The original tax rate for sports betting operators in Arizona could be about to be increased, after Governor Katie Hobbs proposed a huge tax hike of 35% on the sector.
Previously, companies were charged a 10% levy on revenue. However, the new law would see large operators earning $75 million or more every month pay a massive 45% on earnings.
Bill could struggle to pass Republican-controlled House and Senate
Governor Hobbs unveiled a $17.7 billion budget proposal for the 2026 fiscal year last week, with betting operators bearing much of the brunt for the increase in funding.
The bill allocates $13.5 billion to reimburse states for border security and immigration enforcement, with Arizona Governor Katie Hobbs’ proposal backed by legislative Republicans. Senate President Warren Petersen said he and House Speaker Steve Montenegro will meet the Trump administration to formally request the funds.
However, Hobbs faces long odds raising sports betting taxes with Republicans controlling both chambers and Arizona law requiring a two-thirds supermajority for revenue increases. Her administration argues the sportsbook charge is a fee, not a tax, and therefore would not trigger the higher vote threshold.
Whether Hobbs gets her proposal over the line remains to be seen, but it marks a growing trend of state lawmakers raiding the sector to fund government initiatives.
Arizona treads in the footsteps of other states
Several governors have sought to raise sports betting taxes in recent years, offering a cautionary backdrop for Arizona.
Illinois, which launched sports wagering in 2020 with a 15% tax, moved in 2024 to a tiered system ranging from 20% to 40% based on operator revenue, then added a per-bet fee of $0.25 on the first 20 million wagers and $0.50 thereafter. At a gaming conference, Illinois Rep. Jehan Gordon-Booth warned lawmakers that higher rates often fail to deliver projected revenue and risk weakening the industry.
Elsewhere, Maryland Governor Wes Moore proposed doubling the tax rate to 30%, with lawmakers settling on 20%. New Jersey legislators raised rates to 19.75% after Governor Phil Murphy sought 25%. Louisiana increased its rate from 15% to 21.5%, while Ohio doubled its tax from 10% to 20% in 2023 under Governor Mike DeWine, though a further hike was later rejected.
Industry groups and operators have warned that steep increases could have unintended consequences, including reduced promotional spend, higher costs passed on to consumers, or a pullback in investment.
Critics argue that aggressive taxation may ultimately drive bettors toward unregulated offshore markets, undermining consumer protections and shrinking the legal tax base states are seeking to grow.
Supporters of Hobbs’ proposal counter that sports betting remains highly profitable and should contribute more to public priorities, particularly as states grapple with budget pressures and competing funding demands. As the legislative session unfolds, Arizona lawmakers will have to weigh whether the potential revenue gains outweigh the risk of destabilizing a still-maturing market—an equation other states are already finding difficult to balance.
Next steps for Arizona lawmakers
The proposal will now be scrutinized by legislative committees as budget negotiations intensify ahead of the 2026 fiscal year deadline. Any change to sports betting charges would need to be finalized as part of the wider budget package, setting up a test of whether Hobbs can win over enough lawmakers in a divided legislature.
For operators, the debate introduces fresh uncertainty as they assess the long-term viability of the Arizona market under a sharply higher cost structure.
For elected officials, it underscores a broader national question facing states with legalized betting.
How far taxes can be pushed before the promised revenue gains are offset by slower growth, reduced competition, or migration to unregulated alternatives?
