The start of the new year has marked a new phase in the long-running tension between Illinois lawmakers, the city of Chicago and sports betting operators, as a new municipal tax takes effect on top of one of the heaviest state tax regimes in the US. A 10.25% Chicago tax on sports betting officially came into force on 1 January after Mayor Brandon Johnson neither signed nor vetoed the city council–approved budget that included the levy. By declining to act before the deadline, Johnson allowed the budget to become law without his formal endorsement.

 

Developments

“I want to announce I will not veto the budget approved by the Chicago City Council. I will not add my signature affirming the budget as presented,” Johnson said in a statement. “In this moment I will not add the risk and speculation of a government shutdown to the profound worries Chicagoans face.” The sports betting tax is part of a broader package of local revenue measures that also includes new or increased taxes on social media services, liquor sales and checkout bags. But it is the betting provision that has drawn the most scrutiny, as it compounds Illinois’ already aggressive approach to taxing sportsbooks.

At the state level, Illinois last year replaced its former 15% flat sports betting tax with a graduated structure ranging from 20% to 40% of adjusted gross revenue, depending on an operator’s earnings. Lawmakers also added a per-wager fee in the most recent budget cycle, further increasing costs for sportsbooks. Operators have responded with various mitigation strategies, including changes to pricing and wagering limits. Chicago’s new tax now layers an additional local burden on top of those state obligations, prompting legal challenges and renewed political debate over the limits of municipal authority.

Before the tax took effect, the Sports Betting Alliance (SBA) filed a complaint in Cook County court seeking to block its enforcement. The SBA represents major operators including Bet365, BetMGM, DraftKings, Fanatics and FanDuel. In its filing, the alliance argued that the city exceeded its “constitutional authority” by imposing the tax. The complaint stated that the Illinois Constitution does not allow a home rule unit such as Chicago to require a licence for revenue purposes or to levy taxes unless the General Assembly has explicitly granted that power.

 

Operator Fear

The operators initially sought an injunction to prevent the tax from being implemented and publicly warned they could withdraw from the Chicago market if it moved forward. However, the SBA later withdrew its injunction request after the city issued licences to sportsbooks at the last minute, allowing them to continue operating while the underlying legal dispute proceeds.

The conflict has also reached Springfield, where some state lawmakers are moving to curtail local intervention in sports betting taxation. Representative Dan Didech, chair of the Illinois House Gaming Committee, introduced House Bill 4171 in October, which would prohibit municipalities from creating their own sports betting taxes.

“When the legislature legalised sports betting in 2019, it was never our intent to allow local governments to create their own rules for this industry,” Didech said when filing the bill. He warned that Chicago’s approach could harm consumers, push bettors toward illegal markets and ultimately reduce state tax revenue.

Separately, Senator Patrick Joyce filed legislation that would reduce Chicago’s share of state income tax distributions in proportion to how much the city collects through its sports betting tax, effectively offsetting local gains with lower state transfers.

The debate comes after two consecutive years in which Illinois lawmakers significantly increased the financial obligations placed on sportsbooks. Some legislators have begun to question whether the cumulative effect of higher rates and new fees could undermine the market’s long-term stability.

 

Chicago’s new local sports betting tax significantly increases operators’ overall tax burden in Illinois, intensifying legal challenges and prompting state lawmakers to consider limits on municipal taxing authority.

 

Outlook

Speaking at the National Council of Legislators from Gaming States winter conference last month, Representative Jehan Gordon-Booth cautioned other states against assuming higher taxes will necessarily yield higher revenues. “[Lawmakers] need to understand, what you think you’re going to get from raising taxes, you’re not going to get,” Gordon-Booth said. “We want this industry to continue to strike the right balance. This will be a problem in budgets for the foreseeable few years. I don’t want to see us continue to deteriorate the industry.”

Illinois lawmakers are set to reconvene in Springfield on 14 January, when the future of Chicago’s tax — and the broader question of how far local governments can go in regulating and taxing sports betting — is likely to remain a contentious issue.