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US Congress Mulls Over Scrapping Federal Sports Betting Handle & Head Tax
By Jeff Osienya Jul 28, 2020 LegalityAfter nearly 70 years, the US Congress is now considering a repeal of a law that has largely been putting legal sports betting operators at a disadvantage when compared to unregulated markets.Legal sports betting in the USA is about to change for the better after a bipartisan bill, HR7790 was introduced in Congress to rescind the ‘handle tax’ on sports betting. In layman terms, this is the tax that is levied on all legal sports bets across the country. Presently, all licensed sports betting operators in the country pay the federal government a 0.25% excise tax on all wagers that are placed on their platforms.
This new bill is co-sponsored by Guy Reschenthaler, a US Representative for Pennsylvania’s 14th congressional district and Dina Titus, a US Representative for Nevada’s 1st congressional district. Both Reps are co-chairs of the Congressional Gaming Caucus, a legislative committee whose function is to act as a voice for the USA’s gaming industry in Congress.
A Penalty Long Overdue
The excise tax was introduced nearly 7 decades ago in 1951 to curb illegal gambling, with the tax money set aside for the infiltration of underground gambling rings by federal law enforcement agencies. This excise duty currently applies to all sportsbooks, except for horse racing and sports betting operations that are run by state lotteries.
Moreover, operators who are eligible for the 0.25% excise tax are also required to part with $50 for every employee in tax overheads. This additional tax per-head for employees has notoriously been viewed as a penalty for operating a legal sportsbook in the country. Bear in mind that from this tax alone, Nevada alone paid a cool $13.3 million last year, the highest handle tax that was paid out by any state in 2019.
Voicing her support for the repealing of the sports betting handle tax, Rep. Titus went as far as saying that the taxation was unnecessary and the IRS (Internal Revenue Service) itself could not give a straightforward answer of how the money collected was being used. Last year, the federal government walked away with about $33 million in employee head tax, an amount which is practically insignificant to the annual national budget for the US government – why even bother?
While this tax is a drop in the ocean to the federal government, it could make a massive difference to the sports betting operators. Generally, sportsbooks tend to run on exceptionally low business margins even in states with the lowest taxation. As a result, the revenue the gaming facilities accrue is typically about only 5% of the total handle, or rather the amount spent on wagers. That’s why imposing a 0.25% duty on the total handle means that the federal government is squeezing operators a bit too much.
Leveling the Playing Field Against Illegal Operators
During the congressional hearing, Titus also reiterated the fact that the handle tax “makes it more difficult for legal gaming establishments to compete with illegal operators”. He also added that abolishing it will enhance the channelization of players into the legally regulated markets and away from the black market.
The bill has also been strongly supported by the AGA (American Gaming Association) through Bill Miller, the president and CEO of the trade body. Miller appeared before the Senate Judiciary Committee last week, calling on Congress to eliminate the handle tax and the employee head tax, stating that black-market operators usually have “little overhead and virtually no tax or regulatory compliance outlays”. In his testimony, Miller also indicated that striking down the two taxes will “help level the playing field and allow legal, regulated sportsbooks to more effectively compete.”
From the statements made by both Titus and Miller, it is clear that eliminating the tax in question will be a huge stride in the right direction for the industry. For one, repealing the said law will boost the recovery of the sports betting industry after the impact of the Coronavirus pandemic. Better yet, zero handle tax and per-head excises will create a more conducive landscape for the growth of the industry now and in the years to come.
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