If there’s a level of taxation that would finally get sports bettors to walk away from gambling, states apparently have yet to hit it.
That’s the conclusion from a report by Pennsylvania’s Independent Fiscal Office, which analyzed betting activity in 34 states and failed to find any correlation between tax rates and the frequency of sports wagers placed.
Tax rates on betting differ from purely casino revenue, though both are commonly set by states. Sports betting taxes range from a low effective rate of 6.2% in Arizona to 51.8% in New York. Betting sites like FanDuel have said they pass those taxes directly to customers.
Theories like the Laffer Curve suggest that taxation of any good or service can reach a point where it discourages the activity being taxed. Any tax rate beyond that point ends up causing a behavior that results in less of what’s taxed — thus, less tax revenue despite a higher rate.
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Sports betting activity in Nevada amounts to $4,198 per resident aged 21 to 65, the highest in the country.
That principle wasn’t evident in how states taxed sports betting and how residents bet, the Pennsylvania report found.
“These data suggest that there is no clear relation between state tax rates and per capita handle; high- and low-tax-rate states appear at the top and bottom of the ranked list,” the report said.
For instance, New York’s nation-high tax rate didn’t seem to faze gamblers in 2025. The state saw $2,270 in handle (betting activity) per resident ages 21 to 65. The Empire State was second only to Nevada in per-capita revenue.
Other factors that the analysts said could affect revenue included promotional credit deductions, lack of competition, urban population density and the presence of pro sports teams.
Black market threats
The gaming industry has lobbied against high tax rates, saying heavy fees would not only discourage betting but push revenue-producing gamblers to the illegal offshore market.
“Bringing sports betting activity into the legal market and under regulatory oversight provides increased transparency, enhanced game integrity, and consumer protections, while supporting jobs and generating tax revenues,” the American Gaming Association said in a 2023 document pushing for a federal gaming tax repeal. “However, the right policy environment is critical to allow legal sports betting operations to compete with the illegal market, which enjoys significantly lower overhead by dodging taxes and other regulatory costs.”
Others say the higher taxes cost customers a gaming service’s fringe benefits commonly offered in lower-tax states.
“In healthier markets, operators compete for customers with deposit matches, free bets and generous bonuses,” Justin Leventhal, senior policy analyst at the American Consumer Institute, wrote in a 2025 op-ed for The Hill. “In high-tax states, those perks disappear, leaving bettors with fewer benefits and less incentive to use legal platforms.”
State budget crunches
The report is sure to find its way into conversation among state lawmakers looking to shore up budgets facing shortfalls after billions of dollars in federal COVID-19 aid has finally dried up.
According to the National Council of State Legislatures, 22 states are dealing with budget shortfalls or are in current budget years with a running deficit.
Four states chose to hike the tax rate on sports wagering last year. Illinois’ increase of up to 50 cents per wager and Maryland’s 5 percentage point tax boost both took effect in July 2025. Louisiana increased its tax by 6.5 percentage points last August. New Jersey saw the biggest jump, increasing its tax rate by 6.75 percentage points.
Arizona, Ohio and Michigan have proposed tax increases in their respective budgets for the coming fiscal year. Legislation in West Virginia would change the gaming tax rate from 10% to 25%.