RALEIGH, N.C. (WNCN) — North Carolina would tax the profits of companies operating online sportsbooks here at a lower rate than neighboring states do.
The state is getting closer to going all in on online sports wagering. And when it comes to the tax revenue that move could generate, the state — like the house — always wins.
But will it win enough to be worth it?
A recent financial analysis of the state’s sports betting bill indicates one key stream of tax revenue — the privilege tax — could produce more than $45 million in the 2028 fiscal year.
That tax is what online sports betting operators like DraftKings or FanDuel owe states on the net revenues they make there.
The bill would set it at 14 percent in North Carolina. That’s lower than the two neighboring states that allow online sports wagering: 15 percent in Virginia and 20 percent in Tennessee.
“It’s my opinion that it probably could be a bit higher,” said tax expert Nathan Goldman, an associate professor at North Carolina State University’s Poole College of Management.
The proposal in North Carolina would allow online wagering on professional, college, amateur and e-sports competitions.
The roughly 10 companies that would be allowed to take those bets would have to pay a $1 million licensing fee along with the privilege tax.
And North Carolina’s is near the middle of the pack nationally.
That rate is lowest in Iowa and Nevada at 6.75 percent. At the other end of the spectrum, there are four states — Delaware, New Hampshire, New York and Rhode Island — where it is 50 percent or higher.
Other states have tried to raise that rate after it had already been put in place because Goldman said “they realized that they were leaving money on the table.”
If the bill becomes law and online sports betting is allowed starting Jan. 8, 2024, the privilege tax is only projected to produce about $3 million in the first few months largely because the state would allow the betting companies to deduct the cash value of promotional credits they give to first-time users. Those deductions will be phased out by 2027.
The state projects the privilege tax would generate $17.8 million in fiscal 2025, and that would climb to $24.7 million in 2026 and $35.6 million in 2027.
But Goldman points out that tax rate is significantly higher than the state’s corporate income tax rate — which is scheduled to be gradually dropped all the way to 0 percent within the decade.
“Which means that these corporations, these online sports gambling websites, are actually going to be paying a significantly higher tax for this activity for this service that they’re providing, relative to other corporations that are providing a service,” Goldman said.
He points to two key reasons why the state’s winnings from online sports wagering would be significant even with a total budget of about $30 billion.
“Even though it’s not a gigantic sum of money relative to the total budget, this is still additional tax revenues that are going to be coming into play,” he said.
That revenue is earmarked for programs affiliated with the Department of Health and Human Services, the state Division of Parks and Recreation and athletic departments at seven public universities, among others.
And it also would allow the state to capture a share of the money that might be otherwise headed to Tennessee or Virginia — where online sports betting is legal — or is exchanging hands illegally already in North Carolina.
“These activities are likely happening anyway,” Goldman said. “We all know that these types of activities are occurring. And as of right now, they are going untaxed. This is money that we could be bringing into our system by making it a legal type of money transfer.”
It’s harder to project how much more the state will collect in income tax paid by bettors who hit it big.
For them, when it comes to their taxes, nothing really changes — you have always been responsible for paying federal and state income tax on your winnings, whether they’re legal or not.
A $1,000 win on a Super Bowl bet next February would mean you’d owe the state $47.50 on the income tax return you file in 2025.
But remember, the online sportsbooks are keeping track of your winnings — and if you get a W-2G form from them at tax time, it means the federal and state tax collectors will know about them, too.
“So that is actually going to lower the likelihood that somebody wins this $1,000 and they just decide not to pay any taxes on it, which tends to be the case when we talk about in-person gambling and these in-person casinos,” Goldman said.
