Legislators propose a rise in tax rate for new states adopting internet gambling

The National Council of Legislators from Gaming States issued model legislation last week for states that are weighing whether to permit internet gambling. The proposal will be discussed at the group's winter meeting in New Orleans next week.

It is designed to give them a framework around which to build their own legislation while incorporating things that have been working well in other states.

Seven U.S. states currently offer legal online casino games: Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia. Nevada offers internet poker but not online casino games.

“Many states have been discussing this, but were having a hard time getting it across the finish line,” said Shaun Fluharty, a West Virginia Democratic state delegate who serves as president of the national legislators group. “We're trying to put together some best practices for them.”

The proposed legislation is modeled closely on laws that have been operating in states including New Jersey, which has been a leader in approving and regulating internet gambling since 2013. David Rebuck, the retired head of New Jersey's Division of Gaming Enforcement, advised the lawmakers’ group on the proposed legislation.

“Ninety-five percent of this mirrors what we're already doing in New Jersey, which is good,” he said. “It's a great start that builds on what is already in place and operational elsewhere.”

It calls for strict oversight of internet gambling to protect consumers and weed out unsavory individuals and companies. The proposal also calls for the establishment of a government agency to regulate online wagering if one does not already exist.

It would limit deposits to $20,000 in any 24-hour period and prohibit the use of credit cards to fund gambling accounts.

A suggested tax rate of 15% to 25% is a starting point for discussions, Fluharty said. That range is above what some states charge, but far less than others, such as Pennsylvania, which taxes online sports betting at 36% and online slot machine games at 54%.

Fluharty said the national average for online gambling tax rates is 19%. West Virginia taxes them at 15%.

“The thinking was we didn't want to form a barrier to entry into the market with a high tax rate that only the biggest companies could afford,” he said.

Fluharty said Maryland has been trying to enact internet gambling, which made it through the House but not the Senate in April. He also said other states including Ohio and Louisiana have been considering their own online gambling measures. New York lawmakers have been trying to enact online casino gambling with a 31.5% tax rate without success but did allow online sports betting.

Rebuck predicted that more states will give internet gambling a serious look in the new year as budget pressures mount.

“A number of states are being cautious about their budgets, and if they're looking at this as a potential revenue driver, it's pretty significant,” he said.

New Jersey's 13% tax on online sports betting and 15% tax on online casino games brought in over $414 million in tax revenue last year. It has nearly matched that figure through just the first 10 months of this year.

The group's proposal does not attempt to set national standards. Gambling is largely regulated by states, and sporadic attempts to enact nationwide laws on it have gone nowhere in recent years.

President-elect Donald Trump has repeatedly said he favors letting states decide important questions. During his first term as president, Trump did not act to impose nationwide regulations on the gambling industry of which he once was a member, with three casinos in Atlantic City.