iGaming Taxes in the USA - Which State Should You Choose for Launch in 2024?

Table of contents

• GGR and Corporate Tax Rates by State
• Overview of the US iGaming Industry
• Types of iGaming Taxes in the US
• Key Considerations for Choosing a State
• State-by-State Analysis
• Formula for Calculating Optimal State to Launch
• Get US Market Entry in 2024

Tax structures and rates differ significantly in US states, which allow private operators to offer online sports betting opportunities to the local population.  

This article compares the GGR and corporate tax rates in these jurisdictions, offering insights and key considerations to guide iGaming professionals in deciding where to launch operations.

GGR and Corporate Tax Rates by State

Below is a list of US states where online sports betting is legal and accessible to private iGaming operators. It shows each jurisdiction's gross gaming revenue (GGR) tax and corporation taxes, plus where to find updated information in 2024.

These rates have been compiled from various reputable sources, including industry reports and state-specific regulatory updates, and reflect the most current information available. However, please verify with local regulatory authorities (links provided) or recent state legislation for the latest updates and specific details.

Retail Only Sports Betting States

The following states permit sports betting opportunities to the public, but only through physical locations such as brick-and-mortar casinos and authorised terminals:

• Florida

• Mississippi

• Montana

• Nebraska

• New Mexico

• North Dakota

• South Dakota

• Washington

• Wisconsin

Overview of the US iGaming Industry

The iGaming market in the USA is evolving rapidly and holds tremendous potential. This results from a combination of growing consumer interest and progressive legislative changes. While only a handful of states currently support a full range of gambling activities, including online casinos, bingo, and poker, many more permit only online sports betting. 

In 2024, a growing number of states have embraced online sports betting only as a starting point for iGaming expansion. States like New York, Illinois and Arizona have seen rapid adoption and revenue generation from online sports wagering. However, other states like Mississippi and Montana permit sports betting only at physical locations such as brick-and-mortar casinos and authorised terminals.

The USA is poised for significant growth in legal online gaming over the coming decade. States such as New Jersey, Pennsylvania, and Michigan have established themselves as leaders in offering a comprehensive range of online gambling options. These markets, plus Connecticut, Delaware, Rhode Island and West Virginia, benefit from well-established regulatory frameworks, attracting major operators and significant player bases. 

States such as these have demonstrated that a well-regulated iGaming market can generate substantial tax revenue and drive economic growth. For instance, New Jersey reported over $1 billion in online gaming revenue in 2022 alone, driving a steady expansion of iGaming across the country. Legislative efforts continue in states like New York and Illinois, where stakeholders push for comprehensive online gambling laws, reflecting a broader acceptance of iGaming as a legal and legitimate industry.

Tax rates on iGaming activities vary widely across states, impacting the potential profitability of iGaming operators. For example, Pennsylvania imposes a high tax rate of 54% on online slot revenues, while New Jersey levies a more moderate rate of 13% Online sports annual tax on gross revenue plus an additional 1.25% on most online gaming revenues. These variations necessitate careful financial planning for operators considering market entry.

Types of iGaming Taxes in the US

iGaming operators in the US are subject to various taxes across different states when offering online gambling games and betting opportunities. 

Taxation typically includes some or all of the following, depending on the tax structure of individual states:

Gross Gaming Revenue (GGR) Tax

This is the most common tax, calculated as a percentage of the operator’s gross revenue. It is typically calculated as total profit—payouts on player winnings, though sometimes can also be deducted in some states. GGR tax rates differ significantly across states. Such variations affect profitability and, therefore, strategic decisions for market entry, with higher rates potentially reducing net earnings considerably. 

Local Taxes

In addition to state taxes, operators may also be subject to local taxes, which are additional levies imposed by cities or counties within the state. Again, such taxes can vary significantly, calculated as either a flat fee or a further percentage on top of the GGR tax. For instance, a local jurisdiction might impose an extra 1-2% GGR tax on top of state taxes, further impacting operator profits. 

