States weigh higher sports betting taxes

New forms of gambling or higher tax rates could be part of legislative agendas in new year.

SAN JUAN, Puerto Rico – With the federal government reducing the money headed to US states in 2026, state legislators will be looking for new revenue sources, and that could mean tapping further into sports betting taxes.

State legislatures could look at legalising new forms of gambling or increasing tax rates on existing forms to help balance budgets in their 2026 sessions, according to multiple industry sources. Stakeholders and lawmakers alike, however, warn of the need to avoid negative consequences.

At a National Council of Lawmakers from Gaming States (NCLGS) meeting in Puerto Rico last week, regulators and legislators in a panel discussion cautioned that a tax rate too high could hurt the industry and ultimately result in worse returns.

“We really have to be careful,” Louisiana Gaming Control Board Chairman Christopher Hebert said. Louisiana was one of several states to raise its taxes on sports betting this year, from 15% to 21.5%.

“The original proposal was a tax increase to 50%,” he said. “We knew that was never going to happen. You would lose operators because the cost of doing business just isn’t worth it.”

Examples of recent state tax changes

Maryland and New Jersey also increased their sports betting tax rates in 2025. Illinois, meanwhile, added per-bet fees to operator burdens. Other state legislatures rejected tax hikes, including in Ohio and Michigan. Ohio Governor Mike DeWine had proposed doubling the rate from 20% to 40% after getting it boosted from 10% in 2023.

States seek revenue amid federal cuts

Many states are expected to face budget shortfalls in 2026 as President Donald Trump’s One Big Beautiful Bill enacted this year will cut federal support sent to them.

“Many of those dollars are no longer going to be part of the budget process,” Illinois Rep. Jehan Gordon-Booth said on an NCLGS panel. “[A lot of lawmakers] are going to look at other avenues to garner more income for their budgets.”

Brandt Iden, vice president of government affairs at Fanatics Betting and Gaming, told iGB that gambling is one of the first areas lawmakers will look to for new revenue.

“I will not be surprised when I see a number of pieces that raise online sports betting taxes early next year,” said Iden, a former Michigan state representative. “I’m prepared to see that and prepared for those discussions.”

Industry consultant John Pappas said states with low tax rates on sports betting will likely be hotbeds for proposals, including Kansas, Iowa and Indiana. He said lawmakers should express caution as the regulated gambling industry faces increased pressure from the unregulated market and the federally regulated prediction markets.

“It’s a very unwise time to increase burdens on the companies that are operating within the rules in the state and contributing significant dollars,” Pappas said.

Iden said there also might be some hesitancy from lawmakers as 2026 is a major election year.

“You’ve got a situation where state lawmakers maybe don’t want to go to citizenry for new taxes,” he said. “But they are going to really start to feel those pressures when the new federal budget cuts go into effect.”

He said state lawmakers will have to weigh the effects of raising tax rates, as that does not simply generate more revenue.

“These taxes do have real consequences,” he said, alluding to the Illinois tax situation.

Illinois lawmaker raises concern about tax hikes

Illinois increased sports betting tax burdens the past two years. In 2024, the state took its flat 15% tax rate to a tiered system ranging from 20% to 40% based on operator revenue. This year, the state implemented a per-bet fee, starting at 25 cents per bet for the first 20 million wagers. The fee increases to 50 cents per bet after the 20 million threshold.

“Lawmakers need to understand, what you think you’re going to get from raising taxes, you’re not going to get,” Gordon-Booth said. “We want this industry to continue to strike the right balance. This will be a problem in budgets for the foreseeable few years in budgets. I don’t want to see us continue to deteriorate the industry.”

With operators in Illinois impacted by the state’s changes cutting into their revenue, they rolled out various ways to pass the buck to the bettor. FanDuel and DraftKings, for example, instituted per-bet fees of their own on customers. Other operators instituted minimum bet amounts.

Operators began paying the per-bet fees in September. Bettors placed 5 million fewer wagers, or approximately 15% less, in September 2025 than in the prior September. That reduction was accompanied, however, by a 28% increase in average bet size. The state ended up generating $28.7 million in government revenue for the month, including $10.6 million from the fees. That was a net gain of just $740,920 compared to the year prior.

Iden said that when Pennsylvania legislators chose not to raise gaming taxes this fall, it was at least in part due to the lack of meaningful revenue increase in Illinois.

Regulators’ role in gambling tax policy

Hebert said regulators should engage more with lawmakers about the drawbacks of tax rates that are too high.

Gordon-Booth echoed the statement and said lawmakers will disregard industry lobbyists and their advocacy roles.

“The gaming regulators have a role as looking at the success long term and looking at what is and is not going to allow this industry to be successful,” she said. “We have to move away from the short-term view of pulling money to balance budgets.”

Gordon-Booth said regulators can educate before advocating. Those discussions could help all parties involved, she said.

“Love lobbyists, but they’re paid to do a job,” she said. “The regulators are different; they are industry experts.”

About the author

Pat covers the legislation and regulation of online gambling in North and South America, having covered the US sports betting industry extensively since 2019.