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Sports Betting Loophole Closed in Virginia

Betting and Gambling Industry News article at Knup Sports

An overlooked sports betting loophole allowed operators to get out of paying their taxes. Find out how the state solved this problem.

Early in May, an article published by the Richmond Times called attention to a sports betting loophole that was allowing seven sports betting companies to get out of paying state taxes. Only five of the twelve sports betting operators throughout the state have paid any sort of taxes, and this has cost Virginia a lot of money.

In fact, up to $26.7 million more could have gone to the state in taxes alone. This number is drawn from almost 44% of the total sports betting revenue over the last year and a half, and none of that percentage went to the state.

However, this issue has since been addressed in the state’s new yearly budget. This budget was signed on Tuesday by Governor Glenn Youngkin, and will go into effect on July 1 of this year. This gives sports betting operators about one week to prepare to fully pay their taxes, as they should’ve from the beginning, from here on out.

Too Bad, Operators

The operators that have paid some or all of their state taxes are DraftKings, Hard Rock digital, BetMGM, FanDuel, and Barstool Sports. These are some of the biggest names in sports betting, and, luckily, they’ve paid their dues.

On the other hand, Caesars Sportsbook is one of the four largest operators in the state of Virginia. Caesars hasn’t paid any taxes and has used the loophole to take home their winnings in full. However, this will change on July 1, when all expenses must start being reported.

So far, operators have held 8.5% of total sports bets in the state, which has amounted to $4.98 billion since sports betting was legalized in Virginia. With a very small amount of this revenue going to the state itself, operators have made off with quite the profit in Virginia.

About the Loophole

The loophole itself has existed since sports betting legislation was written and the activity was legalized in April 2021. Sports betting operators often offer their customers promotions and bonuses, especially in the early days of state sports betting. Because of the way the legislation was written, operators were able to deduct any promotional expenses off of adjusted gross revenue.

Once this money was deducted, the tax rate was then applied to the remaining revenue. Almost $169 million was offered to customers as bonuses and promotions, and the entire amount was able to be written off of taxes.

Taxes Going Forward

Now that the state budget has been revised, along with the prior legislation, sports betting operators will be able to write off promotions for the first year of operation, but they will need to fully report their numbers after the 12 months. Once the 12 months have passed, operators are expected to pay taxes in full, without excluding bonuses.

By solving this issue, Virginia should expect to see a lot more money coming in through taxes, which will mainly go to the state’s general fund. A small portion of tax money from sports betting also goes to the state’s Problem Gambling Treatment and Support Fund.

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