Online sports betting has grown rapidly across the United States since the 2018 Supreme Court ruling that made it legal. Currently, 38 states plus Washington D.C. have legalized sports betting, creating a significant source of tax revenue. New Hampshire, New York, and Rhode Island lead the nation with the highest tax rates on sportsbooks at 51 percent, while Nevada and Iowa have the lowest at 6.75 percent.
The economic impact of sports betting taxes varies widely from state to state. New York has emerged as the revenue leader, generating more than $1.6 billion in sports betting revenue in 2023, followed by New Jersey in second place. The industry as a whole has contributed $6.5 billion in tax revenue to state coffers since legalization began in 2018.
Tax rates on online gambling can significantly affect market development. Pennsylvania, for instance, imposes a steep 54% tax rate on online slot revenues, while New Jersey takes a more moderate approach at 13%. These differences in tax structures influence both operator profitability and the overall contribution to state budgets, with commercial gaming operators paying a record $14.67 billion in direct gaming tax revenue to state and local governments.
Context and Legal Landscape
The legal status of sports betting in the United States has undergone significant changes since 2018, creating a complex regulatory environment where states have considerable autonomy in implementation and taxation approaches.
Historical Overview of Sports Betting Legalization
Sports gambling remained largely prohibited across the United States until May 2018, when the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA). This landmark decision in Murphy v. NCAA removed federal barriers that had prevented states from legalizing sports betting.
Prior to this ruling, Nevada was essentially the only state with full-scale legal sports betting operations. The Supreme Court’s decision opened floodgates for state-level legalization, with many states quickly moving to establish regulated markets.
By June 2023, 30 states had created operational sports wagering markets. This rapid expansion transformed sports gambling from a primarily illegal activity to a regulated industry generating substantial tax revenue for state and local governments.
Regulatory Framework and State Approaches
States have adopted widely varying approaches to regulating and taxing sports betting, reflecting different policy priorities and market conditions. Some states prioritize maximizing tax revenue through higher rates, while others focus on market growth and competitiveness.
Tax rates on sportsbooks range dramatically across jurisdictions. New Hampshire, New York, and Rhode Island apply the highest tax rate at 51 percent, while Nevada and Iowa maintain the lowest at 6.75 percent.
Most regulatory frameworks include:
- Licensing requirements for operators
- Consumer protection measures
- Responsible gambling provisions
- Revenue sharing between state and local governments
The federal government maintains a 0.25 percent excise tax on sports betting handle in most states, adding another layer to the taxation structure. This diverse regulatory landscape has created a natural experiment in gaming market policies, with states learning from each other’s successes and challenges.
Top States by Online Sports Betting Taxes
Several states have emerged as leaders in generating tax revenue from online sports betting. These states have implemented different tax rates and regulatory frameworks, resulting in varying levels of success in terms of economic impact and contribution to state coffers.
New Jersey: A Success Story in Tax Revenue
New Jersey has established itself as a pioneer in the online sports betting market since legalizing it in 2018. The state imposes a tax rate of 13% on online sports betting revenue, which has generated substantial income for state programs.
In 2023, New Jersey collected over $100 million in tax revenue from sports betting operations. This success stems from the state’s well-structured regulatory framework and its early adoption of both mobile and retail betting options.
The economic impact extends beyond direct tax revenue. New Jersey’s sports betting industry has created thousands of jobs and stimulated growth in related sectors. The state’s proximity to New York initially gave it an advantage, as many New Yorkers crossed state lines to place bets before New York legalized online betting.
Pennsylvania’s Lucrative Online Betting Market
Pennsylvania implements one of the highest tax rates in the country at 36% for online sports betting. This aggressive tax structure has proven effective, making Pennsylvania one of the top revenue-generating states in the industry.
The state collected approximately $185 million in sports betting taxes in 2023. Pennsylvania’s approach balances high taxation with a robust regulatory framework that still attracts operators to the market.
Pennsylvania has successfully integrated online sports betting with its existing brick-and-mortar casino industry. This integration allows established gaming companies to expand their offerings and reach new customers through digital platforms.
The state has used this tax revenue to fund education programs, property tax relief, and local development projects, demonstrating the potential fiscal benefits of well-regulated sports betting.
Nevada: The Traditional Gambling Powerhouse
Nevada, despite being the traditional center of American gambling, applies a comparatively low tax rate of 6.75% on sports betting revenue. This rate is among the lowest in the nation, reflecting Nevada’s business-friendly approach to gaming regulation.
Despite the low rate, Nevada still generates significant tax revenue due to its massive betting volume and mature market. The state’s established brick-and-mortar casinos provide a strong foundation for its sports betting operations.
Nevada’s model differs from newer markets as it initially required in-person registration for mobile betting accounts. This requirement has since been relaxed, allowing for more growth in the online segment.
The state continues to benefit from tourism-driven betting activity, with major sporting events like the Super Bowl and March Madness drawing bettors from across the country. This unique position helps Nevada maintain its status as a gambling powerhouse despite increasing competition.
Emerging Markets and Recent Entries
The sports betting landscape continues to expand across America with several states recently joining the market. New legislation has opened doors for significant tax revenue potential in states that previously missed out on this growing industry.
Massachusetts: The Latest State to Join
Massachusetts legalized sports betting in 2022, with retail betting launching in January 2023 and online platforms following in March. The state implemented a tiered tax structure with retail sportsbooks taxed at 15% and online operators at 20%.
Early performance has been promising, with Massachusetts generating over $30 million in tax revenue during its first nine months of operation. The state benefited from strong participation from its sports-enthusiastic population of approximately 7 million residents.
Massachusetts attracted major operators including DraftKings (headquartered in Boston), FanDuel, and BetMGM. The timing of the launch allowed the state to capitalize on March Madness betting, which significantly boosted initial revenue figures.
Maryland and Kansas: Analyzing Early Performance
Maryland launched online sports betting in November 2022 after a lengthy regulatory process. The state applies a 15% tax rate on operators’ revenue. In its first full year, Maryland collected approximately $25 million in sports betting taxes.
Kansas entered the market in September 2022 with a 10% tax rate. Despite its smaller population, Kansas generated nearly $7.5 million in tax revenue during its first full year of operation.
Both states have seen steady growth in betting handle and tax receipts. Maryland benefited from its proximity to Washington D.C. and its robust professional sports market. Kansas, while smaller, has achieved consistent performance with its straightforward regulatory approach.
Ohio: Potential Market Growth upon Entry
Ohio launched legal sports betting on January 1, 2023, and quickly established itself as a major market. With a 10% tax rate and a population of 11.7 million, Ohio collected over $90 million in sports betting tax revenue in its first year.
The state’s successful launch can be attributed to:
- Simultaneous retail and online launches
- Strong interest from Ohio’s passionate sports fanbase
- Multiple professional teams across major leagues
Ohio’s early success puts it on track to potentially join the top tier of sports betting states. Market analysts project continued growth as the Ohio market matures and betting becomes more mainstream across the state’s diverse population.
