Online gambling thrives in the U.S., and states such as New Jersey, Michigan, and West Virginia are leading the charge.
However, as some states reap millions in tax revenue, others still debate how to get started.
Now, lawmakers are stepping in with a model designed to simplify the process for states ready to join the game.
The National Council of Legislators from Gaming States (NCLGS) has introduced a proposal to guide states in legalizing and regulating online gambling.
The framework covers everything from tax rates and deposit limits to creating regulatory agencies.
In a nutshell, the goal is to help states set up a fair, effective system while protecting players and generating revenue.
Let’s break it all down.
Key Takeaways
- States adopting internet gambling are suggested to pay a 15%- 25% tax rate to balance revenue generation and market entry.
- The proposal mandates strict oversight, a regulatory agency, and safeguards like deposit limits and credit card bans.
- Modeled on successful practices in states like New Jersey, the plan provides a tested structure for new entrants.
Suggested Tax Rates
The proposal’s centerpiece is its 15%-25% tax rate, a range carefully chosen to attract operators while generating significant revenue for states.
Here’s how it stacks up:
- West Virginia: Online gambling is taxed at 15%, one of the most operator-friendly rates.
- New Jersey: 15% on online casino games and 13% on online sports betting, yielding over $414 million in tax revenue in 2022.
- Pennsylvania: Online sports betting is taxed at a high 36%, with online slot machines at an eye-watering 54%, limiting participation to large operators only.
Shaun Fluharty, West Virginia delegate and NCLGS president, explained, “We didn’t want to form a barrier to entry into the market with a high tax rate that only the biggest companies could afford.”
The approach aims to keep rates competitive and avoid shutting out smaller operators.
Consumer Protections
In addition to taxes, the proposal is packed with safeguards to ensure a safe gambling environment.
Key protections include:
- Deposit Caps: Players can deposit up to $20,000 in 24 hours, reducing risks of overspending.
- Credit Card Restrictions: Credit cards cannot be used to fund gambling accounts, helping players avoid significant debt.
- Mandatory Oversight: States without a dedicated gambling regulatory body would be required to create one to ensure fair play and enforce accountability.
New Jersey’s Model
The proposed framework is largely modeled on New Jersey’s successful system, which has set the gold standard for online gambling since its legalization in 2013.
Here’s why New Jersey is the poster child for online gambling:
- In 2022, the state generated over $414 million in tax revenue from online gambling alone.
- It applies a 15% tax on online casino games and 13% on sports betting, keeping rates attractive to operators while boosting state revenue.
- The system is tightly regulated to protect players and maintain industry integrity.
David Rebuck, former head of New Jersey’s Division of Gaming Enforcement, worked closely with the NCLGS on the proposal.
He said, “Ninety-five percent of this mirrors what we’re already doing in New Jersey. It’s a great start that builds on what is already in place and operational elsewhere.”
States That Could Benefit from the Proposal
Budget pressures are driving more states to explore online gambling as a way to boost revenue.
Several states are already exploring legalization:
- Maryland: Passed a bill through the House in April 2023 but hit a roadblock in the Senate.
- Ohio and Louisiana: Both states actively discuss online gambling but have yet to finalize legislation.
- New York: Lawmakers are pushing to legalize online casino gambling with a proposed 31.5% tax rate, though it has yet to pass.
David Rebuck predicts this framework could speed up the process for these states, “A number of states are being cautious about their budgets, and if they’re looking at this as a potential revenue driver, it’s pretty significant.”
Nationwide Standards? Not Likely Anytime Soon
While the proposal provides a solid starting point for states, it doesn’t aim to establish a nationwide standard.
In the U.S., gambling regulations remain a state-by-state issue, and efforts to introduce federal laws have repeatedly failed.
This state-led approach aligns with former President Donald Trump’s stance during his term.
Trump, who owned three casinos in Atlantic City, supported state autonomy for gambling regulations and did not push for federal oversight during his presidency.
What’s Next for the Proposal?
The NCLGS will discuss this model at their winter meeting in New Orleans next week.
If adopted, it could serve as a comprehensive guide for states interested in legalizing online gambling but unsure how to start.
With proven success stories from New Jersey and a balanced tax approach, this proposal could unlock billions in revenue across the country.