Corporate Income Taxes

Like any other business, iGaming operators must pay corporate income taxes on their net income, which is calculated after deducting operating expenses. These taxes vary by state, with rates typically ranging from 0% to 10%. One notable exception is Nevada, which does not impose a corporation tax on licensed online sports betting operators. 

Platform Fees

Some states levy additional fees on the technology platforms used to offer online gaming. These fees can be a fixed amount and a percentage of gross gaming revenue (GGR), varying from one state to another. To mitigate platform fees, operators can negotiate long-term contracts with platform providers for better rates or consider integrating proprietary technology to reduce dependency on external platforms. 

Advertising Taxes

Some states may also impose taxes on the marketing and advertising expenditures of iGaming operators to regulate and manage policies and practices within the industry. This type of tax is generally calculated as a percentage of advertising spend. 

To reduce advertising taxes, operators can employ strategies such as optimising digital marketing campaigns for higher efficiency, using data analytics to target high-value customers more effectively and consider cost-sharing partnerships with affiliates. Focusing on organic growth through content marketing and social media engagement can further reduce reliance on taxable advertising expenditures.

Licensing Duties and Fees

In addition to taxes, iGaming operators who wish to offer products and services in US states are obliged to pay significant licensing fees and duties to do so legally. This includes: 

Licence Application Fees

These are fees paid when applying for a licence, separate from the actual licensing fees. They cover the administrative costs of processing the application and typically apply irrespective of whether a licence is granted or declined.

Initial Licensing Fees

States require operators to pay an initial licensing fee. For example, Pennsylvania charges a substantial one-time fee of $10 million, while New Jersey’s fee is around $400,000.

Annual or Periodic Renewal Fees

Annual renewal fees are standard and are required to maintain the operational licence and legal status. These fees ensure continuous compliance and operational checks and vary in validity period. For example, New Jersey needs an annual fee of $250,000, while Pennsylvania’s renewal fee is $250,000 every five years. 

Casino Employee Licensing Fees

Casino employee licensing fees are distinct from operator licensing fees and cover background checks, training, and certification. While operator fees ensure overall business legitimacy, employee licensing fees focus on individual suitability and adherence to industry standards, which is essential for maintaining regulatory compliance and ensuring the integrity of operations.

Key Considerations for Choosing a State

Choosing the most suitable and profitable state for launching iGaming operations in 2024 and beyond requires an in-depth analysis of the individual states. Key considerations include tax rates and structures, the general regulatory environment, and market potential influenced by population size, income levels, and consumer interest in online gaming. 

Here’s a description of the most influential factors iGaming operators should consider to aid decision-making when choosing where to launch in the US.

Tax Rates and Structures

Tax rates and structures are primary considerations for iGaming operators. Clearly, the variability in tax rates across states can significantly impact an operator's profitability and strategic planning. Some states impose a combination of taxes that can create a heavy financial burden, while others offer more moderate tax regimes that enhance financial viability.

The difference in tax rates is greatly influenced by the types and number of taxes each state applies. Some states, for instance, may impose higher gross gaming revenue taxes but lower corporate taxes, while others might have additional local levies that further impact net earnings. These differences necessitate a thorough analysis of the overall tax burden in each potential market.

Moreover, how tax revenues are allocated, such as whether to state or local governments, can affect operational decisions and community relations. States that reinvest gaming tax revenues into local communities often foster a more supportive environment for iGaming activities, enhancing public and governmental support. 

Regulatory Environment

The regulatory environment framework within a state should be another top consideration for iGaming operators. Jurisdictions such as New Jersey and Pennsylvania offer stability and predictability, which are highly advantageous for operators. These states have well-established regulatory frameworks that provide clear guidelines and consistent enforcement, reducing the risk of operational disruptions. High levels of stability help operators confidently plan long-term strategies, ensuring sustained profitability and compliance.

In contrast, emerging markets like Ohio and Maryland present early market entry advantages. These states are in the process of expanding their iGaming regulations, offering opportunities for operators to establish a strong market presence ahead of increased competition. Albeit more risky, early entry into these markets can lead to significant brand loyalty and market share capture for long-term success.

