Virginia Sports Betting Tax Regulations Reworked to Include Promo Play

Virginia sports betting promotions used by sportsbooks to signup new customers and retain others are no longer tax-free after state lawmakers amended the regulatory conditions that govern the expanded gaming.

FanDuel advertises a risk-free bet up to $1,000. Virginia sports betting regulations have been amended to limit how much promotional money sportsbooks can deduct from their tax responsibilities. (Image: FanDuel)

Legal sports betting in Virginia began in January 2021 after state lawmakers and then-Gov. Ralph Northam (D) authorized gambling on sports both in-person and online in March of the previous year.

The regulated sportsbooks, licensed by the Virginia Lottery, have operated predominantly over the internet since their January 2021 debuts. The Virginia Lottery has since granted 14 entities with sports betting privileges.

Virginia is home to nearly 8.6 million people, ranking it 12th in the US. Paired with Virginia ranking 10th in terms of median household income, the commonwealth is very attractive to the sports betting industry.

The more than a dozen sportsbook platforms have for more than a year been fiercely battling for market share. And they do so by offering new customers substantial signup bonuses featuring free play, deposit matches, and risk-free bets.

But those marketing incentives will soon be subjected to Virginia’s full 15% tax it levies on sports betting revenue after an operator’s first year in business.

Promotional Period

Virginia’s sports betting law initially allowed for sportsbooks to strike revenue generated by promotional incentives.

For example, if FanDuel offers a new customer a one-time $500 risk-free bet, and the player loses that bet, FanDuel has not been required to include the $500 win-back money as gross revenue. But with sportsbooks writing off substantial amounts of their revenue — operators deducting more than $9.96 million in bonuses and promotions in May alone, the most recently disclosed month — state lawmakers say the tax affordance should be reduced.

Through their 2022-2024 biennium budget bill, Virginia lawmakers added a provision overhauling how sports betting promos are taxed. Item 494 in the budget ends marketing tax breaks for sportsbooks 12 months after the operator takes its first bet in the state.

A permit holder, through the first 12 months of sports betting activity, may exclude from adjusted gross revenue the value of allowable bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed internet sports betting wagers. After the first 12 months of sports betting activity, a permit holder is prohibited from excluding from adjusted gross revenue any bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed internet sports betting wagers,” Item 494 adjusts the tax law.

Virginia primarily earmarks sports betting tax revenue or its General Fund. But a small portion — 2.5% — of the tax money is allocated to the state’s Problem Gambling Treatment and Support Fund.

Change to Increase State Benefit

Including promotional revenue into a sportsbook’s tax liability is expected to substantially increase tax revenue stemming from the commonwealth legalizing gambling on sports.

The regulatory change, effectively immediately, ends the promotional tax write-off for numerous bookmakers that have been operating in Virginia for more than a year. They include BetMGM, BetRivers, Caesars Sportsbook, DraftKings, FanDuel, Unibet, and WynnBET.

Along with the 15% tax liability on gross income, each licensed sportsbook paid a $300,000 one-time licensing fee to the state. They must also pay $200,000 to the state for their permits to renew every three years.

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