Gambling

Betting, Marijuana Taxes Bolstering State Coffers, Says Moody’s

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Posted on: April 22, 2024, 08:14h. 

Last updated on: April 22, 2024, 08:14h.

US states have long applied so called “sin taxes” to items such as alcohol, beer, cigarettes, other tobacco products, and wine as avenues for bolstering revenue. More recently, marijuana and sports wagering have been added to the mix, representing alterations of some states’ revenue compositions.

Illinois sport betting tax Pritzker
Illinois Gov. J.B. Pritzker arrives at the State Capitol to deliver his State of the State and budget address on Wednesday, Feb. 21, 2024. States are generating more revenue from betting and marijuana taxes. (Image: Getty)

Currently, 38 states and Washington, DC allow some form of sports wagering, well ahead of the 25 that permit recreational cannabis consumption among adults. Moody’s Investors Service views both regulated sports wagering and recreational weed as crucial drivers of state and local revenue.

Shifting consumer preferences, especially related to alcohol and tobacco, will continue to influence the amount of tax revenue governments can generate,” according to the research firm. “Private industry is responding accordingly, with evolving product offerings that continue to shape the ‘sin tax’ base. Tax rates vary across the country, driving the amount of revenue states and local governments can generate and having varied impacts on consumer behavior.”

Gaming companies frequently tantalize state regulators with the idea of higher receipts should betting expansion be approved. Marijuana brings its own set of potential tax perks, explaining why some states have moved swiftly to approve both sports wagering and recreational marijuana.

Betting, Marijuana Taxes of Increasing Importance to States

Entering this year, more than half of Americans lived in states with some forms of short- or long-term budget shortfalls, according to Pew. Large states, such as California, New York, Pennsylvania, have some of those worst budget issues.

Of that trio, California doesn’t permit sports betting in any form, but New York and Pennsylvania are homes to two of the largest online sports wagering markets in the US. Those two states also apply two of the highest tax rates on that activity.

“States levy significant taxes on sports books’ gross gaming revenue, though some allow the deduction of certain costs with long-term implications for business viability,” added Moody’s.

Some states allow sportsbook operators to deduct promotional spending from their tax tabs, but some are actively attempting to close that loophole because if that practice is halted, it’d likely lead to increased revenue for the states.

Betting, Marijuana Taxes Bigger Than Alcohol, Cigarettes

Moody’s observed that states that tax marijuana and sports betting in addition to alcohol and tobacco  “generate a minimum of 2.5% of own-source revenue” compared to just 0.7% on liquor and tobacco. Plus, societal acceptance of betting and marijuana is increasing.

“Meanwhile, the exploding popularity of online sports betting is pushing casino operators to invest more heavily in mobile gaming,” concluded the ratings agency.

Those are among the reasons why states such as Illinois (sports betting) and New Jersey (iGaming) are seeking tax increases on internet-based wagering. Moody’s did point that alcohol tax revenue is rising in many states and tobacco levies are surprisingly steady.

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