In addition, the regulatory environment can include factors such as the ease of obtaining licences, the clarity of regulatory requirements, and the supportiveness of regulatory bodies. States with streamlined licensing processes and proactive regulatory support enhance the operational efficiency of iGaming businesses. For instance, Michigan's proactive approach to iGaming legislation has attracted several operators, fostering a competitive yet stable market environment.

In short, understanding the nuances of the regulatory environment across different states helps iGaming operators to make informed decisions about market entry and expansion, balancing the benefits of stability in mature markets with the growth potential in emerging ones.

Market Potential

Factors such as population size, income levels, and competition can influence the market potential for online gambling revenues in US states. Population size and income levels have a substantial influence. States like Pennsylvania (Approximately 13m) and Michigan (Approximately 10m), with their large populations and high median incomes, for example, offer significant opportunity, especially since high income levels correlate with increased discretionary spending on entertainment, including sports betting and online casino games. 

Further to this, high acceptance and enthusiasm levels for online gambling among a state's general population lead to increased engagement levels. States like Rhode Island and Michigan, in particular, show elevated market potential due to their widespread public enthusiasm for online gaming. Moreover, Michigan’s proactive approach to iGaming regulation and technology adoption has made it an attractive destination for online gambling operators. States that invest heavily in technological infrastructure and have favourable regulatory environments can significantly influence market potential. 

iGaming operators, however, need to consider the competition levels in individual states. States with higher population levels and those with populations receptive to online gambling activities typically have higher levels of competition. For new entrants, this means they must invest more heavily in marketing and customer acquisition to gain a significant market share.

Other key factors

The political climate and legislative landscape also impact the market potential in different states. States with a supportive political environment and progressive legislative actions can offer a more favourable market for iGaming operations. Conversely, states with political resistance to gambling may pose significant hurdles for operators in the future.

Similarly, the presence of pending legislation and a positive attitude towards gambling are equally influential. States like New York and Illinois, where there is ongoing legislative activity to expand iGaming, present opportunities for early market entry. Furthermore, legislative support governors and legislative bodies can help streamline the regulatory process, making it easier for operators to comply with local laws and launch their services.

States that demonstrate flexibility and responsiveness in their regulatory frameworks often attract more operators. For instance, New Jersey’s adaptive regulatory approach has maintained its status as a leading iGaming market by providing a stable yet dynamic environment for online gaming investors.

State-by-State Analysis

The following table charts a simplified overview of the market conditions in US states where all forms of online gambling are legal. These ratings are based on the market potential based on key factors such as population size, income levels, discretionary spending, market maturity, and general enthusiasm for online gambling. It provides a comparative analysis of GGR tax rates, corporate tax rates, the presence or absence of additional local taxes and platform fees​​, as well as the general regulatory conditions in each state.

Market Conditions and Ratings in Legal US iGaming States

State-by-State Overview

Connecticut

Connecticut offers a promising iGaming market with its high population density and substantial discretionary spending. The state levies an 18% GGR tax on casino gambling and sports betting, which is competitive compared to many gambling jurisdictions, especially in other high-population states like Pennsylvania and New York. Connecticut's stable regulatory environment and supportive political climate enhance its appeal, making it an attractive option for iGaming operators.

Delaware

Delaware’s well-established iGaming market has a 51% GGR tax on casino operations and an 8.7% corporate tax. Its smaller population limits market potential compared to states like Michigan and New Jersey. However, Delaware's mature regulatory framework and supportive political environment provide stability in 2024, making it a potential option for operators seeking a reliable entry point into the US iGaming market.

Michigan

With a tiered rate of between 20% and 28% GGR tax on casino gaming (depending on gross revenue level) and 8.4% on sports betting, Michigan is another top option for iGaming operators. The state's large population and high income levels provide significant market potential. Compared to states like Delaware and Rhode Island, Michigan offers a favourable tax environment and a supportive regulatory framework, balancing high market potential against manageable competition levels.

