Sports wagering: How much tax is enough?

Photo Credit: Creative Commons Sports Betting by Marit & Toomas Hinnosaar licensed under CC BY 2.0

Kansas would impose among the highest taxes on sports wagering in the country under one version of expanded gambling legislation now under consideration.

The House Federal and State Affairs Committee on Wednesday began work on a bill that would tax online sports betting revenues at 20% and in-person betting at a casinos at 14%.

The tax rate would only be less than Rhode Island (51% of gross gaming revenues), Delaware (50% of revenue) and Pennsylvania (36% of gross gaming revenue), according to an analysis by legislative researchers.

It would be equal to Tennessee, which collects 20% of revenues.

The conservative leaning Tax Foundation reports that Missouri is expected to tax sports wagering at 9% and Florida at 15%.

Republican state Rep. John Barker, chair of the Federal and State Affairs Committee, is the lead sponsor of the House bill.

He called the tax rates in the House bill a starting point for negotiations.

“I am going to advocate for the state of Kansas, not for the casinos,” Barker said in an interview.

“I want to make the state a good deal,” he said. “If it’s not a good deal, we won’t do it.”

Iowa taxes sports wagering at 6.75%, Indiana at 9.5%, Colorado at 10%, Michigan at 8.4% and Mississippi at 8%, legislative research shows.

A spokesman for the operator of Hollywood Casino cautioned about overtaxing the casinos.

“Proposed tax rates of 14% for retail wagers and 20% online are well above the norm for tax rates implemented in most states,” said Jeff Morris, vice president of public affairs and government relations for Penn National Gaming.

“These rates would also place Kansas at a competitive disadvantage with the neighboring states of Iowa, where sports betting is taxed at 6.75%, and Colorado, with a tax rate of 10%,” Morris said in an email.

“This also does not include the illegal market, which currently operates in Kansas and pays zero taxes,” he said.

That view was echoed by Republican Sen. Jeff Longbine of Emporia, who has sponsored the legislation in the Senate.

“I think it puts Kansas at a severely competitive disadvantage,” Longbine said.

“One of the main reasons we’re doing the bill is to try to curb the illegal offshore gambling and bring it into a safe, regulated environment,” he said.

“If you get the tax rate too high, you lose that incentive also,” he said.

Taxes can be a sticking point in getting sports wagering started.

Three years ago, critics blamed Pennsylvania’s $10 million licensing fees and one of the highest tax rates in the country as a hurdle to getting sports betting started.

The House bill is projected to generate approximately $4.5 million for the state, while the Senate bill would bring in $2.25 million.

The House and the Senate bills would authorize the state’s four casinos to contract with the Kansas Lottery to manage and operate a sports book on the state’s behalf.

Here is a chart breaking down the differences between the two bills.

The House bill extends to racetrack managers, while the Senate legislation does not cover tracks. Casino mogul Phil Ruffin wants defunct racetracks to be part of the legislation.

The House bill also would authorize sports wagering at up to 1,200 retailers across the state. The Senate bill does not include retailers.

The House bill also would allow the sale of online lottery tickets, something that’s now prohibited under state law but has been pushed by Gov. Laura Kelly’s administration to help energize the existing lottery.

The Senate bill also contains a so-called iLottery provision but places limits on the games to ensure they don’t include audio or visual displays so they don’t look like a slot machine.

ILottery has been central in the dispute over sports wagering legislation the past couple of years.

The Kelly administration has vigorously pushed for wrapping iLottery together with sports wagering, hoping it would help boost lottery sales.

Online sales are seen as a way for lotteries to stay relevant and remain tied into their customers.

The Kansas Lottery believes internet lottery games could increase overall ticket sales by $25.7 million and increase the transfer to the state by $2.9 million in the first full year after it started.

With expected growth in that segment of the lottery industry, the bill has the potential to generate a total of $18.1 million in additional transfers to the state over the course of the first five years.

Combining the two activities would mean the Legislature could vote one time to expand gambling, instead of twice, once for iLottery and once for sports wagering.

However, the casinos have pushed back against iLottery because they fear that that it will resemble their products and undercut their revenues.