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Illinois Sports Gambling Tax Rate Set To More Than Double For Top Operators

In what’s becoming a concerning trend for the online gaming industry, a state increased online sports betting taxes to raise revenue in the state budget for the second consecutive year.

Illinois Gov. JB Pritzker
Photo by Evan Vucci/AP file photo of Gov. JB Pritzker
Matthew Kredell Avatar
5 mins read

In what’s becoming a concerning trend for the online gaming industry, a state increased online sports betting taxes to raise revenue in the state budget for the second consecutive year.

The Illinois House approved a budget bill with about $1 billion in tax increases for businesses Wednesday as the final day of the regular session extended into the early a.m. hours. About $200 million will come from raising taxes on sports betting operators. Another $35 million comes from additional taxes on video gaming terminals.

The Senate already approved the tax increases over Memorial Day weekend. The budget package still needs approval from the governor, but that’s not in doubt. The governor originally proposed an increase in online sports betting.

Rather than paying a 15% tax in Illinois, sports betting operators will now pay between 20% and 40%.

Last year, Ohio doubled its sports betting tax rate from 10% to 20% at the governor’s request.

Details of Illinois online sports betting tax increase

In his executive budget proposal in February, Illinois Gov. JB Pritzker proposed increasing the sports betting tax rate from 15% to 35%.

Responding to concerns that such an increase could crush smaller operators and force them out of the state, lawmakers went with a graduated tax increase based on earnings.

The tax increase was included in HB4951. Online sports betting operators will now pay:

  • 20% tax on the first $30 million of adjusted gross revenue.
  • 25% tax on AGR between $30 million and $50 million.
  • 30% tax on AGR between $50 million and $100 million.
  • 35% tax on AGR between $100 million and $200 million.
  • 40% tax on AGR over $200 million.

Based on 2023 revenue, FanDuel and DraftKings will pay the brunt of the increase, about $150 million. Eight online sports betting operators are active in Illinois.

Rep. Will Guzzardi, in defending the increases on the House floor, stated:

“The third source of revenue that will fund the package before us and help make our budget balanced is a tax on sportsbooks, is that correct? I’ve been watching a fair amount of playoff basketball lately. I’m a big NBA fan. … In these NBA playoffs, it seems like every other commercial I see is from one of these sportsbooks. And they’ve got celebrities. They’re buying up all these timeslots. I guess I’m hard-pressed to think of DraftKings and FanDuel as small, mom-and-pop, Main Street Illinois businesses that are struggling to get by. What I see you proposing here is a package of revenue enhancements that will only affect the largest and most profitable businesses in the state of Illinois.”

VGTs also get tax increase

The revenue package also includes a 1% increase on video gaming terminals (VGTs) in the state from 34% to 35%.

Several lawmakers lamented an increase that could come back on Illinois restaurants and bars that house VGTs.

Rep. Tony McCombie said:

“It’s not one of my favorite things in our small communities to have these VGTs, but it is part of our system. And, unfortunately, in our small communities, a lot of our small mom-and-pop shops, because of high rents and high energy costs, this is how they get through their winters. And this is one of the most balanced taxes we have, and unfortunately this is going to be an area where I think you’re going to see an extreme loss on our local businesses, and it’s going to be harder in the end for places to stay open.”

Rep. Jeff Keicher said there were other options to increase Illinois revenue from VGTs. The state could have worked to authorize VGTs in Chicago. He pointed out the irony that revenue increases from VGTs around the state would go toward capital projects in Chicago, a city that doesn’t have VGTs.

“When we look at where these dollars are going, they are going to fund our vertical capital. And as I look through this, all of these VGT revenues that are being raised outside of the city of Chicago seem to be going and supporting significant projects in [Chicago]. There are capital dollars being raised significantly outside of Chicago, and so what I’d like to see even more so, imagine the pot of money that we could have toward capital projects on a bipartisan basis if we were able to bring Chicago into the VGT world. I think we have some missteps on the VGT piece, and I’d like to see us work toward fixing that perhaps as we get to veto session.”

Illinois legislature punts on other gaming bills

Illinois lawmakers did not act on a number of other gambling bills brought up this session.

Legislation left on the table included online casino, a bill to stop amusement gambling at Dave & Buster’s and a problem gambling task force.

Despite the state’s desire for increased gaming revenues, two Illinois online casino bills that were carried over from last year were not discussed in House or Senate committees this session.

House Gaming Committee Chair Dan Didech pushed a late-session effort to let Dave & Buster’s know the state had no interest in the arcade restaurant’s proposal to facilitate patrons making friendly wagers with each other on Skee-Ball and other amusement games over a mobile app.

Although Didech maneuvered several times to add the language to different bills, ultimately landing it in SB327, the effort appeared to run out of time.

Tax hike a concerning trend for industry

After the Senate passed the sports betting tax, Sports Betting Alliance President Jeremy Kudon responded with a statement on how this could impact the Illinois sports betting industry.

“This is an extremely disappointing decision that will cause real harm. Rather than heeding the outcry from tens of thousands of residents who vocally opposed more than doubling sports betting taxes, the Illinois Senate advanced a budget tonight that would make Illinois sports betting tax the second highest in the country and counterproductively penalizes sports betting operators who invested millions into the local economy and created jobs in the state.”

Kudon said higher taxes could affect promotions and even betting odds that operators can offer in Illinois. The Sports Betting Alliance represents DraftKings, FanDuel, BetMGM and Fanatics.

“This tax hike will mean worse products, worse promotions, and inevitably, worse odds for Illinois customers – not to mention provide a massive leg up to dangerous, unregulated and illegal offshore sportsbooks who pay no taxes and adhere to none of Illinois’ sports betting regulations. This tax hike doesn’t just threaten the legal, regulated sports betting market —  it will have devastating effects for operators’ in-state partners, including the most vulnerable downstate casinos, who rely on sports betting revenue to create jobs and invest in communities. Sportsbooks across the industry will have no choice but to reevaluate their level of investment and participation in the state should this become law.”

New Jersey lawmakers also are considering legislation this session to double the online casino and sports betting tax rates. Massachusetts legislators rejected a proposal to increase the state’s sports betting tax rate from 20% to match New York’s 51%.

Deutsche Bank analyst Carlo Santarelli issued a report on the Illinois tax increase Monday predicting that New Jersey, Michigan, Iowa, Indiana, Massachusetts, Arizona and Kansas could be next to increase sports betting tax rates.

Matthew Kredell Avatar
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Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and his since interviewed over 300 lawmakers around the country.

View all posts by Matthew Kredell

Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and his since interviewed over 300 lawmakers around the country.

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