Arizona could soon join a growing number of states increasing taxes on sports betting, as Governor Katie Hobbs unveiled a proposal to raise the state’s tax rate for large operators handling substantial monthly volumes.

Hobbs’s $17.7 billion budget plan, released last month, calls for a 45% tax rate on sportsbooks processing at least $75 million per month. Since the market launched in 2021, Arizona sportsbooks have paid a flat 10% tax on revenue — the fifth-lowest rate nationwide. According to recent figures, three operators would meet the threshold: BetMGM, DraftKings, and FanDuel.

The governor’s office projects that the proposed increase could generate an additional $150 million annually. The Arizona Mirror reported that the sports betting tax is included in $950 million of “uncertain funds” the budget relies on to offset expected federal funding cuts.

Political and Legislative Hurdles

Hobbs, a Democrat, faces significant political challenges in advancing the proposal. Both chambers of the Arizona Legislature are controlled by Republicans, who generally oppose tax increases. Moreover, Arizona’s Constitution requires a two-thirds supermajority to approve laws that raise state revenue. The Hobbs administration maintains that the increase is a fee rather than a direct tax, potentially circumventing the supermajority requirement.

Industry experts caution that the timing of such a tax increase may be risky. “It’s a very unwise time to increase burdens on the companies that are operating within the rules in the state and contributing significant dollars,” said industry consultant John Pappas, noting that sportsbooks face growing competition from unregulated operators and prediction markets.

National Context: Rising Sports Betting Taxes

• Arizona is not alone in considering higher gaming taxes. Over the past several years, multiple states have adjusted sports betting tax rates to bolster revenue:
• Illinois began with a 15% flat rate in 2020, shifted to a tiered system of 20%–40% in 2024, and added a per-bet fee last year.
• Maryland initially proposed doubling the rate from 15% to 30%, with lawmakers ultimately settling at 20%.
• New Jersey increased the rate from 13% to 19.75%, below Governor Phil Murphy’s original proposal of 25%.
• Louisiana raised its tax from 15% to 21.5%, with regulators warning excessive taxation could push operators out of the market.
• Ohio increased the rate from 10% to 20% in 2023, with a subsequent proposal to double it again failing to gain legislative approval.

Industry and government stakeholders have stressed the importance of balancing fiscal needs with the health of the regulated market. Illinois Representative Jehan Gordon-Booth, speaking at the National Council of Legislators from Gaming States conference, urged caution: “Lawmakers need to understand, what you think you’re going to get from raising taxes, you’re not going to get. We want this industry to continue to strike the right balance.”

Looking Ahead

If Arizona lawmakers approve Hobbs’s proposal, the state could significantly increase its sports betting revenue, aligning with a national trend of higher taxation on regulated sportsbooks. However, political dynamics, constitutional requirements, and industry resistance suggest the measure faces an uncertain path to implementation. The outcome could shape Arizona’s gaming market for years, influencing both operator strategy and state revenue projections.