Virginia Bill to Amend Operator Deductions and Loss Carryover

Virginia, one of a few states that have collected sports betting state taxes below their tax rates so far, is the first to undertake steps to amend the situation by introducing a bill that will eliminate promotional deductions and loss-carryover for operators.

No Promotional Deductions after First Year

House Bill 1103 introduced by Delegate Mark Sickles addresses the practice of sportsbooks to deduct the cost of betting promotions and bonuses from their taxable sports betting revenue and bring more taxes to the state coffers by discontinuing the practice after the first 12 months. The bill also seeks to stop operators from carrying losses from one month to another and calculating them in their next taxable revenue.

The bill is a reaction from lawmakers to unsatisfactory taxes Virginia has collected since the state officially launched legalized sports betting in January 2021. Reports over the first 11 months of operation showed that, despite having generated around $2.8 billion in handle and $254 million in revenue, sportsbooks paid just $18.6 million to the state, less than half of the 15% tax rate, mainly due to promotional deductions and carryover of losses.

House Bill 1103 changes the wording of the “adjusted gross revenue” definition under section 58.1-4030 of the Code of Virginia to exclude “all cash and the cash value of merchandise paid out as winnings to bettors, and the value of all allowable bonuses or promotions provided to patrons as an incentive to place or as a result of their having placed Internet sports betting wagers.”

In terms of section 58.1-4037 of the Code, tax on adjusted gross revenue, the proposal looks to keep the 15% tax rate paid on monthly basis by each sports betting permit holder in the state, allowing holders to deduct only “through the first 12 months of wagering activity, the value of all bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed Internet sports betting wagers.”

Bill Far from Being Enacted

House Bill 1103 that has no co-sponsors and is still to be referred to any of the committees will increase the adjusted gross revenue for sports betting operators, if enacted, to make sure the state of Virginia collects the full 15% tax rate. In November alone, sportsbooks accounted for more than $400 million in wagers.

Virginia is the first state to take legal steps and rectify the discrepancy between the tax rate and the effective tax rate and it is highly likely others like Colorado and Michigan to follow suit.

The Centennial State and the Great Lakes State have collected so far effective tax rates of 4.5% and 3.4%, respectively, less than half of the 10% and 8.4% tax rates the states imposed on paper.