For months, the astronomical and outlandish tax rate for sports betting in Pennsylvania has been sneered at and wondered about.
How in the world did Keystone State lawmakers come up with a jaw-dropping 36 percent effective tax rate while asking licensees to cough up $10 million just to offer sports betting?
A Philadelphia Inquirer story published Monday seems to answer those questions – but also creates more.
PA thought about a little, asked for a lot
Per the Pennsylvania gaming expansion law passed last fall, only current gaming license holders in the state can apply for a sports betting license. Part of that application process is a $10 million fee. And once approved, any revenue by licensees would be taxed at a jaw-dropping 36 percent rate.
According to the Philadelphia Inquirer article, initial discussions about tax rates actually started with a more reasonable approach.
“Pennsylvania’s sports-betting bill originally set the tax rate at 18 percent – 16 percent for the state, and 2 percent local share. But as the bill was merged with other gaming legislation into an omnibus gambling measure now known as Act 42, the sports-wagering tax was doubled to 36 percent.”
The story noted that state Rep. Rob Matzie, who sponsored the sports betting law, said he came up with the lower rate using the casino table games tax as a comparison. Matzie said “they are comparable labor-intensive gaming forms.”
Yet as talks ramped up surrounding the legalization of sports betting, lawmakers – particularly Republicans – recognized the potential for online sports betting “more closely resembled” automated slot machines, which are taxed at a higher rate.
Hence the 36 percent rate.
Not much thought, no takers
There are few positive things to say about Pennsylvania’s tax rates and licensing fees. Even if the original 18 percent stood. Even then, PA would be among the highest in the industry.
Consider its neighboring state, New Jersey, which has an 8.5 percent rate for brick-and-mortar sportsbooks and 13 percent for online. Racetracks pay 8.5 percent for in-person and 14.25 percent on mobile wagers.
Because of such a lofty asking price, there have been no applications submitted for sports betting licenses.
“That’s the real challenge in Pennsylvania,” Joe Asher, CEO of William Hill US, told the PhillyVoice in June. “We want to move people off the black market, because that doesn’t do anybody any good. It doesn’t protect costumers, it doesn’t create jobs and it doesn’t generate tax revenue. The problem, of course, is the tax rate. It’s not the sexiest thing to talk about, but it’s fundamentally important to our business.”
Asher added: “The legal market in Pennsylvania could be very small — smaller than it should be — because of this tax rate. Someone will pay the money, but it will be a small business compared to what it could be, because it will be very hard to compete with the bookie. Right now, as we’re talking, you don’t hear a whole lot about Pennsylvania, and that’s because of the structural challenge involving the taxes.”
What can be done?
The Pennsylvania Gaming Control Board has said it was open to comments from interested parties. But there has been no movement on maybe altering the rates.
Matzie, like many Pennsylvania lawmakers, have said that properties will yield and accept the tax rates and fees. Obviously, that has not happened yet.
In the meantime, Delaware and New Jersey have both launched regulated sports betting, Mississippi could go live this week, while Rhode Island and West Virginia are expected to join the party by football season.
All the while, Pennsylvania remains on the sidelines.