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Illinois Increases Taxes on Online Sports Betting

Illinois has approved substantial tax increases on online sports betting and video gaming terminals to boost state revenue. The new graduated tax rates aim to generate $200 million from sports betting operators and an additional $35 million from VGTs. The budget package now awaits the governor's signature.
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Branimir Ivanov | Senior News Contributor

Updated: May 30, 2024

The New Tax Plan

Illinois Legislature Approves Significant Online Sports Betting Tax Increase

Illinois has approved a substantial increase in online sports betting taxes for the second consecutive year to bolster state revenue. The Illinois House passed a comprehensive budget bill early Wednesday morning, extending the legislative session into the early hours. This bill includes approximately $1 billion in tax increases for businesses across the state, with $200 million specifically generated from higher taxes on sports betting operators. Additionally, an extra $35 million is anticipated from increased taxes on video gaming terminals (VGTs), further contributing to the state's revenue goals.

The Senate had already given its approval to these tax hikes over the Memorial Day weekend, underscoring the legislature's commitment to these measures. The budget package now awaits the governor's signature, a step that is widely expected to proceed smoothly given that the governor was the original proponent of the increased tax rates for online sports betting.

New Graduated Tax Rates for Sports Betting

Under the new legislation, sports betting operators in Illinois will face a graduated tax rate based on their adjusted gross revenue (AGR), replacing the previous flat rate of 15%. The new tax rates are as follows:

  • 20% tax on the first $30 million of AGR
  • 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

This tiered approach aims to address concerns that a steep flat increase could drive smaller operators out of the state. Major players like FanDuel and DraftKings, who dominate the market, are expected to bear the bulk of the tax burden, contributing approximately $150 million based on 2023 revenue figures.

Legislative Reactions and Industry Concerns

Rep. Will Guzzardi defended the tax increases, emphasizing that they would primarily impact the largest and most profitable businesses in the state, which are heavily advertising during major sporting events.

Conversely, Jeremy Kudon, President of the Sports Betting Alliance, expressed strong opposition, warning that the tax hike could harm the Illinois sports betting industry. Kudon suggested that increased taxes would result in worse promotions and betting odds for consumers and might drive business to illegal offshore sportsbooks. He also highlighted the potential negative impact on local jobs and investments.

The revenue package also includes a 1% increase in taxes on VGTs, raising the rate from 34% to 35%. Some lawmakers, such as Rep. Tony McCombie, voiced concerns that this increase could hurt small businesses, particularly those in small communities that rely on VGT revenue to offset high operational costs.

Rep. Jeff Keicher suggested an alternative approach, advocating for the authorization of VGTs in Chicago to boost state revenue without disproportionately affecting smaller towns.

Despite the push for increased gaming revenue, several other gambling-related bills were not addressed in this session. These include measures to legalize online casinos, restrict amusement gambling at venues like Dave & Buster’s, and establish a problem gambling task force.

 

“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.”

 

Broader Industry Trends

Illinois is not alone in its efforts to increase taxes on online gaming. Last year, Ohio doubled its sports betting tax rate from 10% to 20%. Other states, including New Jersey, Michigan, Iowa, Indiana, Massachusetts, Arizona, and Kansas, are reportedly considering similar measures.

The trend toward higher taxes on online gaming is a growing concern within the industry, with potential implications for market dynamics, consumer offerings, and state revenues. As states look to bolster their budgets, the gaming industry faces increasing pressure to adapt to a more taxing regulatory environment.

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