Missouri’s potential to legalize sports gambling raises questions about tax revenue and economic impacts. With neighboring Kansas already embracing legalized sports gambling, Missouri legislators and residents are closely watching the possible tax implications, benefits, and challenges that could arise from a similar decision.
This article delves into the tax revenue potential, tax models in other states, and how sportsbooks and promotional bets affect the bottom line for state funds. Here’s a comprehensive breakdown of how sports gambling could shape Missouri’s economy and public programs.
Missouri Sports Gambling: A Look at Tax Revenue Potential
What Does Legalization Mean for Missouri?
Legalizing sports gambling in Missouri would pave the way for sportsbooks and online wagering platforms, like DraftKings and FanDuel, to operate legally within the state. This could attract a significant share of the millions wagered by residents on sporting events each year, whether it’s the Super Bowl or a weekend game.
If voters pass Amendment 2 in an upcoming election, Missouri will likely adopt a 10% tax rate on gambling revenues, matching Kansas’s tax rate. However, this tax rate may not be enough to generate high revenues due to exemptions, as seen in Kansas.
“It starts with the tax rate,” said Joe Weinert, vice president of Spectrum Gaming Group, “and then promotions.”
Tax Revenue Projections for Missouri
To understand the potential tax revenue from legalized gambling in Missouri, it’s essential to examine data from Kansas as a benchmark. In February 2023, Kansans wagered $194 million, but the state collected only $1,134 in taxes due to the structure of tax exemptions and promotional offers. Missouri could see similar figures if it follows the Kansas model.
Why Does Tax Revenue Remain Low?
The disparity between betting volume and tax revenue can be attributed to:
- Promotional Bets: Sportsbooks attract customers by offering “risk-free” bets. For example, a customer may receive $200 in online credits after depositing $5. Such credits are only taxable if they exceed a certain threshold, limiting the tax pool.
- Negative Revenue and Carryover Deduction: When sportsbooks pay out more in winnings than they collect in bets, they report negative revenue. In Kansas, ESPN Bet reported a negative balance, which was carried over as a deduction against future taxes, reducing tax obligations further.
- Exemptions on Winnings: Winnings and payouts reduce the adjusted gross receipts taxable by the state, meaning the larger the payout, the lower the taxable base.
Potential Revenue Outcomes Based on Tax Rate
| Tax Rate | Projected Revenue (Annual) | Expected Economic Impact |
|---|---|---|
| 10% (Kansas Model) | $5M – $10M | Limited impact on state budget |
| 20% (Higher State Average) | $15M – $20M | Increased funds for education and social services |
| 51% (New York Model) | $50M+ | Major funding boost for public programs |
Missouri could potentially increase tax revenue by adjusting the tax rate to a level similar to states like Pennsylvania and New York.
Tax Models by State: How Does Missouri Compare?
States across the U.S. have approached sports gambling tax rates differently, resulting in varying levels of revenue.
Examples of State Tax Models
- New York: Imposes a 51% tax on sports gambling, one of the highest rates in the U.S., which has led to significant revenue for state projects.
- Pennsylvania: Uses a 36% tax rate on sports wagering, a middle ground that offers substantial revenue while maintaining a competitive environment.
- Kansas: At 10%, Kansas’s tax rate is one of the lowest, resulting in comparatively low revenue despite high betting volume.
Missouri may wish to assess whether a higher rate or alternative taxation models could better serve its budget needs. Raising the rate closer to 20% could increase revenue without discouraging sportsbooks from entering the state market.
How Do Taxes on Sports Gambling Work?
Sports gambling tax models focus on adjusted gross receipts — the amount a sportsbook keeps after paying winnings but before deducting other expenses. Missouri’s proposed model mirrors Kansas’s structure, with deductions for promotional bets and allowances for carryover of negative revenue.
Key Tax Components and Deductions
- Adjusted Gross Receipts: The revenue left after winnings and payouts. High winnings can reduce this figure significantly.
- Promotional Bet Exemptions: In Kansas, promotional bets are tax-free, allowing sportsbooks to deduct the full amount of these credits. Missouri’s proposed laws would follow suit, except with a cap on deductions.
- Carryover Deductions: Missouri would allow carryover of negative revenue, meaning any losses from prior months reduce taxable income in subsequent months.
