors are eagerly anticipating the start of a new era of North Carolina sports betting when the state’s first online sportsbooks launch in 2024. North Carolina state officials are likewise looking forward to finding out just how much revenue the new sites and apps will generate for the state.
Endgame negotiations led lawmakers to increase the tax rate on sports betting revenue from the initially proposed rate of 14% to 18%. How does that compare with the tax rate adopted by other sports betting states?
Generally speaking, North Carolina’s 18% sports betting tax rate will be higher than most states though not much different from what neighboring states levy. Nor will it be anywhere near the highest tax rate on sports betting revenue in the country.
NC sports betting tax rate comparable to neighboring states
North Carolina’s 18% tax rate will apply to the monthly gross gaming revenue (GGR) realized by online sportsbook operators in the Tar Heel State. That’s on top of the licensing fees the operators will also be required to pay to offer online sports betting in North Carolina.
Another significant late change to the bill eliminated operators’ ability to deduct promotional credits from their taxable revenue. That means the state will receive the full 18% tax on sports betting from the start. Operators of up to 12 online sportsbooks will be paying that tax. The two Native American tribes that operate casinos in the state may also launch online sites, but their revenue will not be taxed by the state.
At the time Gov. Roy Cooper signed the new online sports betting bill into law in mid-June, NC’s tax rate landed in between that of neighboring states. Virginia legalized sports betting in 2020 and launched at the start of 2021, instituting a 15% rate on sports betting revenue. Virginia initially allowed promotional deductions, then took those away with a budget amendment in 2022.
When Tennessee legalized online-only sports betting in 2019 and launched the next year, it required operators to pay a 20% revenue tax with no promotional deductions. However, since July 1, Tennessee has started to tax sports betting revenue differently thanks to new legislation.
Rather than tax gross revenue (the amount sportsbooks make after paying out winnings), Tennessee now taxes 1.85% on the sports betting handle (the total amount wagered). The change also did away with Tennessee’s unique 10% hold requirement that most of the state’s sportsbooks routinely failed to meet.
The change is meant to increase the amount of tax revenue generated by sports betting in Tennessee although it remains to be seen if that actually will be the case. In any event, Tennessee’s new, unique system of taxation will make it challenging to compare NC apples to TN oranges.
NC rate more than Michigan, less than Ohio (for now)
Looking at other sports betting states with similar populations to North Carolina’s 10.7 million, NC’s 18% revenue tax is considerably higher than what Michigan (pop. 10 million) adopted. It will be less than what Ohio (pop. 11.7 million) requires, however, thanks to a recent change in the Buckeye State.
Michigan’s first sportsbooks launched in early 2021 with operators paying an 8.4% tax on revenue earned at retail locations (both commercial and tribal). The MI casinos can also offer online sports betting, the revenue from which is taxed at 9.65%, with the three Detroit casinos having to pay an additional 1.25% municipal services fee on their online sports betting revenue.
Ohio went live with sports betting at the start of 2023, charging operators a 10% tax on gross revenue. Whereas Michigan allows operators to deduct promotional spending from their taxable revenue, the Ohio bill does not.
However, much like Tennessee, Ohio has recently decided to change course with how it taxes sports betting revenue with the start of a new fiscal year. As part of Gov. Mike DeWine’s new state budget, Ohio’s tax rate on sports betting revenue was doubled to 20% starting July 1. Lawmakers plan to revisit the law and perhaps challenge that increase, but for now Ohio’s rate will exceed North Carolina’s.
NC rate exceeds most states, though not highest in country
Looking at the more than 30 states now offering some form of legal sports betting, the NC sports betting tax rate of 18% will be higher than most states, though not the highest in the country. The same is true for the licensing fees charged by the state that operators must pay to run an online sportsbook in the state.
NC has a few other comparables. In Arkansas, for example, where the three casinos each operate retail and online sportsbooks, there is a 13% tax rate on all casino revenue for the year up to $150 million, then 20% thereafter. Only one of the state’s three casinos earned considerably more than $150M in 2022, meaning the 20% revenue tax rate only partially applied.
North Carolina’s rate will also be almost on par with Massachusetts’ (20% on online sports betting, 15% on retail) and Nebraska’s (20%). However, NC’s revenue tax rate will be considerably less than the rate employed in Pennsylvania (36%), Delaware (50%), New Hampshire (51%), Rhode Island (51%), and New York (51% on online sports betting, just 10% for retail).
NC sports betting revenue tax earmarked for many uses
In 2022, the online sports betting bill that failed had originally proposed an 8% tax rate on revenue, with promotional expenses able to be deducted (stay updated with the best sports betting promos in NC here). That was eventually raised to 14%, but the bill still failed to pass. Thus, it seems raising the rate further to 18% was a factor in helping the bill reach passage in 2023.
What will NC be doing with revenue earned from online sports betting? Many different destinations have been earmarked as recipients.
Besides supplementing the state’s General Fund, funds will go to the athletic departments of 13 different NC colleges and universities, including a focus on HBCUs, and also used to help the state attract major entertainment, sporting, and political events. Additional money will go to youth sports programs and equipment and to gambling addiction education and treatment programs.
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