Virginia Sports Betting Market Adjusting to Closure of Tax Loophole

When Virginia went live with sports betting, it allowed operators to write off promotional spend. However, the state quickly realized that money was being lost—after closing the loophole July 1, operators are still adjusting to the new landscape.

When Virginia set up the regulations for legalized sports betting, the legislation allowed sportsbooks to provide incentives to attract new customers without paying taxes on the promotions.

The state failed to consider the impact of the tax-free marketing and how it affected the expected tax revenue, according to WRIC.

The Joint Legislative Audit and Review Commission estimated sports betting would result in as much as $55 million a year for the state. But revenues have fallen short, said Delegate Mark Sickles. Lawmakers underestimated how much operators would utilize the promotions.

“In the original legislation, we made a mistake by saying they could deduct,” Sickles said. “I believe it’s a totally inappropriate role of government to be encouraging people to gamble.”

During the state budget discussion in July, the legislature closed this loophole as of July 1.

From July 1 and July 31, 2022, Virginia collected $3.1 million in tax payments, an increase of $1.8 million from June 2022. Virginians bet $29 million more in June, too. Operators cut promos and bonuses from almost $8 million in June to around $400,000 in July.

“This is before the college football season starts. Before the NFL season starts, it should have a major effect this fall,” Sickles said.

Sports betting revenues carry a 15 percent tax on adjusted gross revenue, with the taxes going to the general fund and for the Problem Gambling Treatment and Support Fund.