Missouri Sports Betting Ballot Measure Highlights National Debate About Tax Rates

JEFFERSON CITY, Mo. (October 28, 2024) — The ads promoting a November ballot measur e to legalize sports betting in Missouri tout the potential for millions of new tax dollars devoted to schools. If voters approve the measure, it’s a good bet they will see even more ads offering special promotions for bettors.

Many of those promotional costs — in which sportsbooks provide cash-like credits for customers to place bets — will be exempt from state taxes, effectively limiting the new revenue for education.

The Missouri ballot measure highlights an emerging debate among policymakers over how to tax the rapidly growing industry, which has spread from one state — Nevada — to 38 states and Washington, D.C., since the U.S. Supreme Court opened the door to legalized sports wagering in 2018.

“It’s a fledging industry,” said Brent Evans, an assistant finance professor at Georgia College & State University who has taught classes on gambling. “So nobody really knows what is a reasonable tax.”

Since authorizing sports betting, Illinois, Ohio, Tennessee and Washington, D.C., all have already raised or restructured their tax rates. And Colorado and Virginia have pared back the tax deductions they originally allowed.

Tax rates range from a low of 6.75% in states such Iowa to 51% in states such as New York. That tax gap is even wider, because Iowa allows promotional bets to be deducted from taxable revenue while New York does not.

About half the states allow tax deductions for promotional costs. It’s a common way of enticing people to start — or continue — making bets. But in the short-term, it also can decrease the tax revenue available for governments and schools.

Missouri’s proposed 10% tax rate on sports betting revenue is below the national average of 19% that sportsbooks paid to states last year. Because of deductions for “free play,” there could be some months in which sportsbooks owe nothing to the state. Missouri’s proposed constitutional amendment acknowledges that possibility, stating that negative balances can be carried over from one month to the next until revenue rises enough to owe taxes.

Unlike in some states, Missouri’s amendment caps the amount of promotional credits that can be deducted from taxable revenue, at 25% of all wagers. But it appears unlikely that cap would come into play. An analysis conducted by consultant Eilers & Krejcik Gaming for amendment supporters projects promotional bets will comprise around 8% of total wagers in Missouri’s first year of sports betting, declining after that.

SOURCE: The Associated Press.