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Federal Tax On Sportsbooks To Be A Casualty Of COVID-19?

The ongoing worldwide pandemic is leading to a review of even some of the most longstanding traditions across all industries — and that includes U.S. gaming.

A pair of obscure taxes traditionally levied on the industry have become the target of both American Gaming Association CEO Bill Miller and a pair of members of Congress.

U.S. Reps. Dina Titus (NV-01) and Guy Reschenthaler (PA-14) have just introduced a bill to repeal the federal excise and head taxes on sportsbooks.

An Internal Revenue Code requirement of a federal excise tax of on all wagers dates back to 1951, when Nevada ruled the betting roost. Another requirement is an annual “head tax” of $50 for every employee engaged in receiving bets.

The amounts — the excise tax has been reduced to 0.25% — may not sound like much, but Miller points out that especially in these lean economic times, the extra costs “place legitimate businesses at a significant competitive disadvantage against illicit gambling operations that skirt taxes and licensing fees.”

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Sportsbooks, Miller says, must react the way any business does when faced with extra overhead.

In the end, consumers always pay

“To absorb the unnecessary burden of these taxes, legal sportsbooks are forced to offer worse odds and payouts or reduce investment in promoting legal betting channels to the public,” Miller said. “Furthermore, the head tax serves as an impediment to hiring at a time when providing jobs is critical.

“Eliminating these taxes is a long overdue step to enable a legal, regulated environment for sports betting that will better protect customers and generate much-needed revenue for state and local economies.”

The tax accounted for about $33 million to the federal government in 2019, Miller estimated in written remarks to a Senate panel last week. He did not have time to address the matter directly in a truncated 25-minute hearing.

Titus, the Nevada congresswoman, has been targeting these taxes for at least five years. Federal officials at a December 2018 congressional hearing could not explain to Titus where the tax revenue goes, even though the original intention was to help combat illegal gambling.

In a 2017 letter to congressional leaders, Titus wrote that the original purpose of the law was “a noble one.” But she added that in practice, “the Treasury Department absorbs the money without a trace.”

When Titus received a suggestion from federal officials that she hire a private entity to audit the funds, she called that idea “unacceptable, irresponsible, and indicative that change is long overdue.”

Narrow margins for sportsbooks

Sportsbooks typically hold about 5% to 7% of the “handle,” or total amount wagered. From that hold, Miller said, the federal tax comes along with employee salaries, rent, marketing, back-end technology, and hardware that runs the sportsbook, plus property taxes or casino leasing fees.

Since the illegal offshore sportsbooks ignore the federal tax, their bottom line is relatively healthier.

“While Congress [in 1984] subsequently reduced the tax to 0.25% for legal sports betting operators, the tax does not advance any specific policy goals, and continues to make it more difficult for legal operations to compete with illegal bookmakers,” Miller wrote.

“Sports are back,” said Titus in a statement. “Unfortunately, the penalty on making legal sports bets never left. Repealing it will push more consumers out of the black market and into a well-regulated market. Forcing sportsbooks to pay a per-employee tax is the last thing we need, when gaming establishments are still making announcements about new rounds of layoffs and furloughs.”

“I’m proud to join my Gaming Caucus Co-Chair Rep. Dina Titus to introduce this important legislation that will eliminate an outdated tax and burdensome requirements on the gaming industry,” said Reschenthaler of Pennsylvania. Gaming is a vital economic driver in Pennsylvania, supporting over 33,000 jobs. This bill will help pave the way for economic growth and job creation in my district and throughout the nation.”

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