Example Calculation: Potential Tax Revenue
In July 2024, DraftKings in Kansas processed $56.9 million in wagers with $1.3 million in promotional deductions. Had Missouri legalized sports gambling under similar rules, DraftKings would not have been taxed in Missouri, as their deductions fell within the proposed threshold.
States with lower tax receipts often have permissive tax exemptions for promotional credits and carryover deductions, which minimize taxable income.
Public Sentiment and Legislative Action
Missouri voters and lawmakers have shown a growing interest in legalized sports gambling. A YouGov survey conducted in August indicated that 50% of likely voters support Amendment 2, which would allow sports gambling while establishing a 10% tax rate.
Legislative Intent and Potential Uses of Revenue
Unlike Kansas, which allocates a significant portion of its tax revenue to attract professional sports teams, Missouri has plans to use its revenue for education and problem gambling addiction services. This allocation could increase public support, particularly among those interested in social welfare programs.
Kansas Rep. Boog Highberger, a critic of the low tax rate, stated, “By the end, something about it smelled too rotten for me to be able to support it.”
Tax Revenue Allocation in Various States
| State | Tax Rate | Primary Revenue Allocation |
|---|---|---|
| New York | 51% | Education and healthcare |
| Pennsylvania | 36% | Public safety and education |
| Kansas | 10% | Incentives for professional sports |
| Missouri (proposed) | 10% | Education and addiction services |
Missouri’s Potential Allocation Benefits
- Education Funding: Increased revenue could help bolster public education budgets.
- Addiction Services: Dedicated funds for problem gambling addiction services could alleviate issues related to gambling addiction.
The Economic Impact of Legalized Sports Gambling in Missouri
Legalized sports gambling could attract tourism, create jobs, and foster economic development. Missouri’s economy could see benefits from increased gambling tourism, especially from nearby states with stricter gambling laws.
Economic Prospects and Considerations
- Job Creation: New sportsbooks and online betting platforms could generate jobs in customer service, marketing, and IT.
- Tourism Boost: Sports betting could attract tourists for major sporting events like the Super Bowl, increasing spending in local hotels and restaurants.
FAQs
How much does Missouri withhold in gambling proceeds?
Missouri withholds 4% of gambling winnings, along with a 24% federal withholding tax for substantial winnings.
Where does casino money go in Missouri?
Missouri allocates casino tax revenue primarily to public education and veterans’ services.
How can I bet on sports in Missouri?
Currently, sports betting is not legal in Missouri, so residents typically travel to neighboring states or use offshore sites.
How much does Missouri tax lottery winnings?
Missouri taxes lottery winnings at 4%, plus federal taxes, which range up to 37% for large prizes.
What are the gambling laws in Missouri?
Missouri allows riverboat casinos, state lotteries, and charitable gambling, but sports betting is not yet legalized.
What is the tax rate for casinos in Missouri?
Casinos in Missouri pay a 21% tax on their adjusted gross revenue, which funds state and local programs.
Which state makes the most money from casinos?
Nevada generates the highest revenue from casinos, largely due to Las Vegas.
How many casinos are in Missouri?
Missouri has 13 casinos, mainly located along rivers due to state regulations.
Can you deduct gambling losses in Missouri?
Yes, Missouri allows residents to deduct gambling losses on their state tax returns, but only up to the amount of their winnings.
How to get tax back from US casino winnings?
Foreign visitors can file IRS Form 1040NR or work with a tax recovery service to reclaim a portion of withheld taxes on casino winnings.
What happens if you win big in Vegas?
For substantial winnings, the casino withholds 24% federal tax, and winners may owe additional taxes based on their state of residence.
How much tax is deducted on casino winnings in India?
In India, 30% tax is deducted on casino winnings, with no additional surcharge or cess applied.
Conclusion
Missouri stands at a crossroads with Amendment 2 potentially bringing legalized sports gambling to the state. While the 10% tax rate could generate modest tax revenue, adjustments to the tax structure, such as reducing exemptions on promotional bets and limiting carryover deductions, could significantly improve revenue outcomes. Learning from states like New York and Pennsylvania, Missouri has the opportunity to structure a system that benefits the state’s education system and addresses problem gambling.
By examining Kansas’s tax revenue model, Missouri lawmakers and residents can assess the benefits and limitations of various approaches. If passed, Missouri’s sports gambling legislation could open a new era of regulated wagering that aligns with public interests and maximizes the state’s economic potential.
Callista
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