Michigan Considers Tax Hike on Online Gambling: Clash Between Commercial Operators and Tribal Competitors
In a move aimed at increasing state revenue from the online gambling sector, legislation has been introduced in the Michigan Senate that proposes raising taxes on commercial revenue generated from online casino gambling and both retail and mobile sports betting. The proposed tax increase has sparked concern among commercial operators who argue that it would disadvantage them in a competitive market.
Legislative Overview
The newly proposed Senate Bills 1193 and 1194, introduced by state Senators Sam Singh (D-East Lansing) and Jeremy Moss (D-Southfield), seek to enhance the state’s share of the revenues earned from sports and online gaming operations. Specifically, SB1193 suggests a modest increase of 0.1% on the gross sportsbook win for both online and retail operations, raising the tax rate from 8.4% to 8.5%. In contrast, SB1194 recommends a more substantial increase of 1% on gross gaming revenue (GGR) from commercial iGaming websites and apps.
The state currently utilizes a graduated tax scale for iGaming operators. This means that as revenue increases, the tax rate also rises. For example, operators earning less than $4 million annually would see their tax rate increase from 20% to 21%. Other proposed rates include:
- Revenue $4 million to $8 million: from 22% to 23%
- Revenue $8 million to $10 million: from 24% to 25%
- Revenue $10 million to $12 million: 27%
- Revenue above $12 million: 29%
Both senate bills have been sent to the Senate Government Operations Committee, where Singh serves as the majority vice chair and Moss is a committee member.
Impact on Commercial Operators
It is important to note that the proposed bills would not affect tax rates for tribal gaming operations. This means that commercial casinos — the only ones permitted in Michigan — could face a competitive disadvantage against tribal operators, who are not subject to the same tax increases. For the state to revise tax rates on tribal sports betting and iGaming, amendments to their Class III gaming compacts would be necessary.
The three commercial casinos in Michigan—MGM Grand Detroit, MotorCity, and Hollywood Casino at Greektown—were allowed to expand into online gaming and sports betting following a legislative package passed in December 2019. Under this framework, each casino can operate only one iGaming and sportsbook skin, partnering with established brands such as BetMGM, FanDuel, and ESPN Bet.
Opposition from Major Operators
The proposed tax increases have drawn criticism from the major operators involved in Michigan’s commercial gaming space. Companies such as BetMGM, FanDuel, and ESPN Bet have openly opposed the legislation, arguing that even a small increase in tax rates will negatively impact their ability to compete with tribal operators. They emphasize that tribal iGaming and sportsbooks currently adhere to a uniform tax rate of 8.4%, similar to the new 8.5% proposed for commercial operations, but tribal operators benefit from the exemption from the additional taxes suggested in the new bills.
Current Revenue Landscape
In terms of revenue generated in 2024, commercial iGaming in Michigan has seen significant returns. Between January and October 2024, BetMGM, FanDuel, and ESPN Bet reported a total gross revenue of $1.058 billion. In comparison, the 12 Native American tribes collectively reported wins of about $913 million from their iGaming activities. Online sports betting has also contributed significantly, with commercial operators winning $247.4 million and tribal operations earning $134.6 million within the same time frame.
So far this year, Michigan has collected over $363 million from iGaming taxes and more than $12.5 million from online sports betting, highlighting the growing significance of the gambling sector to the state’s economy.
As discussions continue around the proposed legislation, stakeholders in the commercial gaming industry are keenly monitoring the developments, which hold potential implications for the competitive landscape of online gambling in Michigan.