New Jersey governor latest to pitch gambling tax hike

New Jersey Governor Phil Murphy has announced a substantial budget proposal totaling $58.1 billion for the upcoming fiscal year, with plans to augment funding through increased taxes on sports betting and iGaming, among other measures.

This latest announcement, disclosed on February 25, marks yet another chapter in the ongoing discussion around gambling tax increases in the United States. Ironically, Governor Murphy’s name is also associated with the landmark lawsuit that led to the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018. This legislative change paved the way for 38 states to establish some form of sports betting, with Missouri anticipated to join the ranks later this year. Notably, several states have already seen tax rates for sports betting rise.

Governor Murphy’s proposal suggests elevating both sports betting and iGaming tax rates to 25%, a significant leap from the current rates of 13% and 15%, respectively.

“This tax increase would be a regressive step for New Jersey,” stated Jeremy Kudon, an industry lobbyist representing the Sports Betting Alliance (SBA). “Since New Jersey’s introduction of regulated sports betting seven years ago, operators have not only created thousands of jobs but also generated hundreds of millions in revenue for the state.”

Kudon continued, “Increased taxes on sports betting will escalate costs for consumers, diminish operator investments in local job creation and strategic partnerships, and disadvantage the regulated market in favor of unregulated and offshore operators who evade state taxes.”

Members of the SBA include prominent industry players such as BetMGM, DraftKings, Fanatics Sportsbook, and FanDuel.

Industry Reactions: A “Slap Across the Face”

The iDevelopment Economic Association (iDEA) voiced similar concerns, with co-founder Jeff Ifrah criticizing the administration’s approach. “It is perplexing that the governor aims to undermine an industry already surpassing its economic potential by implementing these tax hikes,” Ifrah stated. “Meanwhile, competition is surging from unregulated alternatives, such as CFTC-approved sports contracts, which attract younger bettors, operate outside the law, and do not contribute to state taxes.”

From an economic perspective, gambling taxes have emerged as contentious political topics. Lawmakers advocate these increases as ways to generate revenue without significantly impacting consumers. BetMGM, which has established a robust presence in New Jersey, continues to make substantial investments, similar to its commitments in Maryland and Massachusetts, where significant tax hikes have also been proposed.

“It’s ironic that in a state like New Jersey, which prioritizes economic development in the iGaming sector, the governor would impose such a steep tax increase,” remarked Brendan Bussmann, Principal at B Global, to iGB. “It contradicts the goal of fostering industry growth while slapping them with an over 60% tax increase.”

Tax Increases Across the Nation

In the past six months, proposed gambling tax increases have surfaced in at least six additional states. Most recently, Mississippi advanced a bill to raise its land-based casino tax from 8% to 12%, despite lacking a digital gambling framework.

Additionally, both Ohio and Illinois have seen significant increases in sports wagering taxes. In Ohio, Governor Mike DeWine has pushed for a tax hike that would see the rate double from 10% to 20%, with proposals for another increase to 40% suggested in the latest budget.

In Illinois, changes were made to the proposed tax structure last year, implementing a tiered system where lower-grossing sportsbooks pay 20% while the largest operators face a hefty 40% tax, up from 15%.

“The industry can no longer adopt a passive stance toward these tax rises,” Bussmann warned. “It must actively combat these increases rather than merely adapt down the line. A significant factor contributing to this situation is the industry’s historical failure to effectively educate stakeholders about its business model.”

Resistance from Lawmakers

Across the nation, proposals are underway to raise various gambling tax rates to as high as 51%. Currently, New York stands alone in maintaining competitive market rates at that level. While Murphy’s proposal remains below that threshold, many New Jersey lawmakers have expressed their opposition. “Doubling taxes on online sports betting and iGaming jeopardizes what is undeniably a New Jersey success story,” a group of southern New Jersey senators conveyed to Politico.

Governor DeWine of Ohio has similarly faced pushback to his proposals. These responses could ultimately affect the legislature’s support for the tax increases.

Nonetheless, Deutsche Bank analysts conveyed on Tuesday that they “strongly expect” the proposed iCasino tax increase in New Jersey to pass, though it may undergo some modifications. They also noted that the online sports betting tax hike is “likely to pass.”

Other State Proposals

Several other states are also contemplating gambling tax increases:

• Louisiana: A bill to raise the digital sports betting tax from 15% to 51% faltered last November.
• Maryland: Governor Wes Moore’s budget, presented on January 15, proposed doubling the sports betting tax from 15% to 30% and increasing the table games tax from 20% to 25%.
• Massachusetts: A proposal to elevate the current 20% rate to 51% was introduced for the second consecutive session but stalled.
• Michigan: A 0.1% increase on sports betting and a 1% increase on iGaming were proposed in December.
• Pennsylvania: Governor Josh Shapiro’s latest budget proposes a 52% tax on skill games while the legal casino industry is pursuing higher taxation on existing games.