Federal excise tax on betting again in the sights of US lawmakers

Across the United States, licensed sports betting operators are subject to tax on their income and license fees. After the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018, when the US Supreme Court found parts of the law to be unconstitutional, regulation of sports betting was left in the hands of legislators in different states.

This is a prime reason why taxes and license fees, applicable for wagering operators, vary from one state to the other.

Considering that lawmakers were tasked with the establishment of regulations and the legalization of betting, the activity quickly expanded across the country. To date, 38 states, as well as Washington DC, offer some form of legal betting on sports.

What is the federal excise tax?

Despite the recent expansion of legal betting that has been ongoing for several years now, operators remain subject to an additional tax, which some lawmakers deemed "antiquated."

The tax in question is the federal excise tax, applicable for sports wagers. This tax, recognized by some industry experts and politicians as an unnecessary burden, was enforced back in 1951 as a method to combat unlicensed, illegal gambling activities.

The excise tax is 0.25% applicable on the amount of legal sports wagers. In addition, a $50 annual tax is applicable for every employee of licensed sports betting operators.

While the federal sports excise tax wasn't established with the intention of generating funds, the exponential expansion of legal betting across the country enabled it to rake significant proceeds.

Yet, the additional tax burden has been in the sights of lawmakers for years, who have been attempting to remove it but so far, none have been successful.

Similarly to lawmakers, the federal excise tax on sports betting was identified by industry stakeholders as an unnecessary burden with opposition including operators that have raised their concerns on a number of occasions.

A bill seeks to utilize funds from the federal excise tax on betting

But while some lawmakers try to repeal the excise tax, others want to use it in order to treat gambling addiction and prevent harm. This is the case for a proposal introduced in January this year by Rep. Andrea Salinas in collaboration with Sen. Richard Blumenthal.

The bicameral bill, titled the Gambling Addiction Recovery, Investment and Treatment (GRIT) Act, calls for the allocation of half of the proceeds collected from the federal excise tax on betting to non-profit organizations that combat gambling addiction and harm, provide treatment and raise awareness of the dangers of excessive gambling.

Per the GRIT Act, 50% of the proceeds collected from the betting federal excise tax would benefit gambling addiction treatment and research. According to Salinas and Blumenthal, the proposal is expected to provide vital treatment, boost research and help combat excessive gambling across the country without the need for additional taxes or complex legislative changes.

Upon uncovering their proposal, Rep. Salinas and Sen. Blumenthal confirmed that it is supported by the Oregon Council on Problem Gambling, the Connecticut Council on Problem Gambling and the National Council on Problem Gambling.

"Importantly, the GRIT Act would not raise taxes or create more bureaucracy. The legislation would draw from existing federal excise tax revenue and operate within existing HHS programs and procedures," the two lawmakers explained upon introducing the GRIT Act.

Federal excise tax on betting penalizes the legal sector

Earlier this month, the premier iGaming and sports betting conference, SBC Summit North America, wrapped up. During the event, Congresswoman Dina Titus, a recognizable politician and one of the outspoken critics of the federal excise tax on sports betting, sent a video message debating the controversial excise tax.

For more than a decade, Titus supported the repeal of the federal excise tax. In the message played during the recent event, she reaffirmed her opposition to the federal excise tax, explaining that it "serves no dedicated purpose," as announced by SBC Americas earlier this month.

Titus spoke about the negative impact of the federal excise tax, saying that it "penalizes" the regulated gambling sector. At the same time, she said that the tax burden "empowers illegal operators" because they are able to offer better odds when compared to regulated providers.

Another important point raised by Titus involved the GRIT Act, proposed earlier this year. She was critical of the proposal and outlined that while it is important to invest in responsible gambling, the funds to fuel such initiatives shouldn't hurt legal providers.

The American Gaming Association, the premier national trade group for the US casino industry, is also among the opponents of the GRIT Act.

"Operators already invest millions of dollars into responsible gaming resources and research and each state sets aside money for this issue," added Titus.

Titus' views on the matter do not come as a surprise, considering that each US state that currently offers sports betting dedicates resources toward responsible gambling.

With regulation varying from one state to the other, usually a percentage of the tax revenue collected from legal sports betting is dedicated to prevention, education and treatment of individuals affected by problem gambling or gambling harm.

Betting excise tax repeal efforts ahead of presidential elections

The mounting opposition to the federal excise tax on betting handle comes during a presidential election year for the United States.

But as noted, it is not only lawmakers that support the repeal of the excise tax on betting handle.

Gambling operators have continuously sounded the alarm about the unnecessary tax. Its removal is expected to enable licensed providers to offer better odds and promotions.

Image credit: Pixabay.com