Virginia lawmakers used the upcoming state budget to eliminate a loophole in sports betting regulations that could pad state coffers. Like many states with sports betting, Virginia initially offered online operators the ability to deduct free bets and promo dollars from taxable revenue.
This stipulation can be a big boon for operators. Case in point: so far, five of 12 VA sports betting apps have never paid taxes to the state.
That won’t be the case going forward though. Lawmakers introduced legislation to close the loophole during state budget proceedings this week. The new rules do not completely do away with promo dollar deductions, but these deductions are now only allowed in the first year of operation. Given that the bulk of promo dollars are spent at launch, there is still plenty of time for operators to capitalize on these deductions, but it will generate more state tax revenue long-term.
To date, operators have deducted $180 million in bonus and promo play from almost $5 billion in handle and $192 million in gross revenue. The state has collected $29.8 million in taxes over the same period. Sports betting first launched in the state in January 2021.
Virginia is not the only state reconsidering decisions about the tax structure. Last week, Colorado auditors recommended state lawmakers do exactly what Virginia legislators just did. Elsewhere, the proposed North Carolina sports betting legislation also addressed the promo bet issue.
There are some states that offer similar deductions, but don’t encounter the problems of Colorado and Virginia. The primary example is Pennsylvania. Some of the differences are very granular accounting differences in the reporting. The most obvious difference though is the overall tax rate. Pennsylvania’s 36% tax rate is one of the highest in the country. Virginia taxes at 15% and Colorado is comparatively low at just 10%.