(The Center Square) — Northeast states have some of the highest tax rates in the nation for sports betting, according to a new report from a watchdog group, which says the higher costs are restricting consumer access to the burgeoning market.
The Tax Foundation report found that New Hampshire, New York and Rhode Island have the highest tax rate for sportsbooks, at 51%, earning all three Northeast states a collective No. 1 ranking.
Vermont, which entered the sports betting market last year, was ranked fifth highest in the nation, according to the report, with a 31.7% tax rate on sports betting.
Massachusetts followed closely behind in sixth place with its 20% tax rate, while Connecticut was ranked 18th with a 13.75% tax rate. Maine was ranked lowest in the Northeast region, or 19th nationwide, with a 10% tax rate on wagers, the report said.
However, the report’s authors also pointed out that access to legal sports betting is limited due to the hodgepodge of tax rates imposed by states that have authorized betting on games and other factors.
“Consumer access to legal betting markets is limited primarily by high barriers to entry for sports betting operators who wish to offer services in the state and by limits on the geographic locations at which players are allowed to place bets,” Adam Hoffer, the report’s author, wrote.
Among the barriers to the market are expensive licensing fees and requirements for online sportsbooks to partner with existing in-state brick-and-mortar operators, as in Connecticut, the foundation said.
The report singled out Massachusetts, where sportsbooks must pay an initial fee of $5 million, with another $5 million renewal fee every five years.
Another issue is that in some states, including Massachusetts, New Jersey and New York, online wagers are taxed more heavily than in-person wagers.
At least 38 states and the District of Columbia have authorized betting on sports in response to a 2018 U.S. Supreme Court ruling that struck down a federal law prohibiting sports gambling in nearly all states. Nationwide, wagers collectively hit a record in 2023 of more than $57.2 billion.
Supporters of the law say it will raise much-needed tax revenue for state and local governments and help eliminate illegal bookmaking operations. Critics say the industry fleeces the pockets of working-class Americans and contributes to irresponsible behavior.
But the foundation said as the market continues to expand nationwide, tax rates need to be low enough to lure wagers out of the black market’s ‘bookies’ and into the legal, regulated markets.
“The market for sports betting will likely continue to grow substantially,” the foundation said. “Texas and California don’t yet permit legal sports wagering markets. With nationwide legalization, sports betting market volume could easily double.”