Place Your Bets! Legal Sports Betting Comes to NJ
Place Your Bets! Legal Sports Betting Comes to NJ
On Thursday, June 14th, at Monmouth Park Racetrack and Borgata Hotel Casino & Spa, the 1st legal sports bets were made in the State of New Jersey. Phil Murphy cast the 1st bets, wagering that the NJ Devils win the Stanley Cup and that Germany wins the World Cup. Earlier this week, Phil Murphy had signed New Jersey Assembly Bill 4111, allowing legal sports betting at certain casinos and racetracks statewide. The bill comes with state taxes on the winnings of 8.5% for on-site winnings and 13% for online winnings. In combination with a minimum 24% federal withholding tax, total taxes on gambling winnings can range from 32.5% and 37%.
How do New Jerseys taxes stack up to other states that have legalized sports betting? PA has already enacted legal sports betting and has a similar but steeper tax rate of 34% on the winnings. Delaware (50% tax on winnings!) and West Virginia (10% tax on winnings) have also recently approved sports betting but with a bigger price tag, but New York is yet to follow suit.
New York is lagging its neighbors and falling behind when it comes to sports betting. New York does have a bill pending (S7900 and A11144) with an 8.5% tax on winnings on par with New Jersey, but the bill has stalled out in Albany due to other legislative priorities and fighting over “integrity fees” or “royalty fees” for the NBA and MLB. The controversial .05% royalties to leagues would line the deep pockets of these franchises, whose viewership and ticket sales have been flagging. While the leagues have lobbied hard for these fees, they are unpopular with constituents and lawmakers alike. When New Jersey squashed these fees in the NJ bill, they set a precedent that may prove the death knell for this ill-conceived nod to the major sports franchises. But, don’t expect the NBA or MLB to give up on this source of revenue; they will be hankering for a cut of the winnings for years to come. Some have commented that the “integrity” of the games, league matchups and the like would potentially suffer more if leagues were “in on the winnings” and “betting on their own teams” so to speak. Certainly, reminiscent of the Pete Rose scandal, sports betting for professional athletes and coaches is a clear conflict of interest – how is a league receiving a cut of the winnings any different? With the current lawmaking session ending this coming Wednesday, it seems unlikely that a bill will pass in 2018 – leaving New York well behind in the state sports betting arms race.
Projections are that New Jersey sports bets will net about $13 million in taxes for the State. At these levels, New Jersey is expected to do far less than the $248.7 million of winnings Nevada sports betters hauled in on a handle of $4.8 billion – but, time will tell if NJ will compete with Sin City as a sports betting mecca.
William Hill (WMH), Nevada’s sports betting leader, invested millions in a new race & sports bar at Monmouth Park Racetrack, counting on big revenues flowing from the new bill. Joe Asher, William Hill’s CEO told ESPN that there is a tremendous opportunity for sports betting in NJ, and it could eventually reach $10 bn of sports bets per year (twice what Vegas is currently doing). The American Gaming Association estimates that Americans illegally wager $150 billion per year on sports betting. A large proportion of these revenues may now convert over to legalized betting and thereby be subject to federal and state taxation. If these estimates are correct, which some commentators doubt, Americans spend about 14 times as much on gambling as they do going to the movies! That would make sports gambling one of the biggest “entertainment industries” in the country. Math experts have opined that based on UK figures, the real number is more like $67 billion per year on sports betting. This still makes the industry 7 times as large as cinema trips. That is, for every one person sitting in a movie theater on the weekend, 7 are betting on sports somewhere. This paints a compelling picture of how prevalent the practice of sports betting really is.
Gambling winnings are taxable but may be reduced by gambling losses and expenses. Professional gamblers can write-off some of the costs associated with their trips to the casino.
Casinos are required to withhold taxes from gambling winnings, to the tune of 24% of the profits (over $5,000) and casinos are required to file a W2-G to inform the IRS of your winnings!
The New Jersey sports betting universe is just getting started, and we will see if this is a good thing for New Jersey or a bad thing, and whether the tax revenues start pouring in.
If you need help with understanding how to report your sports betting on your tax returns or are looking into doing things like company pools, etc., under the new law, call Fazzio Law Offices at (201) 529-8024 or e-mail me directly at [email protected] and we will happy to walk you through how the new law effects you and your business.
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