"Cette taxe désuète favorise le marché offshore et illégal et désavantage les paris sportifs sûrs, légaux et réglementés" - Bill Miller - AGA

Bipartisan efforts by Reps. Dina Titus (D-Nev.) and Guy Reschenthaler (R-Pa.) are aimed at ending the federal tax on sports betting.

By Mark R. Smith, U.S

. Correspondent The imposition of an excise tax on legal and licensed gambling operators puts them at a disadvantage compared to illegal operations. Although the current rate of 0.25% is not as ruinous as the initial rate of 10%, it represents a cost and the abolition of this levy would make legal operators slightly more competitive in the market.

When the federal excise tax on sports gambling was enacted in 1951, only one of the United States, Nevada, offered legal gambling.

Today, while sports gambling is legal in 21 states, and another 5 are legal but not yet operational, another 14 states are at the stage of active and/or pre-filed legislation. Representatives Dina Titus (D-Nev.) and Guy Reschenthaler (R-Pa.) are leading their second charge to eliminate the tax in an effort to level the playing field for illegal online and offshore operators.

According to David G. Schwartz, a gambling historian at the University of Nevada at Las Vegas, the tax was initially part of a wave of anti-gambling legislation sparked by the Kefauver Committee, a Senate expert group led by Sen. Estes Kefauver (D-Tenn.) that studied organized crime in interstate commerce in 1950 and 1951.

The law instituting the excise tax was originally passed in 1951 at a rate of 10%; it was reduced to 2% in 1974 and then lowered again ten years later to the current rate of 0.25%.

It required people who accepted bets, such as employees of a sports betting parley, to pay a $50 annual license and pay excise tax, “but the law expressly stated that registration did not confer immunity from prosecution,” Schwartz said.

“As the list of registered people was accessible to the public, the registered people presented themselves to the police as illegal bookmakers.”

The tax was originally passed “to help prosecute those who offered sports betting illegally, but it actually fueled tax evaders in addition to illegal bookmakers,” he said. “Today, with a domestic, regulated industry, the need for an additional federal revenue tax has been called into question.”

In a sector known for its narrow margins, the abolition of the tax would be a way to reduce competition from illegal operators.

According to the American Gaming Association (AGA), between June 2018 and February 2021, sports betting operators paid an estimated $115 million in federal excise tax. For the first two months of 2021, operators paid $20 million in excise taxes.

Greg Gemignani, a partner at the Las Vegas law firm Dickinson Wright, agrees with Schwartz that the law is “outdated,” adding that it mostly appeared at the time “because Senator Estes Kefauver was trying to make a name for himself and the federal government wanted to tax sports gambling to make it go away.”

At that time, Sen. Patrick McCarren (D-Nev.) was unable to stop the bill, Gemignani said, but he was able to secure exemptions for table games, gaming devices (such as slot machines) and pari-mutuel betting. However, sports betting has not been granted an exemption.

“At that time, Nevada was the only state that offered sports betting in the form of turf clubs, which focused on horse racing,” he explained. “There was no sports betting at the time. The turf sports clubs have been left behind and most of them have gone bankrupt.”

Over time, the effect of the excise tax has fuelled an outcome contrary to its intent. “While the original purpose of the federal excise tax was to punish illegal operators, this outdated tax now helps the offshore and illegal market and disadvantages safe, legal and regulated sports betting halls across the country,” said Bill Miller, President and CEO of the AGA.

“If Congress is to ensure the success of the legal sports betting market, it must eradicate this unnecessarily burdensome tax in order to level the playing field for legal sports betting,” Miller added.

I am grateful to the co-chairs of the Congressional Gaming Caucus, Reps. Titus, and Reschenthaler for introducing this much-needed legislation that will continue to foster the growth of the legal market and better protect customers.”

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