The Tax Wars
Some state legislators looking for revenue see gaming as the golden goose. Can they squeeze more from it without killing it?
As states continue to experience growing budget constraints and shortfalls, lawmakers are increasingly looking at taxes from gambling, particularly sports betting, as a way to make up the difference.
Multiple state legislatures increased the tax burden on online sportsbooks this year. More legislators could look to do so in 2026, according to industry sources.
In 2025, Illinois increased its tax on sportsbooks by implementing per-bet fees on operators, starting at 25 cents for the first 20 million wagers and increasing to 50 cents beyond that. That was after a 2024 hike from a flat 15 percent tax to a tiered system ranging from 20 percent to 40 percent based on revenue.
Lawmakers in Louisiana proposed increasing their tax rate from 15 percent to 32.5 percent before adjusting it to 21.5 percent. In Maryland, legislators proposed pushing their 15 percent tax to 30 percent before deciding on 20 percent. New Jersey Governor Phil Murphy signed a bill that took the state’s 13 percent tax rate up to 19.75 percent. Lawmakers in several other states, including Indiana and Michigan, floated tax increases.
“Tax increases are very much going to be par for the narrative in the near and long term,” one industry source told GGB. “But there certainly are strong arguments against tax rate increases, particularly given the pressures facing the regulated market. It’s a very unwise time to increase burdens on the companies that are operating within the rules in states and contributing significant tax dollars.”
While many states legalized sports betting with tax revenue in mind, they did so while setting the rate at industry-friendly levels. Those rates have returned revenue numbers that some lawmakers might see as disappointing, especially once New York legalized with a 51 percent tax rate.
Among the states that could consider raising taxes are those with relatively low rates. Iowa has a 6.75 percent tax rate. Michigan has an 8.4 percent tax rate. Indiana’s clocks in at 9.5 percent. Arizona, Colorado, Kansas, Maine, Missouri, West Virginia and Wyoming have 10 percent tax rates. An increase has also reportedly been floated in Pennsylvania, which carries a 36 percent rate, already one of the highest in the nation.
Lawmakers are not always amenable to tax hikes. This year, Ohio Governor Mike DeWine proposed doubling the state’s tax rate from 20 percent to 40 percent. The legislature rejected that, but its decision followed a 2023 doubling of the state’s original 10 percent tax rate. In Massachusetts, there was a proposal to bring the rate from 20 percent to 51 percent, but the bill didn’t advance this year.
If not raising taxes, several states could sunset the deductions given for promotional spending by sports betting operators. Colorado passed a bill this year that prohibits operators from deducting free bets from taxable revenue. That came after voters removed a $29 million cap on tax revenue the state could generate from the industry.
While sports betting might be low-hanging fruit, another industry could be ripe to tap for additional tax revenue: daily fantasy sports.
“Someone will come up with that,” one source said.
Gambling taxes also garnered attention at the federal level this year when President Donald Trump’s One Big Beautiful Bill was amended to allow bettors to deduct only 90 percent of their gambling losses in a year. That changed the existing law that allowed for a 100 percent deduction. Despite lawmakers such as Nevada Rep. Dina Titus introducing bills to reinstate the 100 percent deduction, the change remains in effect.
“It gives everyone, from recreational gamblers to high-stakes gamblers, a fair shake,” Titus said in seeking to restore the full deduction. “We should be encouraging players to properly report their winnings and wager using legal operators. The Senate change will only push people to not report their winnings and to use unregulated platforms.”
