Lawmakers Target “Outdated” Excise Tax That Favors Illegal Operators
Congressional Gaming Caucus leaders have launched a renewed effort to abolish the federal excise tax on sports wagers, arguing that the seven-decade-old levy hampers legitimate businesses while giving illegal bookmakers an unfair advantage.
Representatives Dina Titus (D-Nevada) and Guy Reschenthaler (R-Pennsylvania) recently introduced the Discriminatory Gaming Tax Repeal Act of 2025, which would eliminate both the 0.25% handle tax on legal sports bets and the $50 annual tax imposed on sportsbook employees.
“The current tax structure creates an uneven playing field,” said Rep. Titus. “When I questioned the IRS about where this tax revenue goes in the federal budget, they couldn’t provide an answer. We’re maintaining a tax that federal authorities don’t even track, while simultaneously giving illegal operators a competitive edge.”
The Economic Impact of Sports Betting Taxation
The financial implications of the current tax system are particularly evident during major sporting events. During March Madness 2025, Americans are projected to wager $3.1 billion on tournament games, representing a substantial increase from previous years.
In states with legalized sports betting, the tax burden is significant:
- Nevada’s 66 licensed sportsbooks processed $8.26 billion in wagers in 2023, generating $481.3 million in revenue and $32.5 million in state tax contributions
- New York operators handled $19.18 billion in bets in 2024, producing $1.7 billion in gross revenue and $862.6 million in state taxes
- Pennsylvania, as the fifth-largest sports betting market, could have saved approximately $21 million in 2024 alone if the federal tax were eliminated
Historical Context and Legislative Challenges
The federal excise tax was originally implemented in 1951 to combat illegal gambling operations. However, following the Supreme Court’s 2018 decision allowing states to legalize sports betting, industry advocates argue the tax has become obsolete.
This marks the fourth attempt by Titus and Reschenthaler to advance similar legislation, with previous bills introduced in 2019, 2021, and 2023. Despite growing bipartisan support and backing from the American Gaming Association, previous efforts have stalled in House committees.
“Unfortunately, outdated tax codes and burdensome regulations penalize legal operators and incentivize illegal activity,” Reschenthaler noted. “Our bill ensures the gaming industry can continue supporting good-paying jobs and driving economic growth nationwide.”
As the legal sports betting landscape continues to evolve across 38 states and Washington D.C., pressure mounts to modernize federal tax policies that many view as impediments to the industry’s legitimate development and competitiveness against unregulated markets.
The Illinois Senate has voted in favor of a new bill that restructures the tax system for sports betting operators within the state. Passed with a vote of 37-22, the bill, known as HB 4951, introduces a progressive tax scale based on the adjusted gross revenue (AGR) of sports betting companies. This significant shift in taxation is set to commence from Fiscal Year 2025, starting July 1.
Details of the New Tax Structure
The newly approved legislation features a multi-tier tax system. Initially, sports betting revenues up to $30 million will be subject to a 20% tax. The rate increases progressively with higher revenue brackets—25% for the next $20 million, 30% for revenue between $50 million and $100 million, escalating up to 40% for revenues exceeding $200 million. This structure aims to more equitably distribute tax burdens based on the revenue levels of operators, potentially benefiting larger entities like FanDuel and DraftKings.
Impact on Operators and Market Dynamics
Under the new system, different revenue streams such as mobile and retail sports betting will be taxed separately, which could mean significant savings for some operators. For instance, Rivers Casino, through its BetRivers app, would fall into the 30% bracket for its mobile revenue, whereas its physical sportsbook revenue would be taxed at a lower 20%, resulting in a substantial tax saving.
Additionally, adjustments to the tax system could influence the operational strategies of major players in the industry. DraftKings, for example, has recently launched a new sportsbook near Wrigley Field, expected to substantially boost its revenue.
Fiscal Implications and Legislative Outlook
The Senate’s proposed changes are part of a broader initiative to increase state revenue through modified sports betting taxes. The projected additional tax revenue from this progressive system is nearly $174.5 million over the past year, aligning closely with Governor JB Pritzker’s budget expectations. Governor Pritzker, a staunch supporter of legalized sports betting, has been instrumental in fostering a favorable environment for the industry since the inception of sports betting in Illinois.
The bill now moves to the House of Representatives for further approval. If it passes, Illinois would be the first state to adopt a purely progressive tax rate for sports betting, setting a precedent that might influence other states considering similar measures.
Market Reactions and Future Projections
The announcement has led to notable market reactions, with shares of major sports betting companies like DraftKings and Flutter Entertainment experiencing declines. This reflects investor concerns about the impact of higher taxes on profitability. However, the long-term effect on consumer pricing, promotional activities, and overall market competitiveness remains to be seen.
In conclusion, the Illinois Senate’s decision to adopt a progressive tax structure for sports betting marks a pivotal moment in the state’s approach to regulating and capitalizing on this burgeoning industry. As the bill progresses through legislative channels, its implications for economic strategy and industry growth will continue to be a focal point of discussion among stakeholders.