Virginia has already tightened up the tax rules applied to online sports betting sites in the state, but there may be interest in toughening them even further.
A bill introduced by Democratic Sen. Jeremy McPike would further limit the deductions licensed operators can apply to their taxable revenue from sports betting-related promotions to no more than 2.5% of total internet wagers handled each month between July 2023 and July 2024. The ceiling would then drop to 2.25% of monthly handle between July 2024 and July 2025, to 2% between July 2025 and July 2026, and then to 1.75% from then on.
The proposals in McPike’s bill would be in addition to changes made during a budget process in Virginia in 2022, which made it so operators can only deduct free bets and other promotions for a year rather than forever. That has already affected tax revenue realized from online sports betting in Virginia.
In November, for example, the Virginia Lottery reported that the total tax from sports betting was almost $7.8 million after $817,857 in bonuses and promotions were deducted. In November 2021, the state received $4.2 million from sports betting (and its 15% tax rate on adjusted revenue) after about $15 million in promotional costs were deducted.
Toughening the tone
Most operators have been taking bets in Virginia for more than a year already, including the state's biggest bookmaker, FanDuel. That means they have already run through their promo allotment and would not be affected by the proposed legislation. However, the bill, if passed, could put even more of a damper on promo deductions in Virginia for bet365, which has yet to launch in the state, as well as for any future entrants.
The legislation comes as lawmakers and regulators in the U.S. have been taking a tougher tone with the legal sports betting industry recently, including tax tweaks in Colorado and Virginia, a proposed crackdown on “predatory” sportsbook bonuses in New York, and several fines recommended by Ohio regulators.
The Virginia bill is similar to the legislation passed in Colorado that came into effect this month, which is expected to increase the effective tax rate on sports-betting revenue in the state.
A limited-time offer
Senate Bill 1142 was prefiled and referred on Tuesday to the Virginia Senate's committee on finance and appropriations. The Virginia legislature on Wednesday again convened in Richmond for its regular legislative session.
Whether the bill gains traction is a big question in the divided general assembly. Democrats have a majority of seats in the Virginia Senate, but Republicans control the House of Delegates, meaning legislation will require cooperation to get passed. There is only limited time to do so as well, as the session is only 30 days long, albeit with the possibility of an extension.
S.B. 1142 “gradually reduces the exclusion from a sports betting permit holder's adjusted gross revenue, on which it is taxed, all cash and the cash value of merchandise paid out as winnings to bettors, and the value of all bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed Internet sports betting wagers,” its summary notes.
“Under current law… after the first 12 months of sports betting activity, a permit holder is prohibited from excluding from adjusted gross revenue any bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed Internet sports betting wagers,” the summary adds.
