The Illinois General Assembly has approved an amendment to a bill that, if passed, will apply a graduated rate design to a gross sports receipts tax.
The new Illinois Sports Betting Gross Receipts Tax will have a graduated rate structure, with a minimum rate of 20% for businesses with sports profits between $30 million and $50 million and a maximum rate of 40% for businesses with profits over $200 million. .
Illinois is setting a precedent with its new structure, positioning itself as a model for other states contemplating the path of legalizing and taxing sports betting. By implementing a tiered tax system, the government will inject some degree of progressivity into the system. The purpose is to maximize government profits from a developing industry, without stifling it.
Other states have followed higher rates, culminating in New York with a 51% tax on gross gambling winnings, but the design of progressive rates is new. This strategy allows Illinois to balance the need for significant tax revenues, amid a state revenue shortfall, with maintaining a competitive sports betting market. As states look to the Illinois style, it may become a style for other states looking for a similar path.
Other states are already contemplating raising their rates; for example, a New Jersey lawmaker proposed a bill that would increase Garden State taxes by 15% for online sports betting and 13% for a flat rate of 30%.
More broadly, taxes on vices, such as those on sports betting, gambling, tobacco, and alcohol, are key policy instruments in the arsenal of states facing profit deficits. However, taxes levied on activities that have externalized social prices carry legal liability. allocate tax gains to adequately compensate for those social prices.
In the case of gambling and sports betting, it is imperative that tax revenues are well spent on public health initiatives, drug treatment systems, and education systems that offset the negative externalities associated with more permissive betting.
In Illinois, the arrival of a progressive taxation system for sports is a stylistic step toward a balance between expansion and regulation, and if the profits generated are allocated effectively, Illinois can serve as a general style for other states.
As states adopt similar legal and tax frameworks, the focus will need to be not only on profit potential, but also on broader societal impact.
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