Abstract
Sports betting is not merely a 21st century novelty; however, recent legislative and societal changes have allowed sports betting to bloom into a widespread phenomenon in America. The rapid emergence of sports betting in American life has caused states to react with legislation ranging from full-stop bans to partnerships with sportsbooks to capitalize on this lucrative and newly legal activity. While plenty of discussion can be found regarding the social and political considerations of legalizing gambling and related activities, no comprehensive legal scholarship has focused specifically on the taxation of sports betting. Sports betting exists in a relatively unique position as an activity that is now federally legal but not uniformly legal nationwide due to differences in state law. It comes as no surprise that as a result, a variety of different approaches to taxing sports betting has emerged, and it is worth considering the current legal and mechanical challenges in raising revenue from America’s favorite new vice.
This Article begins by providing a brief background of how sports betting became legalized, including the relevant legislation and litigation related to sports betting. The Article then turns to the taxation of sports betting in Section III, examining both the federal and state-level tax laws and taxation schemes concerning both individual bettors and sports betting operators. Because the legal sports betting industry is in its infancy, many of the foreseeable legal challenges to regulating and taxing this activity have not been fleshed out by the federal and state courts, or legislatures. Understanding the mechanics of a sports betting transaction from the consumer and sportsbook’s perspective are key in understanding the subsequent tax ramifications. This Article then attempts to identify three primary areas of tax law in Section IV where legal challenges are either currently ongoing or could arise in the near future. First, how states determine nexus and sourcing in taxing sports betting operators both currently and under alternative structures such as multistate agreements. Second, the Internet Tax Freedom Act, particularly concerning states with a two-tiered tax structure on sports betting. This section covers the litigation out of Maryland regarding the state’s digital advertising tax and discusses how the Internet Tax Freedom Act may be problematic for states that levy a higher tax rate on online sports betting than in- person betting. Finally, the Article covers the role tribal compacts play in the sports betting landscape, focusing on the recent litigation out of Florida and how Florida’s attempt to legalize sports betting via a tribal compact implicates concerns about determining tax nexus and the relationship of federal and state laws in the context of sports betting.
Recommended Citation
Samuel Craig,
Getting a Handle on the Taxation of Sports Betting,
44 Loy. L.A. Ent. L. Rev. 1
(2023).
Available at: https://digitalcommons.lmu.edu/elr/vol44/iss1/1
