In a significant move for Illinois sports betting, Governor J.B. Pritzker has signed into law the state’s budget for the upcoming year, which introduces new tax rates for sports betting revenue. The bill, known as HB 4951, brings a major shift in how sports betting revenue will be taxed, impacting both mobile and retail operators.
New Tax Structure
The newly enacted tax structure for Illinois sports betting revenue will follow a progressive model, taxing adjusted gross revenue (AGR) at different rates based on revenue tiers. Here’s a breakdown of the new tax rates:
First $30 million: 20%
Next $20 million (revenue between $30 million and $50 million): 25%
Revenue from $50 million to $100 million: 30%
Revenue from $100 million to $200 million: 35%
Revenue above $200 million: 40%
This progressive tax system marks a notable departure from previous tax structures, which had a flat rate. The top rate of 40% is now the second highest in the United States, following New York’s rate of 51%.
Legislative Journey
The bill, HB 4951, successfully passed both the Illinois House and Senate last week. Despite some resistance, it was approved and signed into law by Governor Pritzker. The legislation includes an amendment from the original proposal, which adjusts the tax rates to apply separately to mobile and retail sports betting revenue.
Industry Reactions
The new tax rates have faced criticism from industry stakeholders. The Sports Betting Alliance (SBA), which represents major operators such as FanDuel, DraftKings, BetMGM, and Fanatics Sportsbook, has expressed strong disapproval. SBA President Jeremy Kudon criticized the tax increases, stating:
“Rather than heeding the outcry from tens of thousands of residents who vocally opposed more than doubling sports betting taxes, the Illinois Senate advanced a budget tonight that would make Illinois sports betting tax the second highest in the country and counter-productively penalizes sports betting operators who invested millions into the local economy and created jobs in the state.”
Impact on Operators
The increase in tax rates poses a significant financial challenge for sports betting operators. With the top rate reaching 40%, companies will face higher operational costs, which could impact their profitability. Operators who have heavily invested in Illinois and contributed to job creation might now find their investments less sustainable under the new tax regime.
Comparison with Other States
Illinois’s new tax rates place it as the second highest in the nation, trailing only New York. The comparison with other states highlights the aggressive nature of Illinois’s approach to taxing sports betting revenue. Operators in Illinois will now deal with a more complex tax structure and higher rates compared to those in states with lower or flat tax rates.
Economic Implications
The increase in tax rates could have broader economic implications. Higher taxes may lead to reduced margins for operators, which could potentially translate into higher costs for consumers or reduced investment in the local market. The long-term effects on the local economy and job market remain to be seen, as the industry adjusts to the new tax environment.
Public and Political Reactions
The public outcry and opposition from industry groups reflect a broader debate on the balance between taxation and economic growth. While the state aims to increase revenue through higher taxes, stakeholders argue that such measures could stifle industry growth and investment.
Illinois’s decision to implement a progressive tax rate structure for sports betting revenue represents a significant shift in the state’s approach to gambling taxation. The new rates are among the highest in the country, positioning Illinois as a state with a particularly challenging tax environment for sports betting operators. As the industry adjusts to these changes, the full impact on both the local economy and the sports betting market will become clearer over time.