New Jersey

New Jersey is a mature iGaming market with high potential due to its large population and high disposable income. The state imposes a 14.25% GGR tax on sports betting. While competition is intense, New Jersey's favourable tax rates and well-established regulatory framework make it a top option compared to states with higher tax burdens, such as Pennsylvania and Michigan.

Pennsylvania

Pennsylvania's appeal lies in its large population and high gambling participation rates. The state imposes a 34% GGR tax on casino games and 36% on sports betting, which is significantly higher than in most other states. The intense competition and tax burden might deter some operators, especially in states with more favourable tax environments like Delaware and West Virginia.

Rhode Island

Rhode Island offers a small but stable market for iGaming operators, with a high GGR tax rate of 51% on both casino and sports betting. While the high tax rate is a drawback compared to states like New Jersey and Michigan, Rhode Island's consistent revenue generation makes it a realistic choice for operators seeking reliability over large-scale market potential.

West Virginia

West Virginia is a favourable market for iGaming operators with a moderate 15% GGR tax on both casino and sports betting. The state’s smaller population limits market potential compared to larger states. However, West Virginia's supportive regulatory environment and lower tax liabilities make it an attractive option for operators seeking a balanced, less competitive market.

Formula for Calculating Optimal State to Launch

Here is a simple formula that iGaming professionals can use to help decide where to launch operations. 

State Score=(T/30)+(40xMP)−(20xCL)+(10xRE)

The score for each state (state score) takes into account:

• The tax burden (T)

• market potential (MP)

• Competition Level (CL)

• regulatory environment (RE)

Explanation:

State Score = The overall score indicating how attractive a state is for iGaming operations.

T = Tax Burden: Scale of 1 to 10 (1 = highest combined taxes, 10 = lowest combined taxes)

MP = Market Potential: Scale of 1 to 10 (1 = lowest potential, 10 = highest potential). Includes population size, income levels, and enthusiasm for online gambling.

CL = Competition: Scale of 1 to 10 (1 = highest competition, 10 = lowest competition). More competition lowers the score.

RE = Regulatory Environment: Scale of 1 to 10 (1 = least favourable, 10 = most favourable). How supportive and clear the state’s laws and regulations are.

Weighting:

• Tax Burden (T) = Weight of 30 

• Market Potential (MP) = Weight of 40.

• Competition Level (CL): Weight of 20

• Regulatory Environment (RE): Weight of 10.

Note: 

These weightings reflect the general level of importance across all states. For a more accurate measure, operators should assess and apply weightings that accurately reflect the particular situation with individual states. 

Example Calculation for New Jersey

• Tax Burden (T) = 4 (high taxes)

• Market Potential (MP) = 9 (high population, income & enthusiasm)

• Competition = 3 (high competition)

• Regulatory Environment (RE) = 9 (very supportive)

NJ State Score

• NJ = (4/30) + (40x9) - (20x3) +(10x9)

• NJ State Score: 7.5 + 360 -60 + 90 = 397.5

This simplified formula allows iGaming operators to compare different states quickly based on crucial factors. By applying this formula, operators can make informed decisions about the best states to launch their iGaming operations in 2024, ensuring a balanced approach that considers taxes, market potential, competition, and regulatory environment. 

This formula weights the factors according to their importance, making prioritising and evaluating the best options easier.

Get US Market Entry in 2024

Choosing the right state for launching iGaming operations in 2024 involves a detailed analysis of tax structures, market potential, regulatory environments and legislative trends. By carefully considering these factors, iGaming operators can make informed decisions to maximise their success in the evolving US gambling marketplace.

Altenar is an award-winning sportsbook provider to hundreds of online sports betting websites in more than 30 countries worldwide.

Contact us today to learn more about the costs and potential of setting up an online sportsbook in the USA.

DISCLAIMER

This information is not intended to be legal advice and is solely extracted from open sources. It should not be relied upon as a substitute for professional legal advice, and Altenar does not accept any liability for its use. 

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