New Jersey is one of the biggest markets for online gambling operators, bringing in close to $2 billion in internet gaming revenue last year, according to Associated Press. However, a new piece of legislation could shake things up in New Jersey’s sports betting and iGaming markets.
The bill, introduced by State Senator John McKeon, proposes increasing the current 13% tax on online sports betting revenue to an eye-popping 30%. It would also more than double the tax rate for internet casinos from 15% to 30% as well.
If passed, S3064 would give New Jersey two of the highest effective tax rates for legal online betting in the United States. The only state imposing a higher levy is New York at 51% for mobile sports wagering operators.
New Jersey has been at the vanguard of America’s expansion into legalized sports gambling ever since its landmark Supreme Court victory in 2018 paved the way for other states to join the fray. The Garden State’s relatively low tax obligations compared to neighbors like New York (51%) and Pennsylvania (36%) have allowed it to cultivate a thriving regulated online betting market.
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Record Revenue Driving Tax Hike Proposals
Sen. McKeon’s proposed tax increases follow a year of historic revenue generation for New Jersey’s online gambling companies. Gross revenue from internet casinos soared 16% higher in 2023 to eclipse $1.9 billion statewide.
Sports betting revenue jumped an even more impressive 32% to just top $1 billion as increasingly popular same-game parlays and player propositional wagers provided a boost.
Surging revenues naturally equate to higher overall tax receipts for state coffers. New Jersey received a record $128.9 million in taxes from sports betting operators alone in 2023. Through just the first two months of 2024, the state has already collected $31.3 million as it appears on pace to blow past that number, according to Fortune Magazine.
Outlier Tax Status Inspires Change
McKeon cited New Jersey’s status as an outlier in terms of low effective tax rates compared to other major markets as the primary motivation for introducing the bill. The first-time Senator stated that a big chunk of profits are coming from online betting, particularly in sports betting.
He pointed out that New Jersey’s tax rates in this area are not competitive with other states and discussed the potential advantages of increasing revenue from this source. The senator also expressed confidence that regional competition would not present as significant an obstacle as it has with previous gambling legislation due to the premium rates already charged by other states.
McKeon touched on the economic realities facing New Jersey due to declining post-pandemic revenue streams following a drop in stock valuations. Gov. Phil Murphy’s $55.9 billion proposed budget for fiscal year 2025 includes a $2.2 billion structural deficit the state must address.
A Higher Tax Bill Looms for Operators
If approved, the two new 30% tax rates would obviously mean a substantially higher cost of operating online betting platforms in New Jersey for gaming companies. Sportsbooks and casinos would see their combined tax bills increase by nearly $450 million annually based on their most recently reported revenue totals.
From the operators’ perspective, proponents of the tax hike legislation will likely argue such elevated profit margins deserve higher taxation. However, critics will surely counter that excessive tax rates could hamper future growth, dissuade new market entrants, and even potentially encourage bettors to seek out illegal unregulated sportsbook options.
Higher operational taxes have also traditionally been passed through to consumers in the form of diminished odds, promotions, and overall product quality. The bill hit particularly hard operators like the suspended PlayUp, which is looking to make a comeback while paying out customers.
Added Consumer Protections Included
In addition to raising tax rates, S3064 contains other regulatory components aimed at greater consumer protections in online gambling.
One provision would ban casino operators and partners from offering no-wager-required, casino-style games to minors under 21 through apps marketed as simple free plays. Such offerings have been compared to predatory tactics once utilized by tobacco companies pushing candy cigarettes toward younger demographics.
Another section of the bill allows problem gamblers who have self-excluded from betting in the state to file civil suits against casinos if said they allow them to gamble either recklessly or intentionally. The legislation is a direct response to a recent federal court ruling that New Jersey casinos had no legal obligation to enforce self-exclusion lists.
McKeon cited manufacturers like Remington recently being held liable for mass shootings as legal precedent for further gambling industry accountability. However, the Senator did not indicate any timeline for when the new tax rates could potentially take effect.
He noted only the changes would kick in on January 1st following the bill’s hypothetical passage. Previous proposals to raise casino-related taxes have consistently met fierce resistance from the well-funded New Jersey gambling lobby.
Mark Giannantonio, President of the Casino Association of New Jersey (CANJ), swiftly denounced the proposed tax hike as his group has done with similar pushes in the past. He said that the CANJ is strongly against any proposed tax increases for iGaming and sports betting.
The senator indicated openness to pursuing additional gambling legislation like a constitutional amendment allowing bets on in-state collegiate sporting events. A similar measure failed with just 43% of the vote in 2021 as the casino lobby flexed its political muscle once again.
The long road ahead suggests the proposed 30% tax hike is likely just the opening salvo of the latest skirmish waged between New Jersey lawmakers seeking additional revenues and a gambling industry vigorously protecting its bottom line at all costs.
Wrap Up
With Sen. McKeon’s tax hike bill now formally introduced, all eyes turn toward Trenton and the latest high-stakes negotiations over the future of New Jersey’s internet gambling landscape.
Both sides appear entrenched for a contentious debate that could determine whether the Garden State remains a relatively low-tax haven for online betting operators or aligns itself with more burdensome regulatory regimes seen across other major markets.
The decision not only holds profound implications for how sports betting and iGaming providers conduct business in New Jersey, but could influence similar tax policies in other states as well. As this pivotal policy struggle unfolds, all stakeholders impacted will be monitoring for which party ultimately prevails.
