Arizona Considers Huge Tax Increase on Sports Betting Revenue

With so many states struggling to meet financial obligations, it was just a matter of time before lawmakers would start looking in nooks and crannies for more tax revenue. In Arizona, that nook and cranny appears to be taxes on online sports betting revenue.

Taxing online sports betting and casino operators is not a new concept. Several states are looking at tax increases of 10% to 20% to cover issues related to overspending. To be fair, many states are experiencing shortfalls as they attempt to deal with illegal immigration issues.

Arizona Governor Katie Hobbs has proposed an increase from the current tax rate of 10% up to an astounding 45%. It's noteworthy that Hobbs was not the Governor in 2021 when online sports betting legislation was passed with the current 10% tax rate.

What the Tax Rate Hike Would Mean

According to analysts, such a tax rate increase could net the state another $150 million in tax revenue per year moving forward. That's a big number, but it leaves people wondering how realistic a 35% increase would be. There would certainly be pushback from operators and Indian Tribes that don't much appreciate infringements on their revenue-generating operations.

If there is anything about the proposal that might relieve some anxiety, it would be that the proposed rate increase would only apply to operators that are making at least $75 million a month in gross sports betting revenue.

In an interview, Daniel McIntosh, a marketing professor at Arizona State University’s W.P. Carey School of Business, told the reporter:

“Gov. Hobbs is suggesting we increase it from 10% to 45%, but is specifically carving that out only for casinos that are operating at over $75 million a month. And so, currently in the state, only four really meet that.”

Clarifying McIntosh's comment, the tax would only apply to online sports books since online casino gambling has not yet been legalized in Arizona. Of course, this proposal could serve as a warning shot should such legislation ever get passed.

As a point of reference, only four of Arizona's sports betting operators would qualify to get hit with the higher tax rate. The four operators in question are Caesars, DraftKings, Fanatics, and FanDuel. Reminder: Arizona residents are currently pushing about $8 billion a year through sports betting windows. If the wagering results on the 2026 Super Bowl are any indication, the $8 billion number might be on the rise.

It's worth noting that any bill that would raise tax rates will require a two-thirds majority in the House and Senate. With anti-tax republicans holding slight edges in both chambers, getting this kind of legislation passed would be a big mountain for Hobbs to climb.

Making the Case

Currently, Arizona residents rank as the fifth lowest in taxes paid to the state at about 10%. Governor Hobbs is making the case that this sports betting tax increase would only serve to bring the state in line with other states of similar size.