Virginia’s sports betting tax law has been reworked to include promotional revenue

Posted: July 25, 2022, 1:16 a.m.

Last update: July 25, 2022, 2:47 a.m.

Virginia sportsbook promotions used by sportsbooks to enroll new customers and retain others are no longer tax exempt. This is after state lawmakers changed the regulatory terms that govern the expanded game.

Virginia Sports Betting Tax Promotional Credit Wagering
FanDuel announces a risk-free bet up to $1,000. Virginia sportsbook regulations have been amended to limit the amount of promotional money sportsbooks can deduct from their tax liabilities. (Picture: FanDuel)

Legal sports betting in Virginia began in January 2021, after state lawmakers and the government at the time. Ralph Northam (D) licensed sports betting. The new rules allowed both in-person and online in March of the previous year.

Regulated sports betting, licensed by the Virginia Lottery, has operated primarily over the Internet since its debut in January 2021. The Virginia Lottery has since granted 14 entities sports betting privileges.

More than a dozen sports betting platforms have been fighting fiercely for market share since January 2021. And they are doing so by offering new customers substantial sign-up bonuses including free play, deposit matches and no wagering. risk.

But those marketing incentives will soon be subject to Virginia’s full 15% tax it levies on sports betting revenue after an operator’s first year in business.

Virginia is home to nearly 8.6 million people, which ranks it 12th in the United States. Coupled with Virginia ranking 10th for median household income, the Commonwealth is very attractive to the sports betting industry.

Promotional period

Virginia’s sportsbook law initially allowed sportsbooks to earn revenue from promotional incentives.

For example, if FanDuel offers a new customer a risk-free one-time bet of $500 and the player loses that bet, FanDuel was not required to include the $500 recovery money as gross revenue. But with sportsbooks writing off substantial amounts of revenue — operators deducting more than $9.96 million in bonuses and promotions in May alone, the most recently disclosed month — state lawmakers say the tax assistance should be reduced.

In their 2022-2024 biennial budget bill, Virginia lawmakers added a provision revising how sports betting promotions are taxed. Section 494 of the budget ends the marketing of sports betting tax breaks 12 months after the operator takes its first bet in the state.

A licensee, during the first 12 months of sports betting activity, may exclude from adjusted gross revenue the value of any permitted bonuses or promotions offered to punters as an inducement to place or as a result of them having placed sports betting on the Internet. After the first 12 months of sports betting activity, the licensee is prohibited from excluding from the adjusted gross income any bonuses or promotions offered to bettors as an inducement to place or as a result of them have placed sports bets on the Internet”, indicates article 494. because it adjusts the tax legislation.

Virginia primarily allocates sports betting tax revenue or its general fund. But a small portion — about 2.5% — of tax money goes to the state’s Problem Gambling Treatment and Support Fund.

Change to increase state advantage

Including promotional revenue in a bookmaker’s tax liability should significantly increase tax revenue.

Effective immediately, the regulatory change ends the promotional tax deduction for many bookmakers that have been operating in Virginia for more than a year. They include BetMGM, BetRivers, Caesars Sportsbook, DraftKings, FanDuel, Unibet and WynnBET.

In addition to the 15% gross income tax liability, each licensed bookmaker paid the state a one-time licensing fee of $300,000. They also have to pay $200,000 to the state to have their licenses renewed every three years.