Substantial Tax Increase For New Jersey Mobile Operators Appears Likely But Not ‘Done Deal’

New Jersey Gov. Phil Murphy’s annual budget address on Tuesday — his final one as he concludes his second term — officially marks the start of negotiations with the state legislature, with a June 30 deadline for an agreement.

So proposals announced by Murphy such as an increase in the New Jersey online casino gaming tax and mobile sportsbooks tax to 25% — up from the current 15% and 13%, respectively — is not at all set in stone yet.

That said, there is a good chance that the state Senate and Assembly — each chamber controlled by the state Democratic party with this Democratic governor — will not spend a lot of time, if any, battling Murphy on this issue.

There are a number of reasons for that, including the fact that a rate of 25% on sports betting would still be lower than what is charged in neighboring Pennsylvania (36%) and especially New York, which has not legalized iGaming but which charges a nationwide-high 51% tax rate on sports betting gross revenue. Most major operators, including market leaders DraftKings and FanDuel, have elected to operate in New York despite that tax rate.

The New York state market is considerably larger than New Jersey’s, but being taxed at just under half that amount in the Garden State hardly seems likely to cause large operators to leave the state. The marketplace peaked at nearly two dozen mobile sportsbooks in New Jersey after sports betting launched legally in 2018, and even with the departure of a number of smaller companies since then, consumers still have more than a dozen legal sportsbooks from which to choose.

That’s not to say that there is zero downside to a gambling tax hike.

“Raising taxes only makes New Jersey’s market less competitive, driving players toward platforms that aren’t regulated and that the state can’t benefit from,” Jeff Ifrah, general counsel for the iDevelopment and Economic Association, said in a statement. “Instead of undermining a proven model, policymakers should recommit to strengthening the legal market that has made New Jersey a leader in the U.S.”

Employment impact

That leadership has induced many gaming operators to set up shop in the state, mostly in the Atlantic City area or just across the Hudson River from Manhattan. For instance, BetMGM — a major player in online gambling — now has a corporate office in Jersey City with 1,500 employees, many of whom live in and pay taxes in North Jersey.

Will a rise in tax rates — cutting into company profit margins — lead entities like BetMGM to leave the state for more business-friendly locations?

The tax hike also likely would lead to fewer promotions offered to each operator’s gambling consumers.

Spectrum Gaming Group Executive Vice President Joe Weinert also weighed in Murphy’s proposal.

“Raising tax rates on any segment of online gaming is easy for two reasons,” Weinert told Casino Reports. “First, it’s faceless — a big tax increase won’t cause a casino to tighten its belt and eliminate jobs like a slot attendant or a cocktail server. Second, online gaming companies are not a sympathetic constituency because of their free-spending, nonstop barrage of advertising.”

Political climate in NJ may come into play

And for the state’s Democratic Party, the main focus is on the November election that will determine Murphy’s replacement. In 2021, pollsters underestimated a race that resulted in Republican challenger Jack Ciattarelli surprisingly losing to Murphy by only three points. Still, Murphy managed to become the first Democratic governor in 44 years to win re-election.

Ciattarelli is running again, and polls have have him well ahead of a host of Republican challengers. There is no clear Democratic Party frontrunner yet, and last November, presidential candidate Donald Trump — who lost New Jersey by 14 points in 2016 and by 16 points in 2020 — lost his race against Kamala Harris in the state by just six points. That’s even though New Jersey’s electorate has not preferred a Republican presidential candidate since 1988.

Democrats enjoy significant majorities in the Trenton statehouse — 25-15 in the state Senate and 52-28 in the Assembly — but all of the Assembly members are up for election this November (senators next will seek re-election in 2027). New Jersey’s Constitution also is such that the state’s governorship sometimes is described as the most powerful such office in the nation.

That means that statehouse leaders could struggle to implement their agendas should the Republicans regain control of the governor’s office and also cut into the Democrats’ lead in the Assembly. And that makes a boost in the tax rate of a niche industry such as online gambling more politically palatable than most alternatives in an election year.

Meanwhile, the cost-cutting process under Trump in Washington, D.C. means that no state, including New Jersey, is immune to the possibility of a significant decline in federal assistance this year. If that plays out, then even Murphy’s current budget proposal — which includes the tax hikes — may prove insufficient.

All of that “inside baseball” about New Jersey politics is not directly relevant to online gambling, of course. But it is important to underscore the daunting task that industry advocates opposed to the change in tax rate will face in the coming months.

Murphy’s record $58.1 billion budget estimates a structural deficit of $1.2 billion. State tax revenue from online gambling in 2024 was $496.6 million, so an effective doubling of that rate could bring in roughly an additional $500 million.

Striking the gambling tax hike from the budget would require cuts elsewhere. And in Murphy’s budget address in Trenton, he said:

“And to those of you out there, who I know are going to criticize the size of our budget proposal, I ask you this: What would you cut?

“Because I, for one, refuse to sell off our children’s future just to score a cheap headline. I refuse to raise state taxes on the firefighter in Freehold, or the teacher in Teaneck. I refuse to rip healthcare coverage away from our working families and children. Or to starve NJ TRANSIT of the funding it needs to serve our commuters. Or to defund Planned Parenthood, like the last administration did.”

A trend of online gambling tax hikes

New Jersey’s current online gambling tax rates are among the lowest in the country, and other governors also are looking to the gaming industry for new revenue at a time when states’ surpluses from a massive infusion of federal dollars during the COVID-19 pandemic have mostly dried up.

This month, Republican Gov. Mike DeWine of Ohio proposed doubling the state’s tax rate from 20% to 40%. That comes in the footsteps of another Midwest governor, Democrat JB Pritzker of Illinois, last summer signing into law a gambling tax boost from 15% to as high as 40% for the industry’s largest players.

Last year, New Jersey state Sen. Jack McKeon, a Democrat, introduced a bill to raise the tax rate on both forms of online gambling to 30%. That bill has stalled in committee, and Murphy’s proposal is a slightly more modest tax hike.