Web Gambling Affecting State Tax Income from Pot Sales
States in the US have a history of imposing what's known as "sin taxes" on products like alcohol, beer, cigarettes, and other tobacco products, as well as wine. Lately, marijuana and sports betting have been added to the mix, signifying changes in the sources of state and local revenue.
At this moment, 38 states and Washington, DC permit some form of sports wagering, while only 25 allow recreational cannabis use among adults. Moody's Investors Service sees both regulated sports betting and recreational weed as essential contributors to state and local finance.
Their research suggests that shifts in consumer choices, specifically concerning alcohol and tobacco, will affect the amount of tax revenue generated by governments. The private sector is adjusting to these shifts by offering evolving products, thus shaping the "sin tax" base. Tax rates vary across the country, influencing the revenue that states and local governments can collect and influencing consumer behavior.
Gaming companies often convince state authorities that higher revenues could be achieved if gambling expansion is approved. Marijuana presents another set of potential tax benefits, hence some states have acted swiftly to legalize both sports betting and recreational marijuana.
In the beginning of this year, more than half of the American population lived in states with budget deficits. Prominent states, like California, New York, and Pennsylvania, suffer from the worst budget problems. Notably, California disallows sports betting, while New York and Pennsylvania host two of the largest online sports wagering markets in the US. Furthermore, they have two of the highest taxes on this activity.
"States impose considerable taxes on sports books' gross gaming revenue, although some allow the deduction of specific costs, with long-term implications for business sustainability," Moody's commented.
In certain states, sportsbook operators can deduct promotional expenditure from their tax obligations, but a few states are trying to shut down that loophole. If this practice is prohibited, it could produce additional revenue for the states.
The Growing Importance of Betting and Marijuana Taxes
According to Pew, by the start of this year, more than half of Americans resided in states with temporary or long-term budget imbalances. Large states like California, New York, and Pennsylvania face significant budget issues.
In this trinity, California doesn't allow sports betting, but New York and Pennsylvania are home to two of the biggest online sports wagering markets in the nation. These two states also have two of the highest tax rates on this activity.
"States impose substantial taxes on sports books' gross gaming revenue, although some allow the deduction of certain expenses with long-term effects on business survival," Moody's added.
Some states allow sportsbook operators to deduct promotional expenditure from their tax obligations, but some are actively trying to close this loophole. If this practice is stopped, it's expected to increase revenue for the states.
Betting and Marijuana Taxes Surpassing Alcohol and Tobacco
Moody's noticed that states that tax marijuana and sports betting, alongside alcohol and tobacco, collect a minimum of 2.5% of own-source revenue compared to only 0.7% from liquor and tobacco. Additionally, society's acceptance of these activities is growing.
"In the meantime, the booming popularity of online sports betting is pushing casino operators to invest more in mobile gaming," said Moody's.
States such as Illinois (sports betting) and New Jersey (iGaming) are considering tax hikes on internet-based betting. Moody's reported that alcohol tax revenue is rising in many states while tobacco levies remain surprisingly steady.
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Source: www.casino.org
