Senate Committee Doubles Tax Rate, Passes Minnesota Sports Betting Bill

Written By Mike Breen on March 14, 2024
A picture of increasing tax rates for a story about how the Senate Taxes Committee doubled the tax rate on a Senate sports betting bill.

A bill in the Minnesota Senate that would legalize sports betting moved through its latest committee today. But not before lawmakers added an amendment that would double the state’s tax rate on sportsbook revenue.

The Senate Taxes Committee amended SF 1949 to double the original tax rate from 10% to 20%.

The tax increase comes after the Senate Commerce and Consumer Protection Committee tacked on an amendment prohibiting in-game sports betting in Minnesota. Industry stakeholders and some legislators balked at the prohibition, warning that it would massively decrease overall revenue in the state.

The rate increase would cover some of the tax revenue lost to the in-game betting ban. However, the state would still receive significantly less revenue from sports betting than was originally projected.

The committee voted to approve the amendment and move the bill to the Senate Finance Committee for further consideration.

Revised tax revenue estimates decreased by over half

Sen. Matt Klein, the author of SF 1949, is also the vice chair of the Taxes Committee.

At the March 14 committee meeting, Klein shared revised annual tax revenue estimates. The new estimate is based on the doubling of the tax rate, as well as the prohibition of in-game betting, and another provision in last week’s amendment that would enable sportsbook users to self-impose spending limits on their betting.

Klein said those amended provisions would help with problem gambling prevention.

Additionally, he said that sports betting in Minnesota would bring in $18 million in tax revenue annually. Before the in-game prohibition and rate increase, estimates had projected $40 million in tax revenue for the state.

“Despite doubling the taxation rate, those two protection measures had a massive impact on expected revenues,” Klein said. “That will be something to consider going forward.”

At the March 5 Commerce and Consumer Protection meeting, Jeremy Kudon, president of the Sports Betting Alliance, told the committee that in-game bets accounted for over 50% of sports bets in the U.S. Kudon said that was expected to grow to 70% by 2030.

Amendment gives tax revenue to charitable gaming

Also included in the committee-approved SF 1949 amendment is an adjustment in how tax revenue would be dispersed. They added tax relief payments to charitable gaming organizations.

Republican lawmakers have been lobbying to channel sports betting revenue to charitable gaming concerns to offset losses resulting from legislation last year that put limits on the electronic pull-tab games they offered.

They were also calling for horse racetracks to be allowed to offer sports betting, but the controlling DFL party has been firm on retaining tribal casino exclusivity over all sportsbook licenses.

The current tax dispersion plan would still give some tax revenue money for the tracks to the Minnesota Racing Commission.

As amended, here’s how the current sports betting bill would distribute tax revenue annually:

  • 20% to tax relief for charitable gaming organizations
  • 5% to the Minnesota Racing Commission for grants to licensed racetracks
  • 15% to the Explore Minnesota Tourism for grants to attract major sporting events to the state
  • 10% for compulsive gambling treatment programs and the state affiliate of the National Council on Problem Gambling
  • 5% to the Minnesota State High School League for youth sports and other extracurricular activities
  • 45% to the state’s general fund

Changes to tax exemption on promotional bets

Another new aspect included in the committee’s amendment is a change in the taxation of promotional bets, a key component of sportsbook customer acquisition strategy.

In some states, sportsbooks can subtract the dollar amount of promotional credits and free bets from the gross revenue they are taxed.

“The industry argues that these are important to cultivate people who are currently participating in the illicit market over to the legal market,” Klein said. “The contrary argument would be, ‘Why would we make those tax exempt?,’ and I can see both sides. So what I did in the amendment is phase (the tax exemption) out.”

Under the amendment, such promotional credits would be 100% tax-exempt in the first year. Then, gradually, over five years, they would become fully taxed.

Sen. D. Scott Dibble argued that the promo bets shouldn’t ever be tax-exempt because it substantially reduce tax revenue. Dibble also suggested exempting such credits would essentially be the state underwriting the sportsbook companies’ promotional budget.

“This means the taxpayers are paying for the promotional activities of the industry to establish itself and hook people on this addictive behavior,” Dibble said. “That would be an inappropriate use of our public funds.”

Dibble introduced an amendment that would eliminate all tax exemptions on promotional spending, but the committee voted it down.

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Mike Breen

As a contributor to PlayMinnesota, Mike Breen covers most angles of the state's gambling industry. Currently, he is focusing on the state's legislative progress surrounding sports betting bills. However, he can be found writing about many aspects of Minnesota gaming.

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