The excise tax affects Nevada sports betting, and could be in play if other states legalize sports betting down the road

Nevada Congresswoman Calls For End To Federal Sports Betting Handle Tax

Federal sports betting handle tax
Nevada Rep. Dina Titus has called on her fellow lawmakers to repeal the federal tax on sports betting handle. She raised the issue today as Congress considered last-minute changes to a federal tax reform bill.

In a letter to House and Senate leaders, Titus argued that the tax is not having the desired effect:

Congress included the handle tax as a provision in the Revenue Act of 1951 as a way to generate revenue for enforcing state criminal laws against gambling. In theory, the law is a noble one. In practice, the tax has sucked money out of Nevada without ensuring the state receives the benefits outlined by Congress.

The effort is a bit of a long shot, and it may be too late to be considered within the tax bill. Congress is close to finalizing the bill and pushing for a vote as early as next week.

The repeal of the handle tax could have a big impact on sports betting, with the possibility that a US Supreme Court case could open up wagering in New Jersey and possibly beyond.

What is the federal betting handle tax?

The tax originated way back in 1951 with the passage of The Revenue Act. It imposed a 10 percent tax on sports betting handle — that is, the total money wagered. The Act was initially never really intended to generate revenue for the federal government but rather as a financial tool against illegal gambling.

The excise tax choked off the sports betting industry, though, and the tax was reduced over the years. Congress decreased it all the way to 0.25 percent of handle in 1984, where it has remained until today.

Here is a good primer on the excise tax from attorney Kevin Braig.

Although the revenue from the excise is (somehow) not tracked at the federal level, experts estimate around the number is around $10 million per year. Nevada sports betting will generate around $5 billion in handle this year, which would put the amount of tax paid in 2017 slightly more than that.

According to Titus, that number is a drop in the bucket for the IRS but a significant hit to her state’s bottom line.

Titus makes the case for handle tax repeal

In her letter, Titus outlines a few reasons for her proposal:

  • Offshore, black-market sportsbooks are not paying the tax.
  • The IRS does not track the tax.
  • The appropriation of funds is suspect.
  • $10 million is a valuable sum for Nevada.

Titus dedicates a couple paragraphs to the financial issues, including some questionable accounting procedures.

The IRS Statistics of Income program does not track the Handle Tax data and suggested my office try contacting a private entity to crunch the numbers for us. That is unacceptable, irresponsible, and indicative that change is long overdue. If the IRS wants taxpayers to rely on other institutions to track the data, it should be relieved of its obligation to collect the money.

Her secondary focus is on leveling the playing field against unregulated operations. Titus calls the black market an “illegal cottage industry” and cites that it’s operating tax-free.

“Removing this provision will take the target off the backs of Nevada businesses and level the playing field,” Titus said in closing. “Repealing this untenable law is long overdue.”

Impact for other states?

The federal excise tax would be a hurdle to overcome for any state wanting to legalize sports wagering. While a .25 percent tax on handle may seem like a small amount, it’s not.

Handle is the total amount wagered — NOT revenue generated from those wagers. Operating a sportsbook is a fairly low-margin proposition — books generally hold somewhere between five and ten percent of wagers (and sometimes less). Taking a cut of handle is a costly proposition for sports betting operations in Nevada.

Nevada has made it work with the relatively low tax that state puts on all forms of gaming. But other states looking to legalize sports wagering would have to contend with the excise tax and their own licensing fees and tax rates.

Getting rid of the federal handle tax would ease concerns of operators looking to offer sports betting in other states. The tax eats heavily into their bottom lines.

New Jersey is attempting to legalize sports betting through its US Supreme Court case heard last week. Other states have already passed laws that would allow for single-game wagering if the federal sports betting ban — Professional and Amateur Sports Protection Act — is struck down, namely Pennsylvania and New York.

Who is Rep. Titus?

Dina Titus is a Democratic Representative for the First District of Nevada. That’s the district that encompasses most of Las Vegas. Titus is the former Nevada Senate Minority Leader and political science professor at UNLV. She was first elected to office in 1988.

Most of Titus’ legislation centers around veterans’ affairs and public policy, but she obviously has a vested interest in gaming issues that affect her state. She has become an active voice as the federal courts weigh the constitutionality of PASPA.

The Supreme Court case, Christie vs. NCAA, has sparked a sports betting conversation in Washington, D.C., and in statehouses around the country. Titus is on the front lines, trying to initiate action at the Congressional level, too.

Earlier this month, Titus wrote to the leaders of the House Committee on Energy and Commerce. In that letter, she advised that sports betting was an issue that lawmakers would likely need to address soon. She requested that the committee hold a hearing on the future of the regulated industry.

Titus highlighted the success and collective knowledge of the industry in Las Vegas and suggested some consultation. “Inviting experts from these organizations to testify would make this a worthwhile and informative event and help address members’ concerns,” she said.

With her most recent letter regarding the handle tax, Rep. Titus continues to further legalization and regulation of sports betting, both in her home state and across the country.

Eric Ramsey
- Eric is a reporter and writer covering regulated US gambling, sports betting, and DFS. He comes from a poker background, formerly on staff at PokerNews and the World Poker Tour.