Our three-part exclusive series, created with expert input from Robert Stoddard, KPMG’s Lead U.S. Tax Partner for the gaming industry, concludes with Part 3, where we focus on international expansion. UK iGaming operators crossing into the U.S. must contend with mismatched tax systems, structural pitfalls, and a compliance culture that demands strategy from day one.
If you missed Part 1, which explored the fragmented U.S. tax landscape and rising compliance burdens, or Part 2, which examined the growing uncertainty around crypto and tax, you’ll find both links at the end of this article.
Breaking into a new U.S. state involves more than getting a license. It requires a business structure and operating strategy to effectively manage Gross Gaming Revenue (GGR) tax obligations and adapt to varying state-to-state differences. As operators pursue growth across state lines or from overseas, they face shifting tax rates, complex or unclear tax regulations, varying rules on deductions and treatment of promotions, hidden costs, and a very different compliance culture. In this market, businesses must treat tax as an integral part of their business plan, not an afterthought.
The stakes rise even higher for international companies, particularly those unfamiliar with the state-level regulations and an environment that is largely unique to the U.S. What works in one jurisdiction might fall flat in another, and when it comes to U.S. gaming tax, falling flat can be costly.
Why launching in a new state means rethinking your iGaming tax plan
While online sports betting (OSB) is more widespread (with some notable exceptions, including California and Texas, among others), the U.S. iGaming map is still being drawn, with only seven states currently live. Each state that opens its market to OSB, iGaming, or both writes its own rules – licensing, regulation, and, increasingly important, taxation.
Some states hit new entrants with high tax rates from the start (e.g. New York at 51 percent). Others use transitional rules to phase down or phase out deductions for incentives and promotional play or tiered models based on revenue (e.g. Illinois). No two approaches are alike.
Substantially similar OSB or gaming operations in New Jersey might face iGaming tax rates that are double or triple those in other states (e.g. Illinois OSB or Pennsylvania online slots). That’s why a copy-and-paste tax compliance and planning process doesn’t cut it. If operators don’t adapt with each expansion and understand each state’s unique gaming tax regulations, they risk sacrificing profit from the outset, particularly as certain U.S. state markets become increasingly saturated.
The state-by-state trap operators keep falling into
A clear pattern has emerged, and it can be a costly one. Time and again, opening a new state market has led to a “land grab” with operators pushing into a new market fast and replicating their existing structure, with tax being an afterthought. This approach can lead to inefficiencies, including a lack of understanding of the specific iGaming tax regulations, required timelines, GGR base calculations, player reporting and withholding requirements that may differ from federal or other indirect taxes that weren’t on the radar.
Certain states impose mandatory contributions to responsible gambling funds. Others apply extra taxes, promotions, free play, or disallow many promotional deductions. Companies often fail to register with the proper tax authorities on time, leading to fines & penalties, interest charges, delays, or retroactive assessments.
Even worse, mistakes made in one state can trigger compliance issues in another. If companies don’t properly track where players earn and redeem promotional credits, this can lead to lost deductions and increased GGR tax liability in one state, without a corresponding reduction in the other, and that’s before you even account for the differential in tax rates. Or, if a company doesn’t calculate its multi-state apportionment properly, it can risk paying income taxes on the same gross revenue base twice.
For example, consider an operator that entered three new states in under twelve months using a single tax structure. In the first state, the tax rules were relatively straightforward, and they didn’t encounter any material issues. Their missed deadline in the second jurisdiction resulted in penalties and interest on their late GGR tax submission, putting their license at risk. Revenue authorities rejected key deductions in the third jurisdiction after they found discrepancies in the revenue recognition figures. By the time legal and tax teams caught up, the damage was done, and failing to adjust their processes state-by-state became a costly mistake in a situation where the operator was already investing heavily to gain market share.
Why tax planning should start before licensing does
Many operators treat tax as a post-deal consideration. However, a forward-looking approach could be to integrate tax planning from the outset. By assessing state-by-state risks, flagging hidden costs, and locking in reporting structures, operators can scale tax planning with them. A rushed or reactive approach might get a product live but may not hold up when faced with a GGR audit.
Boards and investors are paying more attention, too. GGR taxes are one of the top expenses in the P&L, and tax risk has become a key part of due diligence. If the numbers don’t add up, deals stall. Failure to flag and proactively remediate potential liabilities drops valuations. Strategy now means more than market fit. It means financial foresight.
Smart operators don’t leave money on the table
Not all states are focused on maximising tax revenue at the expense of operators. Some offer genuine incentives for new entrants if you know where to look. New Jersey and Colorado have introduced innovation credits, job creation bonuses, and investment-based offsets. These can offer notable tax savings depending on an operator’s situation.
Too often, gaming companies miss out. Many of these incentives are typically designed for tech firms or start-ups and are not always tailored to iGaming. Operators who don’t seek advice early on may not even realise they qualify.
If you’re setting up data infrastructure in-state, hiring a local team, or launching new tech tools, those actions might unlock tax relief if your structure aligns properly with the incentive rules.
Crossing the Atlantic? Here’s where it gets tricky
As an example, for UK-based operators, the U.S. can feel familiar with common law, be English-speaking, and have a growing appetite for online gambling. Yet, when it comes to tax, the two systems speak completely different languages.
The UK’s centralised framework contrasts sharply with America’s fragmented state-by-state framework. An efficient structure for UK OSB and iGaming operations might be vastly oversimplified when confronted with U.S. state-level GGR requirements, player reporting and withholding tax obligations, state income tax apportionment considerations, or other indirect taxes.
Many UK firms do not anticipate the legal entity choices they’ll need to make when entering the U.S. Without proper planning, they risk triggering double taxation or creating permanent establishment issues. Some jump in under the wrong structure entirely, thinking they can pivot later. But by then, the costs are baked in, and structure changes may bring an exit tax charge.
Operators also face differences in reporting obligations, transfer pricing policies, and how deductions are treated. What works in London may raise red flags in Washington.
Through its US/UK Strategic Corridor, KPMG provides international operators with the, not just fast.
Before expanding, operators should ask:
- Have we accounted for GGR and other indirect taxes, registration requirements, and varying rules for promotional deductions?
- Is our structure adaptable to multiple states?
- Are we protected against double taxation or unexpected reporting gaps?
The takeaway? It is never too early to begin seeking advice. Whether through legal counsel or independent tax advisors, operators should understand the complete picture before expansion. Knowing the licensing requirements is one thing. Understanding how to operate profitably across borders is another, even more so now with the OECD BEPS Pillar 2.0 initiative, meant to establish a target global minimum corporate tax rate of 15 percent.
In the U.S., OSB and iGaming, tax isn’t a back-end issue. It’s a critical business process.
Before you cross any borders, make sure you’ve crossed off Parts 1 and 2. Part one looks at the shifting sands of U.S. gaming tax laws, the other at crypto’s unfinished rulebook.
*Robert is a Partner in KPMG’s Stamford Business Tax Services practice with 23 years of experience in tax planning, compliance, and income tax provisions. He has served domestic and multi-national clients in a wide range of industries and is currently the lead tax partner for KPMG’s U.S. Gaming practice.
