Federal Bill Seeks to Punt Sports Betting Excise Tax Legal Sportsbooks Pay on Wagers

Posted on: July 31, 2024, 02:59h. 

Last updated on: July 31, 2024, 02:59h.

Devin O'Connor @CasinoorgDevinO Read More
Expertise: Asia Pacific Gaming, Commercial Gaming, Legislation, Politics.

New bipartisan federal legislation seeks to rescind the U.S. government’s excise tax it places on every legal sports bet wagered and lift a $50 annual head tax on every employee regulated sportsbooks employ.

sports betting excise tax
The Internal Revenue Service’s website explains the federal government’s excise tax on sports betting. New bipartisan legislation introduced to Congress seeks to repeal the tax. (Image: IRS)

Seeking to level the playing field and allow the heavily regulated and taxed licensed sportsbook operators in the nearly 40 states where such gambling is allowed to better compete with unregulated, illegal, offshore books that do not pay the excise tax, Sens. Catherine Cortez Masto (D-Nevada) and Cindy Hyde-Smith (R-Mississippi) have authored the Withdrawing Arduous Gaming Excise Rates (WAGER) Act. The statute would remove the 0.25% tax the federal government places on every legal sports bet and annul the $50 per employee tax.

The sports betting excise tax was implemented in the Internal Revenue Code in 1951 to raise money for the U.S. government to prosecute illegal bookmakers. At the time, only Nevada had legal sports wagering.

When a bettor makes a $100 bet with a licensed book, for instance, DraftKings, the house must set aside 25 cents for the feds’ excise tax. Those quarters have added up quickly since the U.S. Supreme Court in May 2018 struck down the federal sports betting ban that had limited single-game sports betting to Nevada.

Excise taxes are indirect taxes imposed on certain goods, services, and activities.

Obsolete Tax 

The more than 70-year-old sports betting excise tax, Cortez Masto and Hyde-Smith say, is today achieving the exact opposite of what it was originally intended to accomplish. The tax is hurting legal sports betting businesses — not the illegal operators it was intended to go after.

This outdated federal excise tax on sports betting only benefits illegal offshore operations which provide zero jobs or tax revenue,” said Hyde-Smith. “By repealing this tax, our bipartisan WAGER Act will level the playing field, boost local economies, and ensure that gaming revenues stay here, supporting jobs and community investments.”

The U.S. government is admittedly not using the excise tax to pursue offshore or underground sportsbooks. The excise money has instead been deposited to a general account at the U.S. Treasury. 

The IRS reported that the sports betting excise tax ballooned from about $39 million in the fiscal year 2020 to almost $111 million in 2021. The haul continues to amount as more states legalize sportsbooks and bring more bettors into the fray.

“[In] Nevada … we know better than anyone that responsible, legal sports betting can be a great revenue source for our local economy,” said Cortez Masto. “My bipartisan legislation will ensure our sports gaming industry can provide essential tax relief to consumers and our sports gaming industry, creating more jobs and keeping our tax money in the state while cracking down on illegal activities.” 

Trade Group Welcomes Bill

The American Gaming Association, which in January opposed a federal bill to use the sports betting excise tax to prop up problem gambling research and treatment on grounds that licensed, regulated sportsbooks already fund such programs, celebrated the filing of the WAGER Act.

With sports betting legal in 38 states and Washington, D.C., this antiquated tax puts legal operators at a competitive disadvantage and rewards illegal offshore bookmakers that pay no federal or state taxes, offer no responsible gaming tools, and have no systems in place to prevent underage customers from using their platforms,” said AGA President and CEO Bill Miller.

“The AGA is grateful to Senators Cortez Masto and Hyde-Smith for their commitment to providing a safe, responsible sports betting market and to continuing to help migrate bettors out of the illegal market, which is bereft of consumer protections and a haven for bad actors and tax evaders,” Miller added.

Previous attempts to repeal the sports betting excise tax were unfruitful. U.S. Reps. Dina Titus (R-Nevada) and Guy Reschenthaler (R-Pennsylvania) introduced similar bills to the WAGER Act in 2020 and 2021.