New Jersey Mulls Over Tax Hike on Thriving iGaming Industry

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Nestled among a mere seven states nationwide, New Jersey shines brightly as a haven for online casino aficionados and devotees of interactive table games. Within its boundaries, one encounters a veritable digital goldmine of online casino gaming and sports betting, a hub among hubs in the United States. Yet, there’s a growing sentiment that the state itself ought to partake more generously from this cyber cornucopia.

Pulsing at the heart of this conviction is state Senator John McKeon from Essex County, a key figure convinced that New Jersey is undervaluing itself in the thriving online world of iGaming and internet wagers. Indeed, with a gross gaming revenue that soared to $1.92 billion from online casino platforms last year alone, McKeon’s viewpoint seems vindicated.

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These staggering numbers have brought forth an ambitious legislative endeavor: Senate Bill 3064. Crafted by McKeon, the proposed bill succinctly calls for a tax increase on all revenue stemming from internet casino gaming and internet sports wagering to 30%. Presently, New Jersey licenses a staggering 30 iGaming platforms, all under the watchful gaze of the state’s Division of Gaming Enforcement. It also hosts 18 licensed online sportsbooks, each intertwined with a physical casino through symbiotic financial partnerships.

Despite the flourishing industry, New Jersey missed out narrowly on becoming the nation’s richest iGaming state, a title snatched up by Michigan last year. Michigan’s state government, permitting online gambling operations by its three commercial casinos in Detroit and several Native American tribes with Class III gaming compacts, enjoyed this high status. In contrast, New Jersey solely entrusts its iGaming and sports betting operations to commercial licensees.

In its current form, New Jersey levies a 15% tax on gross gaming revenue, and a 13% tax on online sports betting revenue. In 2020 alone, this bounded to $288.5 million from online gaming and a further $125.6 million from online sports wagering. Yet, under McKeon’s plan, these numbers could have reached a staggering $577.1 million and $289.7 million, respectively.

However, the proposed tax increase was met with instant resistance from Atlantic City’s casino industry. Comprising of nine casinos, the industry protests that they already split considerable portions of the online gaming revenue with third-party operators like DraftKings and FanDuel. These industry giants warn that higher taxes would butcher their bottom lines even further.

Online gaming, which found popularity during the pandemic-ridden year of 2020, blessed New Jersey with a windfall of $888.8 million from iGaming and $362.44 million from online sportsbooks. But despite its potential benefits, McKeon’s bill is yet to be assigned to a Senate committee for initial review.

The bill appears against a backdrop of ongoing taxation disputes. In 2021, the Casino Association of New Jersey convincingly lobbied to exempt iGaming and online sports betting revenue from calculations of casino property taxes. Brick-and-mortar casino officials reasoned that considering their third-party operators have little or no physical presence in Atlantic City, they should thus be omitted from property tax equations. This controversial accounting maneuver remains in place amidst a legal challenge from Atlantic County, arguing the amendment contravenes a consent order requiring the county to receive 13.5% of the casinos’ PILOT liability from all sources of income. This intriguing story of online gaming wealth and taxation tussles continues to unfold.