Interesting Math: PA Sports Betting Tax Rate Came From Doubling Table Games Rate

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Wondering how Pennsylvania came up with its lofty sports betting tax rate and licensing fee?

Well, wonder no more — at least until you read the explanation. Then you might enter into a whole new round of wondering.

Double trouble in Pennsylvania

An article Monday in the Philadelphia Inquirer examines the fact that no casinos have applied for a Pennsylvania sports betting license this year. Only current gaming license holders can apply, and they must fork over a $10 million license fee and pay a 36 percent effective tax rate.

This section from the Inquirer article lays out how Pennsylvania’s sports betting tax went from high to sky-high during the legislative session:

Pennsylvania’s sports-betting bill originally set the tax rate at 18 percent — 16 percent for the state, and 2 percent local share. But as the bill was merged with other gaming legislation into an omnibus gambling measure now known as Act 42, the sports-wagering tax was doubled to 36 percent.

(State Rep. Rob) Matzie, the sponsor of the sports-betting law, said he initially set the sports-betting tax rate at the same rate as casino table games because they are comparable labor-intensive gaming forms. But as lawmakers examined the business more closely, the Republican leadership believed that the potential for online sports betting more closely resembled automated slot machines, which are taxed at a higher rate.

Where, where did PA get that from?

Simply doubling the table games rate — and comparing sports betting to slots as a form of gaming — shows a shockingly low knowledge of the sports betting industry and how it works. It also indicates how little thought the state put into its sports betting law.

The 18 percent rate would have already placed Pennsylvania at the high end of sports betting taxes. The 36 percent rate and putting wagering in a mental bucket with slot machines is even worse. (There are comparably higher rates in some jurisdictions outside of the US. Delaware and Rhode Island call their systems “revenue sharing” but are effectively just high taxes, as well.)

PA playing a game of chicken

Pennsylvania sports betting cannot make money at 18 percent or 36 percent if no one applies for a license. Matzie remains confident that casinos eventually will come to the table and provide at least the $30 million in license fees the state budgeted.

Don’t count on it, casino reps told the Inquirer.

“With a 36 percent tax and a $10 million license fee, there are other states that are more interesting to us,” said Dan Shapiro, vice president of business development of William Hill US. “It’s just not something we’re looking at seriously right now.”

Pennsylvania sports betting losing ground

As the Keystone State stares down casinos, other states in the East are gaining a head start.