The New Jersey Legislature has approved tax rate increases on online casinos, sports betting, and daily fantasy sports.
A bill containing the updated standards passed both chambers on Monday. The Assembly voted 45-33 in favor of the bill, followed by the Senate’s 25-14 vote.
Gov. Phil Murphy (D) is expected to sign the bill into law following his support for increased gambling taxes during budget discussions.
A common trend
The new tax rate on online casinos, sports betting, and DFS operators in New Jersey moves to 19.75% under the legislation. Murphy proposed raising the rate to 25%, but that was bargained down after discussions at the statehouse.
Currently, DFS operators are taxed at 10.5%, online sports betting operators at 13%, and iGaming operators at 15% of their revenue. That means DFS operators will face the largest penalty from the measure, while online casinos will be the least impacted.
The bill, A5803, was introduced on June 26 by Assemblywoman Rosaura Bagolie (D-27), Sen. John McKeon (D-27), and Senate President Pro Tempore Shirley Turner (D-15).
If Murphy signs the bill into law, as he's expected to do, New Jersey will become the fourth US state to raise its tax on sports betting this year.
Other states include Maryland, which increased its rate from 15% to 20%; Illinois, which added a $.25-.50 per-bet tax to every wager; and Louisiana, which hiked its tax rate from 15% to 21.5% to help fund athletic programs at in-state Division I programs.
Maryland's and Illinois’ changes both went into effect on July 1. Louisiana’s will take effect on Aug. 1.
The importance of 19.75%
The specific figure chosen by the New Jersey Legislature is significant.
A 19.75% tax rate is just below 20%, the number DraftKings identified as the threshold for “high-tax” states when they introduced plans to implement a surcharge on winning wagers last year. The idea was to use the additional surcharge funds to counteract the penalties of these “high-tax” states.
DraftKings quickly changed course and abandoned its surcharge plans following a harsh reaction from the public. However, DraftKings, FanDuel, and Fanatics all added per-bet charges to every wager in Illinois in response to the state’s per-bet tax, which brought the effective tax rate to 57%-60%.
Raising the state’s sports betting tax to 19.75% almost entirely maximizes the possible tax earnings while keeping New Jersey off the “high-tax” list.
On top of the tax rate changes, New Jersey lawmakers made two other significant changes to the state's gambling industry.
One bill awaiting the governor's signature effectively bans sweepstakes casinos in the Garden State. The bill also outlaws proxy betting when at least $1,000 of value was risked and one party agreed to pay at least 10% to another, and conspiring to engage in proxy betting.