Missouri sports betting ballot measure highlights national debate over tax rates – Winnipeg Free Press

JEFFERSON CITY, Mo. (AP) — Ads promoting a ballot measure to legalize sports betting in Missouri are touting the potential for millions of new tax dollars for schools. If voters approve the measure, there’s a good chance they’ll see more ads offering special promotions for bettors.

Many of the promotional costs in which sports betting sites provide customers with cash-like credits for placing bets will be exempt from state taxes, effectively limiting new revenue from education.

The Missouri ballot measure highlights an emerging debate among policymakers over how to tax the fast-growing industry, which has expanded from a single state (Nevada) to 38 states and Washington, D.C., since the U.S. Supreme Court opened the door to legalizing sports betting in 2018. .

“This is an emerging industry,” said Brent Evans, an assistant finance professor who teaches gambling at Georgia College & State University. “So no one really knows what a reasonable tax is.”

Illinois, Ohio, Tennessee, and Washington DC have all increased or restructured their tax rates since sports betting was allowed. And Colorado and Virginia have reduced the tax deductions they originally allowed.

Tax rates range from as low as 6.75% in states like Iowa to 51% in states like New York. This tax gap is even wider because Iowa allows promotional bets to be deducted from taxable income, while New York does not.

About half of states allow tax deductions for promotional costs. This is a common way to persuade people to start or continue betting. But in the short term, it could also reduce the tax revenues available to governments and schools.

Missouri’s proposed 10% tax rate on sports betting revenue is lower than the national average of 19% that sports betting sites paid to states last year. Due to blackouts for “free play”, there may be some months when sports betting sites do not owe anything to the government. Missouri’s proposed constitutional amendment acknowledges this possibility, stating that negative balances can be rolled over from one month to the next until income increases enough to cover the tax liability.

Unlike some states, Missouri’s change limits the amount of promotional credits that can be deducted from taxable income to 25% of all bets. However, it seems unlikely that this limit will come into effect. An analysis by consultants Eilers & Krejcik Gaming of change promoters projects promotional bets will account for about 8% of total bets in Missouri’s first year of sports betting and decline after that.

Jack Cardetti, a spokesman for Winning for Missouri Education, the group that supports the measure, said the Missouri proposal is “very much in line with proposals that have worked and been effective in other states.”

After voters narrowly approved it, Colorado launched sports betting in 2020 with a 10% tax rate and full deductions for promotional bets. In its first full fiscal year, it recorded total bets of $2.7 billion and generated $8.1 million in taxes, slightly below regulatory estimates. However, Colorado changed its law starting in 2023 to limit promotion tax deductions to 2.5% of total bets, gradually decreasing to 1.75% by July 2026.

Colorado’s sports betting tax revenue has since grown to more than $30 million in the most recent fiscal year. That growth led lawmakers to put a proposal on the November ballot calling for the state to be allowed to keep more in sports betting tax revenue than the initial $29 million limit.

Richard Auxier, principal policy partner at the nonprofit Tax Policy Center, said capping tax deductions for promotional bets is a good step. But he questions why some states exempt them from taxes.

“We don’t give out free marijuana samples when a state legalizes marijuana,” Auxier said. “Is this something you want to subsidize through your state tax policy to encourage people to gamble?”

The Missouri amendment was placed on the November ballot via an initiative petition after legislation to legalize sports betting stalled repeatedly in the state Senate. The $43 million campaign, a record for the Missouri ballot, was funded entirely by DraftKings and FanDuel, which dominate the nationwide sports betting market. If the measure passes, companies would be able to apply for two statewide licenses to operate online sports betting. The change allows additional sports betting licenses for Missouri casinos and professional sports teams.

The $14 million opposition campaign was funded entirely by Caesars Entertainment, which operates three of 13 casinos in Missouri. While Caesars generally supports sports betting, it opposes “the way this measure is written,” said Brooke Foster, a spokeswoman for the Opposition group Missourians Against Deceptive Online Gambling Amendments.

In some other states, sports betting is conducted through casinos. Although the research is limited, a study published in seven states last year found that casino gambling revenues are declining as online sports betting increases.

“There will definitely be a shift from betting in a brick-and-mortar location with a Missouri-based casino to jumping to an app in your living room,” Foster said.

The impact of different tax rates can be seen in Illinois and New Jersey, which led the court battle that led to widespread legal sports betting. According to figures from the American Gaming Association, people in every state bet between $11.5 billion and $12 billion on sports last year, resulting in $1 billion in revenue from sports betting after winnings are paid out to customers.