Questions about the tax relief

It appears that the revenue Virginia is taking in from sportsbooks is being significantly offset by tax breaks. On Monday, the Richmond-Times Dispatch outlined how the state is potentially leaving significant sums on the table as a result of the current structure.

Since sportsbooks launched in the state last year, they have contributed tax revenue of $26.7m. During the same time period, the sportsbook operators have handed out $168.8m worth of bonus offers and promotions to their customers.

regulations allow operators to deduct all promotional money before the application of the 15% tax rate

Sportsbooks use the likes of free bets as an incentive to get people to sign up for an account or to continue betting. Virginia’s sports betting regulations allow operators to deduct all promotional money before the application of the 15% tax rate.

Only a few operators pay tax

Though a dozen operators accept sports bets at the moment in Virginia, just five of them have actually contributed tax revenue since they launched. The operators to have paid tax so far are Hard Rock Digital, FanDuel, DraftKings, BetMGM, and Barstool Sports. Caesars Sportsbook has a 9.7% market share and was the largest operator to not have made a tax payment to date.

There have been attempts to get rid of the tax break for operators. Delegate Mark Sickles introduced a bill earlier in 2022 in an attempt to get rid of the tax break, but it failed to get out of the committee stage. The bill would have eliminated the tax break after an operator’s first year of accepting wagers.

Calls for change

A recent study from the Tax Foundation showed that of the 30 states that currently have legal sports betting, eight of them allow operators to write off promotional money. The original idea behind the tax break was to try to accelerate the growth of the sports betting sector as operators would be more likely to better incentivize customers to join. However, many other states have had very impressive betting market growth rates without having such a structure in place.

From the start of sports betting in Virginia to the end of March 2022, the total betting handle in the state was $4.58bn, with bettors winning $4.19bn. The Richmond-Times Dispatch reported that these figures show that the tax break for operators negates 43.7% of possibly taxable revenue.

In response to questions about the tax break, a Virginia Lottery spokesperson said that the body is not in charge of creating the regulations, it just implements the rules that the General Assembly has put in place.