Sen. John McKeon introduced S3064 in April with the goal of increasing New Jersey’s online casino tax rate from 15% to 30% and online sports betting tax rate from 13% to 30%.

“I’m disappointed that we didn’t get it done in time to be helpful this budget cycle,” McKeon told PlayUSA. “But there’s no doubt with the forecast for economic times in front of us that, ultimately, we will make some changes to the online gaming tax rate in our state.”

New Jersey has been industry model for online gaming

New Jersey has been an indisputable success and US pioneer in the internet gambling space.

In becoming the first state to launch a competitive online casino market in 2013, New Jersey created the model that other states have used as a blueprint.

And in Murphy v. NCAA, New Jersey led the legal challenge to overturn the Professional and Amateur Sports Protection Act (PASPA) and start the sports betting regulation boom in 2018.

When the pandemic struck and most states saw their gambling tax revenues cut off, New Jersey online casino was envied across the country as online gaming tax revenues continued coming in and even increased.

Other states turned up heat on online operators

PA online casinos launched in 2019 with a 54% tax on online slots (16% on online table games). Then New York played hard ball with the industry on online sports betting and got a 51% tax rate.

States that originally followed the New Jersey model took notice. Last year, Ohio doubled its online sports betting tax rate to 20%. Last month, Illinois increased its 15% online sports betting tax rate to a graduated rate that starts at 20% and reaches 40% for revenues over $200 million.

“Illinois is just one of the examples I can point to all over the country of our tax rate being lower than others,” McKeon said. “We were one of the first ones to do online gaming and sports betting, so when we set these tax rates there weren’t a lot of good numbers out there to measure it to. Now that sports betting has proliferated across the country, we know it’s clearly and objectively very low. Something needs to change.”

New Jersey showed how online gaming revenues could boost a struggling (Atlantic City) casino industry and dying horse racing industry.

It’s easy for states to go after multi-billion dollar, out-of-state corporations such as FanDuel and DraftKings. But opponents say a tax increase will put New Jersey brick-and-mortar gaming establishments at risk.

Meadowlands Racetrack owner Jeff Gural told PlayUSA that the proposed New Jersey tax increase would hurt sportsbook partner FanDuel, but would devastate the track.

“An increase in tax rate would hurt both FanDuel and Meadowlands. To be honest, we totally rely on sports betting revenue to offset losses from racing, so for us it would be catastrophic. It would mainly affect FanDuel, but since we lose so much on racing it would devastate us and the horsemen.”

Architects of NJ online gaming laws split

When New Jersey passed the original legislation to legalize online casinos and sports betting, Sen. Ray Lesniak and Asm. Ralph Caputo led the way.

Caputo told PlayUSA that he thinks McKeon is on the right track. When New Jersey legalized online gaming, legislators didn’t have the information to push back too aggressively on the industry’s suggested tax rate. “Knowing what we know now, we probably didn’t go high enough.”

Caputo wants to see thorough hearings with open dialogue between the legislature and industry to figure out how to move forward in a sustainable and fair way for all.

“I don’t know how high we should go,” Caputo said. “It’s about the amount and method going forward because we don’t want to hurt the industry. They will figure that out through hearings. The legislature will have to take a very hard look at it, ask companies to come in and come up with a real number that works for the industry and the state of New Jersey.”

Lesniak has no regrets about where New Jersey set the online gaming tax rate. He always saw online gaming as a way to boost the brick-and-mortar gaming establishments in the state. He thinks the health of New Jersey’s gaming industry is more important than chasing additional online gaming tax dollars.

“The reason I fought so hard to get sports betting and iGaming was our casinos were cratering and our racetracks were on the verge of closing. My good friends and colleagues in the legislature don’t get that the only business they’ll be hurting is the casinos and racetracks. Online sports betting companies will get their vig no matter what. But the bigger tax bite will reduce revenue at casinos and racetracks, and the racetracks particularly can’t afford that.”

Saving Atlantic City casinos isn’t legislator’s priority

McKeon indicated that saving Atlantic City isn’t really his priority. He is preparing the state for a gaming future that might not focus so much on brick and mortars.

“I’m not a futurist, and in places like Las Vegas they’ll probably survive and that city will continue to be the city that it is, but I think most brick-and-mortar casinos are going to close. The people who frequent casinos aren’t the young people used to gaming on their phones. And, from a business perspective, if they can make as much money online with one employee as they do with 10 employees and the casino, why keep brick and mortars in play?”

McKeon doesn’t believe there will continue to be nine casinos around the Atlantic City Boardwalk regardless of the online casino tax rate. “I think the Atlantic City casinos are going to consolidate. Most people go to between one and three casinos there because they are maintained the right way and create the positive consumer experience. How can the others continue to survive, especially with the online piece? There are too many casinos out there.”

NJ online gaming tax increase discussions will get more serious

While the bill has yet to garner any public legislative discussion, it has received more attention since the Illinois legislature substantially raised its sports betting tax rate last month.

The New Jersey legislature is about to break for the summer. McKeon said he hopes to get a hearing for the online gaming tax increase when the legislature returns in the fall.

McKeon serves as vice chair of the Senate State Government, Wagering, Tourism and Historic Preservation Committee, where the bill was referred.

Such a discussion could prepare New Jersey legislators to consider increasing the online gaming tax rate in the 2026 budget. There’s also an outside chance that an online gaming tax increase becomes part of an omnibus bill in the lame-duck session following the November election.

In 2023, the New Jersey online gaming industry generated $414 million in tax revenue for the state ($288 million from online casino). But there’s no guarantee that doubling the tax rate doubles the state’s revenue.

This year, New Jersey’s online casino revenue is up 19%. A tax increase could alter that growth. And any brick-and-mortar closures caused by the increase could further impact state revenues and jobs.

“Online gaming companies have made a billion dollars in profit in our state,” McKeon said. “Sports gaming doesn’t make as much as online gaming but it’s still very profitable. Antagonists will tell you that we in New Jersey have a unique partnership with brick-and-mortar casinos and these low tax rates help supplement those jobs. But I think, somewhere in the middle, there’s a common ground we can get to.”

By Matthew Kredell