Pennsylvania sports bettors are not taking kindly to DraftKings’ plan to institute a tax surcharge on winning online sports bets in four states beginning 2025.
DraftKings sports bettors in Pennsylvania are prepared to remove the sportsbook’s app if the tax surcharge remains in effect
Since Pennsylvania is one of four states that DraftKings will be issuing a tax surcharge on winning online sports bets, residents are threatening to delete the sportsbook’s app unless the company removes the tax surcharge.
While a boycott is possible, the company is still going to follow through on its new business plan. If DraftKings’ patrons decide to bail, other major sportsbooks in the state include BetMGM, Caesars, Fanatics, and FanDuel.
DraftKings implemented the tax surcharge in Pennsylvania to offset the state’s 36% tax rate. The Keystone State is joined by New York, Illinois, and Vermont as the first DraftKings jurisdictions to be subjected to the charge.
This is what the DraftKings surcharge might look like beginning January 2025.
Will be applied to net winnings in Illinois, New York, Pennsylvania and Vermont to lower DraftKings’ effective tax to 20% in those states. pic.twitter.com/DSbafHdowc
— Sam McQuillan (@sam_mcquill) August 1, 2024
The tax surcharges are for sports betting only and will not impact Pennsylvania online casino play. Online casino gaming is generally more profitable for operators. For that reason, it’s unlikely that bettors will ever see surcharges on net winnings on U.S. online casinos.
The surcharge will be implemented in “high tax online sports betting states that have multiple operators.” This ensures an operational effective tax rate of approximately 20%, according to DraftKings’ Q2 earnings report press release.
Pennsylvania joins Illinois, New York, and Vermont
Furthermore, New York has an online sports betting tax rate of 51%. Illinois has a rate of 20% to 40% depending on the sportsbook’s adjusted gross revenues (AGR), and Vermont has a rate of 31%.
Vermont became the latest state to implement a 20% tax. Though, Illinois raised its flat rate of 15% up to a new structure that requires DraftKings and FanDuel to pay up to 40%.
According to Play Illinois, the 20% tax rate is on the first $30 million in AGR. A 25% rate on AGR is between $30-50 million. A 30% rate on AGR is applied between $50 million and $100 million as well. Next, a 35% rate is on AGR above $100 million up to $200 million. Lastly, a 40% tax is imposed on AGR above $200 million.
The last thing Pennsylvania bettors need right now is a tax surcharge.
“We very efficiently acquired many more new customers than we expected and saw continued healthy existing customer engagement in the second quarter,” said Jason Robins, DraftKings’ CEO and Co-founder.
“We will continue to capitalize on the healthy customer acquisition environment for the rest of 2024. [This] positions us to achieve $900 million to $1.0 billion of Adjusted EBITDA in 2025.
“Additionally, we plan to implement a gaming tax surcharge in high tax states that have multiple mobile sports betting operators on January 1, 2025. [This will] drive Adjusted EBITDA upside on an annual basis.”
DraftKings provided a tax surcharge example for Illinois
The details pertaining to the tax surcharge for each state have yet to be announced at this time. However, in the DraftKings Q2 report, the company provided an example for bettors with an NBA game.
The sportsbook displayed a winning Illinois +100 odds ticket for $10, winning a total of $19.68, instead of the usual $20. With the new surcharge, the odds of that ticket are now just about -103.
DraftKings pays roughly 40% each month in taxes in Illinois, a similar rate as Pennsylvania. This means a similar tax surcharge could be expected for the Keystone State.
The sportsbook referenced Illinois’ structure change as a reason for implementing the new tax.
