As a bill to legalize online sports betting moves through the North Carolina legislature, lawmakers have signaled that they will increase the North Carolina sports betting tax rate in follow-up legislation.
North Carolina lawmakers say they have enough votes to clear the House by the time the current session ends on June 30, but the clock is ticking.
“Sports betting moving through the General Assembly is positive for North Carolina, and it’s important that adjustments are made to ensure North Carolina taxpayers are treated fairly as compared to other states,” Gov. Roy Cooper spokesman Jordan Monaghan told WRAL News.
The current bill, Senate Bill 688, outlines an 8% tax rate on adjusted gross revenue and claims a $500,000 five-year renewable licensing fee for operators. People familiar with the issue say that lawmakers plan to nearly double the tax rate and increase the licensing fee to $1 million per operator.
While the current priority is to clear the bill through the House, lawmakers plan to make additional changes before the final version is signed into law.
“There is a 100% chance that the tax rate is close to double by the time the final product goes through the chamber,” said sports betting lobbyist Ches McDowell, who is closely involved in the legislation. “That’s a done deal. We cannot pass it without that.”
McDowell represents several sports organizations that favor legalizing sports betting, including the NBA, PGA Tour, MLB, and the Charlotte Hornets.
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The Details of North Carolina’s Sports Betting Tax Rate and Bill 688
Bill 688 defines adjusted gross revenue as the gross wagering revenue minus winnings, cash value of any bonuses or promotional credits, uncollectible receivable of up to 4%, and excise tax payments on sports wagers remitted to the federal government. If approved, it would allow 12 online sports betting operators.
The bill passed in a divided Senate in 2021 and now faces the House.
A fiscal study attached to the bill projects anywhere between $8 million and $24 million in tax revenue from the first open year of online sports betting. An increased tax rate could double the financial influx that mobile sports betting could bring to the state.
State revenue from sports betting will support education, healthcare, public safety, problem gaming, and gaming regulation.
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Mobile Sports Betting Tax Rates in Other States
Even if the tax rate and licensing fee double, North Carolina would still be at the low end of rates compared to other states with legal online sports betting.
A critical factor in different states’ revenue is whether they allow sportsbook operators to deduct the cost of acquiring new users. Sportsbooks generally offer free bets and promos to entice new users in a new state. Some states deduct those promotional offers from the taxed revenue. In other states, sportsbooks can’t deduct those promos in their taxable revenue total.
There are pros and cons to both approaches from the perspective of lawmakers. Without allowing deductions, the tax revenue is automatically higher. However, some people argue that, by encouraging more promos, states will engage more users, which ultimately leads to a higher income over time.
Here’s how an 8% to 16% tax rate compares to North Carolina’s closest neighbors:
- Tennessee: Tennessee taxes sports betting operators at 20% and does not allow them to deduct acquisition costs. Operators have made $315.8 million in adjusted gross income and paid $62.7 million in taxes.
- Virginia: Virginia taxes operators at a 15% tax rate that allows them to deduct acquisition promos. Operators have received $192 million in adjusted gross revenue resulting in $29.7 million in taxes.
Here’s a list of the tax rate in every other state where online sports betting is legal:
- Arizona: 10%
- Colorado: 10%
- Connecticut: 18%
- Illinois: 15%
- Indiana: 9.5%
- Iowa: 6.75%
- Louisiana: 15%
- Maryland: 15%
- Michigan: 8.4%
- Nevada: 6.75%
- New Hampshire: 51%
- New Jersey: 14.25%
- New York: 51%
- Ohio: 10%
- Oregon: 2.3%
- Pennsylvania: 36%
- Tennessee: 20%
- Virginia: 15%
- West Virginia: 10%
- Wyoming: 13%
AP Photo/Gerry Broome