Michigan Proposes Tax Increases for Sports Betting and iGaming

Senators Sam Singh and Jeremy Moss have introduced legislation to adjust the tax rates for Michigan’s sports betting and online gambling industries. The proposed changes, introduced as separate bills, aim to slightly increase the taxes paid by operators in these sectors, while also tweaking how the generated revenue is allocated.

Michigan currently stands out as a tax-friendly environment for operators due to its allowance for promotional spending deductions. Sportsbooks in the state can subtract promotional expenses from gross revenue before taxes, a policy that online casino operators can also utilize, though with certain limits. This setup, particularly beneficial to sports betting, has made Michigan an attractive market for operators.

The newly proposed legislation introduces a modest tax increase of one percentage point for online casino revenue in Michigan, while the hike for sports betting revenue is significantly smaller at 0.1 percentage points. Additionally, the allocation of tax revenue would undergo slight adjustments to benefit key state funds.

Sports Betting Operators Face Minimal Impact

Under Michigan’s current tax structure, gambling operators are taxed at a base rate of 8.4%. However, due to the deductions allowed for promotional spending, the effective tax rate is considerably lower, standing at 5.0% over the lifetime of the industry and 4.7% year-to-date as of October.

Senate Bill 1193, sponsored by Singh and Moss, proposes increasing the base tax rate to 8.5% for sports betting. While this 0.1 percentage point increase is unlikely to significantly affect operators’ profit margins, it could still contribute to a slight uptick in revenue for the state.

The proposed legislation also recommends minor changes to the distribution of tax revenue:

• Internet Gaming Fund: Reduced from 65% to 63.5%.
• Detroit Services: Increased from 30% to 31%.
• Agricultural Fund: Increased from 5% to 5.5%, capped at $3 million annually.

The bills also aim to modify tax brackets for Michigan’s online casinos. Currently, operators fall into a tiered tax system based on their revenue, with rates ranging from 20% for those earning less than $4 million, to 28% for those earning $12 million or more.

Senate Bill 1194 proposes a one percentage point increase across all brackets, creating the following revised structure:

• Less than $4 million: 21%.
• $4 million to less than $8 million: 23%.
• $8 million to less than $10 million: 25%.
• $10 million to less than $12 million: 27%.
• $12 million or more: 29%.

Similar to Michigan’s sports betting, the allocation of online casino tax revenue would also shift slightly. The Internet Gaming Fund would receive 64.5%, while the agricultural fund’s share would rise to 5.5%. Detroit services would continue to receive 30%.

Promotional deductions for online casinos are also set to decrease. Currently, most operators can deduct up to 10% of gross revenue, but this will drop to 6% next year, further increasing the tax burden for some platforms.

No Timetable for age

The bills have been referred to Michigan’s Committee on Government Operations, but a timeline for their age has not been set. While the proposed changes are modest, they reflect a potential shift in Michigan’s approach to regulating and taxing its thriving gambling industry.

Source:

”Michigan senators propose minor tweaks to sports betting, igaming taxes and allocations”, cdcgaming.com, December 10, 2024.