Top States Offering the Most Favorable Tax Rates on Sports Betting

Local and state governments throughout the United States have generated revenue through the commercial gaming industry for decades. 

A substantial transformation occurred in national gaming 2018 when the Supreme Court granted states the authority to offer authorized sports betting. 

Within a year of the court’s ruling, 11 states and the District of Columbia had approved wagering. Today, 38 states have legalized sports betting.

The emergence of sports betting has also led to differences in how state and local governments tax the revenue it generates. 

According to the American Gaming Association, bettors across America have wagered over $220 billion with US sports betting operators since May 2018. 

This has resulted in approximately $3 billion in tax revenue for states, but the returns vary based on each jurisdiction’s tax rates.

To provide an overview of the tax rates in states where sports betting is legal, AskGamblers used data from the American Gaming Association to create a map. 

Each state with authorized sports betting in the U.S. has the authority to determine its own tax rate and revenue allocation. 

These tax rates differ based on various factors, including state regulations and market size.

Nevada, Iowa, and Indiana have the lowest tax rates on online sports betting. These three jurisdictions authorized wagering before 2020.

Nevada and Iowa share the lowest tax rate of 6.75% on sports betting revenue. With a 1.85% tax rate, Tennessee is unique in that it is the only state with a much lower tax rate. However, the tax is based on total wages rather than income.

It is also important to note that tax rates can vary depending on whether bets were placed at physical sportsbooks or through online platforms. 

The map focuses on tax rates for online sports bets.

On the other end of the spectrum, the Northeastern states have imposed higher tax rates on sports betting revenue. 

New York, which is the largest online gaming market in 2022, has the same high tax rate of 51% as New Hampshire on online sports betting revenue.

New Hampshire launched online wagering in 2019 and has only one legal sportsbook, DraftKings. 

From July 1, 2022, to June 30, 2023, the state generated $69 million in online gross gaming revenue, resulting in $31.7 million in revenue for the state.

As more states look to authorize sports betting, tax rates will continue to be a significant consideration in pending regulations. 

Finding a balanced taxation approach will be crucial for maximizing revenue while fostering the growth of this rapidly expanding industry.

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Tax Rates for Sports Betting in Five States

top-states-offering-most-favorable-tax-rates-sports-betting
Local and state governments throughout the United States have generated revenue through the commercial gaming industry for decades.

Here are the top five states with the lowest tax rates on online sports betting:

Michigan: 

Tax rate of 9.65% (Legalization date: December 20, 2019). Tax allocation includes the School Aid Fund, with $2 million annually dedicated to assisting firefighters undergoing cancer treatments.

Indiana: 

Tax rate of 9.5% (Legalization date: May 13, 2019). Tax allocation is directed to the state’s general fund, with a portion allocated explicitly for funding solutions for problem gambling.

South Dakota: 

Tax rate of 9% (Legalization date: March 18, 2021). Tax revenue is distributed across state initiatives, specifically in Lawrence County.

Iowa: 

Tax rate of 6.75% (Legalization date: May 13, 2019). Tax allocation goes into the state’s general fund.

Nevada: 

Has a tax rate of 6.75% (Legalization date: 1949). Tax revenue benefits the state’s general fund, with a focus on education and health services.

These rankings highlight the favorable tax environments for sports betting in these states. 

As the sports betting industry grows, tax rates will remain crucial in shaping regulations across different states.

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