The new Virginia state budget will close a loophole that let sports betting operators avoid paying millions of dollars in taxes since legal wagering launched in January 2021. The issue was exposed by the Richmond Times-Dispatch on May 2. Specifically, of the 12 sports wagering companies currently operating in the state, only five have paid any taxes.
The newspaper’s investigation found sports betting companies were allowed to deduct certain promotional expenses from their pre-tax revenue, including free bets for players. This led to the Virginia government missing out on tax revenue estimated at $26.7 million.
Originally, legislators believed allowing operators to write off promotional expenses would help the market grow more quickly. However, in other states, including New York, that has not been the case.
The revised legislation, which takes effect July 1, will allow companies to deduct promotional incentives for their first 12 months in the market. After that, all such revenues must be reported and taxed. In Virginia, the four largest sports betting companies—FanDuel, DraftKings, BetMGM and Caesars—all have been live for more than one year.
Since legal sports betting launched, Virginians have wagered nearly $5 billion, according to the Virginia Lottery. Operators hold 8.5 percent of that amount, and the state has collected $29.8 million in tax revenue. To show how closing the loophole could affect state tax revenue, compare Virginia with Tennessee, where sports betting became legal in November 2020. The state does not allow the taxation loophole. Bettors have wagered $4.405 billion, with operators holding 8.6 percent.
The state has collected $62.8 million in tax revenue since sports betting launched, more than double what Virginia has reported.
