Illinois Senate Passes Contentious Tax Bill On Sports Betting

The Illinois Senate’s recent passage of a bill that introduces a progressive sports betting tax marks a significant development in the state’s evolving gambling landscape. This move, which stems from a desire to optimize revenue generation, has sparked a contentious debate within the industry, pitting legislators against licensed operators. As the bill now awaits approval from the Illinois House and the Governor’s signature.

The Illinois Senate’s approved bill, HB 4951, outlines a progressive tax system for sports betting operators. This system is set to take effect in Fiscal Year 2025, beginning on July 1. The key aspects of the proposed legislation include:

The bill mandates that both mobile and retail adjusted gross sports betting revenue (AGR) will be subject to the same progressive tax rates. This means that operators will be taxed at the same tiered levels, regardless of the channel through which bets are placed.

Tiered Tax Rates

The progressive tax structure is as follows:

This tiered approach aims to strike a balance between generating revenue for the state and maintaining a viable business environment for sports betting operators.

The bill stipulates that retail and digital sportsbook AGR will be taxed as separate entities, with the same progressive tax rate thresholds applied to each channel.

The proposed progressive tax structure is expected to have a significant impact on the state’s leading sports betting operators, particularly FanDuel and DraftKings. These two companies, which are currently the highest-earning licensed mobile operators in Illinois, are likely to be the most affected by the tax hike.

Under the new tax regime, sportsbooks that generate over $200 million in AGR will be subject to a 40% tax rate. This represents a substantial increase from the current 15% flat tax rate that has been in place since sports betting was legalized in Illinois in 2021.

The Sports Betting Alliance (SBA), an industry group representing licensed operators, has expressed concerns that the tax hike could lead to “worse products, worse promotions, and inevitably, worse odds for Illinois customers.” This sentiment suggests that the increased tax burden may be passed on to bettors in the form of less favorable odds and reduced promotional offerings.

The SBA has also warned that the progressive tax structure could provide a “massive leg up to the dangerous, unregulated illegal offshore sportsbooks who pay no taxes and adhere to none of Illinois’ sports betting regulations.” This raises the spectre of increased competition from unregulated platforms, potentially undermining the state’s efforts to maintain a safe and controlled sports betting market.

Illinois’ proposed progressive tax system is not entirely unique in the sports betting landscape. Arkansas has a similar structure, where casino revenue, including sports betting, is taxed at 13% for the first $150 million and 20% for revenue above that threshold.

However, Illinois’ top tax rate of 40% stands in contrast to New York’s current 51% tax on gross gambling revenue (GGR), which is the highest in the nation. This highlights the delicate balance that states must strike between generating tax revenue and maintaining an attractive business environment for licensed operators.