The Impact of Taxation on Casino Revenue
Gambling taxes and fees provide state governments with a substantial source of revenue, which are used for various state and local government needs. Taxes on betting activity conducted within state borders vary based on how much is wagered during each gambling activity permitted within their borders.
State gambling revenues increased by 1.5 percent during fiscal year 2015. This growth can be attributed to expanding casino operations geographically and adding table games.
Taxes on winnings
Tax rates on casino winnings can differ between states. Some impose flat tax rates while others levy graduated rates that increase with casino revenues collected, while some also impose additional table game taxes. Although individual state policies differ significantly when it comes to taxes on winnings from casinos, most gambling taxes tend to remain relatively low rates and contribute only minimally to overall state budgets.
Inflation-adjusted state and local government revenues from major forms of gambling increased moderately during fiscal year 2015. Revenue from lottery operations, casinos, racinos and pari-mutuel wagering all saw increases of 1.5 percent each while video game and sports betting contributed approximately one fifth of total gambling revenues.
Expanding gambling facilities may or may not increase state tax revenues depending on how substitutable they are with existing legal gambling options as well as consumer spending (such as lotteries and horse racing). New York’s four licensed casinos may have temporarily increased state revenue, yet their growth was offset by other forms of gambling or sales of other goods and services decreasing as their profits came in.
Taxes on losses
State governments are exploring new methods of raising revenue, including expanding gambling operations. Unfortunately, studies show that such efforts often backfire; several states experienced declines in inflation-adjusted tax and fee revenues generated from casinos and racinos during the recent recession.
Gambling revenues account for only 2-2.5 percent of state own-source general revenues in most states and their growth has not kept pace with overall economic trends; indeed, revenue from gambling has actually decreased in nine of seventeen states.
One possible cause may be the high degree of substitutability between casinos and legal forms of gambling (e.g. lotteries) and non-gambling goods and services that generate state tax revenue – particularly important for low-income households whose incomes have decreased as spending has. Federal tax treatment of gambling losses also encourages these households to gamble heavily since losses can be deducted from income as expenses.
Taxes on gaming machines
Gambling taxes are implemented to generate revenue for governments, regulate gambling activity and discourage excessive betting. They typically use gross gaming revenue (GGR), which measures how much is wagered by players minus winnings paid out; it plays an essential role when calculating gambling tax rates, so understanding its calculation process is crucial.
State and local gambling revenues increased by nearly 2 percent during fiscal year 2015. Unfortunately, however, this was insufficient to offset declining revenues at casinos and racinos; competition from neighboring states who legalized casino and racino operations also played a factor.
Many nations place great emphasis on taxing gambling activities as a key source of government income, as well as for economic development and maintaining profitability of gambling businesses. To achieve this goal, they set their gambling tax rates lower than competitors’ levels.
Taxes on table games
Taxes on table games are assessed against net winnings of the game, and collected at the state level up to 20 percent of those winnings. State and local governments collect around $35 billion from gambling each year – this represents approximately 1 percent of their general revenues – although these taxes do not serve to discourage gambling but instead are intended to offset its negative effects on society.
After 2008, inflation-adjusted gambling tax revenue growth saw a considerable slowdown. Revenue declines were particularly noticeable among “older” casino states that may have reached saturation or been cannibalized by neighboring states.
Effective tax rates often differ from statutory rates, making comparisons between them difficult. The differences arise due to state treatment of promotional wagers and selection of taxable revenue sources; tax policy should remain consistent across federal, state, and local levels in order to simplify tax administration – this is particularly essential when dealing with sports betting where high effective tax rates lead many bettors toward illegal markets that don’t levy a tax bill.
