Virginia State Budget Closes Sports Betting Tax Loophole

Written By Julie Walker on July 6, 2022 - Last Updated on July 27, 2023
Virginia Sports Betting Tax Loophole

A new state budget went into effect on July 1 in the Old Dominion. And one particular provision affects bettors and Virginia online sportsbooks.

This new bill closes a tax loophole that allowed seven of the state’s sportsbooks to skip out on paying millions of dollars in tax revenue.

The cost of Virginia’s tax loophole

Prior to July 1, Virginia law allowed operators to deduct money spent on promotions and bonuses from their adjusted gross incomes. Tax rates were then applied after the deductions, causing Virginians to forego 43.7% of taxable revenue.

Virginia sports betting has accumulated roughly $390 million in total gross gaming revenue since its 2021 launch. However, with the tax loophole, operators claimed just $26.7 million in taxable revenue after deducting about $168.8 million in bonuses and promotions.

This resulted in just 5 out of the 12 sports gaming operators paying taxes thus far in Virginia. Companies that paid included:

Since tax revenue from online gaming is expected to help fund state programs and the like, it’s beneficial for the operators to be profitable. In the eyes of operators, doling out player bonuses helps bring in new business. Thus, this helps increase operator profits in the long run. Think of it like a bar giving out a free drink – the recipient is more likely to spend additional money that night and is more likely to return in the future.

But in Virginia, the tax cuts weren’t adding up. Delegate Mark Sickles, a Democrat from Fairfax, initially led a charge to scrap the tax loophole via his bill HB1103, although it ultimately failed. The new budget revived it.

This new bill won’t take effect immediately. Operators may still deduct money spent on bonuses and promotions for the next 12 months, with that clock beginning to tick the first month operators “collect wagers related to sports betting.” For Virginia, the new budget will boost revenue to state initiatives.

Unfortunately for Virginia bettors, it also will likely reduce the number of promotions and bonuses available.

Virginia isn’t for bettors — at least not on college games

A previous General Assembly session saw the approval of a bill to stop operators from using the slogan “Virginia is for bettors.” The phrase is a play on Virginia’s state slogan “Virginia is for lovers.”

Another bill set to lift Virginia’s ban on college sports betting failed to pass earlier this year, so it’s still illegal to bet on college sports in the state. Similarly, the July 1 budget also made it illegal for student-athletes to earn money off their name, image or likeness (NIL) through casinos or betting — including sports betting.

The new budget also prohibits NIL deals involving:

  • Alcohol products
  • Adult entertainment
  • Cannabis, cannabinoids, cannabidiol, or other derivatives
  • Dangerous or controlled substances
  • Performance-enhancing drugs or substances (e.g., steroids, human growth hormone)
  • Drug paraphernalia
  • Tobacco and electronic smoking products and devices
  • Weapons, including firearms and ammunition

Definition of illegal gambling

After months of speculation, the new budget also revealed amendments to some of its gambling-related definitions, including that of skilled games and illegal gambling. The amendment defines illegal gambling as:

“the making, placing, or receipt of any bet or wager in the Commonwealth of money or other consideration or thing of value, made in exchange for a chance to win a prize, stake, or other consideration or thing of value, dependent upon the result of any game, contest, or any other event the outcome of which is uncertain or a matter of chance, whether such game, contest, or event occurs or is to occur inside or outside the limits of the Commonwealth.

“For the purposes of this subdivision and notwithstanding any provision in this section to the contrary, the making, placing, or receipt of any bet or wager of money or other consideration or thing of value shall include the purchase of a product, Internet access, or other thing made in exchange for a chance to win a prize, stake, or other consideration or thing of value by means of the operation of a gambling device as described in subdivision 3 b, regardless of whether the chance to win such prize, stake, or other consideration or thing of value may be offered in the absence of a purchase.”

Skill games language also makes budget

One of the arguments for differentiating skill games from legal games of chance — such as a slot machine — is that skill games require at least some level of skill to play rather than being based on pure chance.

This June, lawmakers were still mum as to whether or not language relating to skill games would appear in the new budget.

The budget, however, notes that:

“Illegal gambling’ also means the playing or offering for play of any skill game.”

The new language defines skill games as:

“no less gambling devices if they indicate beforehand the definite result of one or more operations but not all the operations. Nor are they any less a gambling device because, apart from their use or adaptability as such, they may also sell or deliver something of value on a basis other than chance.”

This definition is important because of the scrutiny following a July 2021 ban on skill games. Businessman and former NASCAR driver Hermie Sadler, sued the state this June to prevent the prohibition of skill games in his establishments.

Virginia’s most recent budget amendment, though, suggests Sadler might have a bit more trouble finding success in his ongoing litigation.

Photo by Dreamstime / Rawpixelimages
Julie Walker Avatar
Written by
Julie Walker

View all posts by Julie Walker