Illinois Should Lower Sports Betting Taxes, Says Policy Group

State has fifth-highest sports betting taxes in the US
Illinois Policy advocates for lower, not higher, betting taxes
Cash-strapped Chicago may consider additional sports wagering tax

Illinois is home to some of the highest online sports betting taxes in the United States. The Illinois Policy Institute (IPI) believes this status warrants reconsideration if the state aims to keep generating revenue from its gambling enthusiasts.

Politics — Image by weinstock from Pixabay

The IPI describes itself as a right-leaning think tank that supports policies aimed at reducing taxes and government spending in Illinois, a state typically characterised by its liberal politics. Through its Illinois Policy publication, the institute voiced concerns that high sports wagering taxes could significantly hinder what has become a vital source of income for the state.

“People should be free to place a bet, but the government shouldn’t bank on their losses to fund its budget. To maintain a competitive betting market that supports public services without unfairly penalising citizens, lawmakers need to reconsider these betting fees and ensure that Illinois remains an attractive market for bettors.”

The institute specifically highlights a recently implemented taxation policy where a 25-cent tax applies to an operator’s first 20 million bets booked, increasing to 50 cents thereafter. This is in addition to the existing sports betting tax set at a staggering 50% — one of the highest rates in the nation alongside Delaware, placing Illinois fifth overall.

Understanding Illinois’s High Taxes on Sports Betting

This newly instituted wagering tax was introduced following a progressive tax plan that aimed to shift the burden primarily onto larger operators like DraftKings and FanDuel. Interestingly, while New York leads the pack with a 51% tax, heavily populated states such as Pennsylvania impose only a 36% tax rate. Even states like Massachusetts and New Jersey, notorious for their high tax regimes, apply tax rates of 20% and 21% respectively.

This situation raises questions about the sustainability of sports betting in Illinois. While the state has collected significant tax revenue from betting operations, the IPI warns that failure to adapt its tax structure could prompt bettors to gravitate toward unregulated, illegal markets where there’s no revenue generation for the state and far fewer protections for consumers.

The IPI reports that Illinois residents lost a staggering $1.12 billion on sports betting in 2024, which included $700 million on high-payout bets known as parlays. The increasing betting fees mean those numbers could rise further, potentially driving the betting scene underground.

Potential Taxation Moves in Chicago

To add fuel to the fire, Chicago may soon implement its own per-bet tax, as highlighted in a report by the Chicago Financial Future Task Force. A proposed 50-cent fee on internet sports betting could generate an additional $17 million for the city — a drop in the bucket when compared to its projected budget deficit of $1.1 billion for fiscal 2026.

While it’s a small change in the grand scheme of federal budgets, it reflects the urgent need for the city to explore new revenue sources. More importantly, it indicates a shift towards greater regulation in the sports betting field, as cities take the matter into their own hands.

Insights and Analysis

As Illinois navigates the complex landscape of sports betting taxation, it faces several challenges:

Balancing revenue generation with the need for a competitive market.
Avoiding a potential decline in legal gambling regulations, steering players back to illegal options.
Adapting to changing market conditions, particularly with larger operators dominating the landscape.

Engagement from state lawmakers regarding these tax structures is paramount if Illinois hopes to maintain, and perhaps even grow, its market share in a vital sector of the economy.

While the data indicates a strong betting interest in the state, the upcoming decisions on taxation could either bolster or hinder Illinois’s revenue streams in the future. Only time will tell how lawmakers will address these challenges and what it means for the state’s sports betting landscape.

In summary, the debate around sports betting taxes in Illinois is far from over. As stakeholders weigh the balance of tax structure and market appeal, the voices of advocacy groups like the Illinois Policy Institute may play a crucial role in shaping the future of sports betting in the state.