How Would Virginia Sports Betting Proposal Change Tax Calculations?

How Would Virginia Sports Betting Proposal Change Tax Calculations?
By Bill Ordine
Fact Checked by Jim Tomlin

A bill still in the earliest stages of the 2023 Virginia General Assembly session would restore some tax advantages to the online sports gambling industry that were stripped from the mobile sportsbooks last July.

Online Virginia sports betting was legalized in 2021 and has been operating since Jan. 21, 2021. For about the first year and a half, gambling operators were permitted to deduct a sizable portion of the bonuses and promotions used to attract and retain players from their gross gaming revenues, and consequently reduced their tax burden.

That changed dramatically last year when gambling permit holders, after the first 12 months, were “prohibited from excluding from adjusted gross revenue any bonuses or promotions provided to bettors,” according to the text of Senate Bill 1142 that was pre-filed on Jan. 10.

What Is in Virginia Senate Bill 1142

What Senate Bill 1142 would do is restore some amount of the exclusion by tying it to what is generally called “handle” – or the total amount of money that bettors wager. When the commonwealth reports its monthly figures from Virginia sports betting apps, handle is listed as “gross sports gaming revenues,” though revenue is normally understood to be a different category.

SB 1142 sets out a time schedule regarding how much of an exclusion operators would be entitled to, beginning July 1, 2023 and extending through and beyond July 1, 2026. The percentage of the allowance is reduced over time.

According to the proposed bill, exclusion from adjusted gross sports gaming revenues would be limited to:

  • No more than 2.5% of the total amount of all sports betting wagers placed with that permit holder each month between July 1, 2023, and July 1, 2024;
  • No more than 2.25% of wagers placed with that permit holder each month between July 1, 2024, and July 1, 2025;
  • No more than 2.0% of wagers placed with that permit holder each month between July 1, 2025, and July 1, 2026;
  • And no more than 1.75% of wagers placed with that permit holder after July 1, 2026.

To put the impact of that in perspective, from the inception of online sports gambling in the state until June 30, 2022, total handle was about $5.62 billion and the deduction for Virginia sportsbook promotions and bonuses was about $198 million (about 3.5% of handle).

Looking at gambling activity in the commonwealth for five months  from July through November 2022 after the change in bonus/promotion exclusion took effect,  sports gambling handle was about $2 billion but the bonus/promotion exclusion plummeted to about $5 million (about 0.25% of handle).

What Change Means To Virginia Sports Betting Taxes

The tax effect could be seen in the November 2022 tax collections.

In November 2022, sports betting taxes were about $7.78 million, an increase of 83% over November 2021 ($4.23 million). The commonwealth taxes operators 15% based on adjusted gross revenue.

The proposed bill was introduced by state Sen. Jeremy S. McPike. It was pre-filed Jan. 10 and offered on Jan. 11. It has been referred to the Committee on Finance and Appropriations.

The state has one brick-and-mortar casino in Bristol with more underway, but there are no Virginia online casinos at this time.

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Contributors

Bill Ordine was a reporter and editor in news and sports for the Philadelphia Inquirer and Baltimore Sun for 25 years, and was a lead reporter on a team that was a finalist for the Pulitzer Prize in Breaking News. Bill started reporting on casinos and gaming shortly after Atlantic City’s first gambling halls opened and wrote a syndicated column on travel to casino destinations for 10 years. He covered the World Series of Poker for a decade and his articles on gaming have appeared in many major U.S. newspapers, such as the Los Angeles Times, Chicago Tribune, Miami Herald and others

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