Tim Steller Column: Arizona’s sports betting tax rate cap is a dumb idea | Subscriber

Distracted lawmakers, rushing to wrap up a long session, didn’t seem to know exactly why they were considering a giveaway to the new sports betting industry.

But the majority went ahead and did it anyway.

It was June 21 and the House Appropriations Committee was focused on passing budget bills, which is why I was watching. They were also considering a few laggards like HB 2855. This bill capped the tax rate the state can charge on sports betting profits at 10%.

“Why would we cap the amount of revenue we could possibly generate from this in law?” asked Rep. Kelli Butler. “Are we helping them with the demand? They don’t seem to have a demand problem.”

that was a good question. And no, they don’t have a demand problem, far from it.

After the legislature legalized sports betting last year, the industry exploded in the state, driven primarily by people using online betting apps.

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In March, the last month for which detailed status reports are available, bettors placed approximately $690 million in wagers with Arizona licensees. That gross revenue produced $1.9 million in “lien fees” – the taxes that Arizona charges on sports betting.

In April, the numbers were similar: $512 million in bets during the month, generating about $1.6 million in revenue for the state.

If tax revenues seem weak from this new industry which was itself a gift to licensees, that’s because it is. We did not tax sports betting enough before this law was passed. Now it will be difficult for us to do so.

Granted, the state does not charge its fees out of licensees’ gross revenues. Companies subtract the gambling winnings they have paid out, which make up the majority of their revenue, as well as the free bets they give away in promotion. Then we tax the rest, what is called their adjusted gross income.

It was apparently Arizona Coyotes hockey that brought the proposal to the Legislative Assembly. Their sports betting manager, Andrew Diss, explained the idea this way during a hearing on February 22:

“We believe this will provide certainty and predictability for sports betting operators to invest in their business,” said Diss, who came to Arizona from the Nevada industry. “To give you an idea of ​​tax rates in neighboring states, Nevada is at 6.75%, Colorado at 10%. There are currently two voting questions that have qualified in California that will be at 10 %.

“When you look at the landscape around Arizona, 10% is that sweet spot that makes our businesses viable and able to grow.

Forgive me, but I don’t see why we should care about the growth or viability of their business. It’s not a business that creates anything, certainly not significant tax revenue. It’s an “entertainment” business that, overall, takes Arizona punters and gives them a little fun in the process.

Still, I might be more sympathetic if they paid substantial taxes. These tax revenues were used to sell the legalization of sports betting.

But it produces so little compared to, say, marijuana. Also a vice that became legal in 2021, marijuana sales are heavily taxed: local and state sales tax (in most places around 10%) plus a 16% excise tax.

In March and April, marijuana taxes were an order of magnitude larger than sports betting taxes, and more. In March, marijuana generated about $23 million in revenue, and in April about $22 million, well above the less than $2 million in sports betting taxes in the same months.

What explains the disparate treatment of these legalized vices? Well, the first one, marijuana, was adopted by an initiative opposed by the state power structure. Sports betting was passed by the Legislative Assembly and benefited the power structure, namely the biggest professional sports teams and events in Phoenix.

The Arizona Cardinals, Arizona Diamondbacks, Phoenix Suns, Arizona Coyotes, Phoenix Mercury, TPC Scottsdale (home of the WM Phoenix Open golf tournament), Phoenix Speedway and Arizona Rattlers have all received licenses and entered into agreements with sports betting companies.

In fact, the rate cap bill was just one of two bills the Coyotes introduced this year. The other would have suspended the requirement that sports teams must have a hall with at least 10,000 seats to retain their retail betting license. The Coyotes will temporarily play in a 5,000-seat arena at Arizona State University.

The Arizona Indian Gaming Association opposed the idea, and it ultimately fell through.

The Coyotes’ Diss justified capping the betting profit tax rate by noting that currently it is an administrative body, the Department of Gaming, that can change the fee structure, through its process. rule-making.

“We have a public policy concern, where we are more comfortable with an elected body like the legislature setting fiscal policy, rather than delegating that authority to the head of a single state agency,” he said. he told the Senate committee in February. “You are all accountable to the voters.”

They’re also easier to buy, I might add, with the money teams have to donate and the tickets they can donate.

If he really wants sports betting tax rates to be attributable to voters, I would suggest we have a multiple-choice referendum. Voters could choose to impose a rate of 5%, 10%, 15% or 20% on sports betting profits. I could live with the voters who decide.

Instead, what happened was that a legislative majority, sympathetic to the power structure and loving the sound of capped taxes, passed the bill on one of the last days of the session. . Then they rushed to the door.

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Contact columnist Tim Steller at [email protected] or ​520-807-7789. On Twitter: @senyorreporter

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