The state of Virginia is leaving a lot of money on the table thanks to its sports betting law. Under this law, operators can deduct costs for promos and bonuses. Because of that, the Richmond Times-Dispatch says VA has lost out on 43.7% of its taxable revenue from sports betting. Virginia pays a hefty price for its lax sports betting law.
Virginia pays a hefty price for lax sports betting law
In the states where sports betting is legal, deciding how to handle promo offers and bonuses (typically represented by free bets) has led to major disparities in tax revenue.
In New York — where sports betting was legalized in January — the total gross gaming revenue (GGR) for the first two months exceeded $138 million, bringing in more than $70 million in taxable revenue at a tax rate of 51%. This revenue includes bonuses and promotions.
By contrast, Virginia’s smaller betting economy has taken in $390 million in GGR since its 2021 launch. But it has also allowed $168.8 million in bonuses and promos. Virginia law allows bettors to deduct those promo offers, which leaves Virginia with a taxable revenue of $26.7 million.
Of the 30 states where sports betting is legal, only eight allow sports betting companies to deduct promos and bonuses. Those states are:
Earmarking sports betting tax revenue
These deductions were originally established to help build the sports betting industry. And although that’s happened, the state isn’t quick to collect its sum. The Virginia Lottery, which is tasked with administering sports betting in Virginia, found that of the 12 sports betting operators in the state, only five have paid any taxes.
The reason? It’s all due to the massive deductions operators are able to write off. That’s a hefty price for Virginia to pay for a lax sports betting law.
Most states have earmarked sports betting tax revenue for different initiatives. Unfortunately, deductions allowed on promo offers are significantly impacting these initiatives.
In Colorado, sports betting tax revenue goes toward funding the state’s ongoing water shortage crisis. Colorado’s taxable revenue, however, fell short of expectations by about half in the first year.
Why? Tax exemptions for promo offers.
Companies take advantage of lax sports betting laws
In jurisdictions where companies can deduct unlimited free play and promotional bets from the GGR, the state ultimately suffers. Ulrik Bolsen at the Tax Foundation has addressed this impact:
“If there’s no cap on the amount of promotional deductions you can take, then it’s not an excise tax any longer. Because then, technically, any operator could eliminate the tax liability completely by just offering endless amounts of promotions.”
Del. Mark Sickles took this issue on through HB 1103, but his bill never made it out of the General Laws Committee. His plan would have placed a limit on the amount of time a company could deduct promotions. Specifically, his bill would have given sports betting companies one year of deductions.
Because Virginia allows unlimited deductions, the state pays a hefty price for its lax sports betting law.
Virginians will now have to wait for the next legislative session to address this issue again. The desperate need of getting a bill like Sickles’s to the floor will grow as will tax revenue lost to the state.