New Jersey Sportsbooks Receive Tax Breaks on Free Play, Esports Betting Authorized

Thanks to a bill signed by Governor Phil Murphy, sportsbooks in New Jersey will now pay less tax on promotional credits that are often relied on to attract new customers. The Governor signed the measure titled Assembly Bill No. 4002 to reduce taxes on certain revenue that is acquired from free-play credits. 

Sportsbook operators in New Jersey often use promotional credits to lure customers to register new accounts. For instance, DraftKings and FanDuel have been known to match 1st time deposits for customers registering for the first time, as well as offering risk-free wagers for newly opened accounts. 

In September 2020, the 9 gaming properties in AC, struggling under the weight of the pandemic, finally received assistance from the state. Bill A4002/S2257 was presented to the New Jersey Assembly’s Appropriations Committee. This bill provides casinos a tax credit on sports wagering revenue that they generate.

The other bill A4032/S2400 lessens casino taxes and fees. Bill A4032/S2400 was created to lower the 8.5% tax on casino income and the 13% tax on online betting. This bill was co-sponsored by Senate President Stephen Sweeney and Chris Brown. The new legislation is slated to save at least $93 million in a single year.

It will also limit the 1.25% tax for the Casino Reinvestment Development Authority and other added fees. The tax bill will also provide $100 million of federal pandemic relief funds to the state’s Economic Development Authority. The relief funds will largely be used to aid all the small businesses that were impacted negatively by the pandemic.

Last year, the federal monies adopted by S-2400 (2R) for local businesses were awarded in the Garden State. The Economic Development Authority has so far been in charge of distributing the funds to assist small businesses through the Coronavirus Relief Fund that was set up by the CARES Act.

The Atlantic County experienced fewer fatalities during the pandemic compared to most other states in the country. However, casinos were not allowed to open or resume operations until much later, which caused casino cash flows to suffer enormously. When the pandemic broke out, casinos were forced to close down on March 16th 2019 under the Governor’s order. 

They were not permitted to operate again until July 2nd, and even then, it was only at 25% capacity. This caused lost revenues in the millions. Gross operating profits from the city’s 9 casinos dropped 170% April through June 2019 while gross gaming revenue plummeted $767 million through June 2020. These tax breaks were therefore proposed to reduce the size of all the massive losses incurred during that period.

The sports betting bill was created to give casino operators and racetracks that offer sports betting a credit on free wagers, as well as promotional wagers. The credit was designed to become effective after the first $8 million from in-person wagers and the first $12 million from online bets. This senate bill was co-sponsored by state Senators Vin Gopal and Paul Sarlo.

 Moving forward, this tax credit on sports bets will add to the bottom line, as well a help to offset those losses that were accrued by table games and slots during the lockdown period, as well as capacity challenges. In many casinos, table games and slots typically account for the highest revenue generated, which is why the closure of casino floors was such a big blow to the industry in the entire world.


What Does This Mean Moving Forward?

Now that it’s official, both online and offline sportsbooks will now have the leeway to strike certain profits that are earned through promotional credits. Thus will be permitted whether the free wagers featured stipulations like a play through requirement or not. Play throughs, which are also commonly referred to a rollover, requires a punter to deposit cash totalling the amount of the bonus before they can qualify to withdraw the cash from their accounts.

When these tax breaks were still in the proposal stages, the casinos and horse tracks had argued that the promotional tax law would place their retail operations at a competitive disadvantage with their online counterparts. 


What about the Casino Property Tax Break?

By December last year, The AC casino payment-in-lieu-of-tax (PILOT) alteration that had been signed by Governor Phil Murphy had already gone into mediation. It did not take long soon after authorities in the state had passed S4007/A5587 to significantly lessen the amount of shared property tax the 9 casinos will pay in 2022 through 2026 for Atlantic County to file a lawsuit against the state.

The Atlantic County filed the suit because it claimed that it stood to lose at least $4 million this year as a result of the PILOT calculation modification. The county claimed that the new agreement would illegally disrupt the terms the casino and state had previously agreed to in 2016. After receiving this complaint from the County, Superior Court Judge Joseph Marczyk determined that it would be best for the state and county to enter into mediation.

A conference was set for January 4th with mediation scheduled to start quickly after both sides agreed to an intermediary. The mediation process will allow both parties to find common ground that will appease the county while also permitting the PILOT calculation from moving on as planned originally. Once a solution has been found, bill S4007/A5587 will help to remove gross gaming revenue from iGaming and mobile sports wagering from being included into the PILOT calculation.

The property taxes of the various casinos will be determined by using the combined GGR from the preceding year. Before the mediation, AC had been receiving 13.5% of the PILOT cash. The mediation will allow both parties to express their concerns so that the savings that will be given to the casinos do not come at the expense of the taxpayers in the county.


Final Thoughts

It is no secret that brick and mortar casinos have been severely affected by the pandemic. As long as the state and county come to an amicable solution, the tax breaks should help to ensure that no more losses are incurred moving forward.

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