New Bill Would Tax Internet Gambling

| by CEI

By Michelle Minton

Yet another online gambling bill to add to the pile, Rep. Jim McDermott introduced the igaming taxation and regulation bill that he unsuccessfully introduced in 2009. While McDermott’s bill wouldn’t legalize online gambling, it is companion legislation to the bill HR 1174 introduced earlier this year by Reps. John Campbell and Barney Frank, which would legalize and regulate online wagering.

This time around, The Internet Gambling Regulation and Tax Enforcement Act, (HR 2230), which was introduced today by Reps. Jim McDermott, John Campbell, and Barney Frank, would require gambling platforms to report to the federal government on players’ financial activities and withhold a 2 percent federal tax on deposits received each month. The bill gives states the option to tax the sites an additional 6 percent on deposits. Both of these taxes would be paid by the websites and would not be paid by players.

A report from H2 Gambling Capital, released after McDermott introduced his first online gambling tax bill, looked at online wagering over a five-year period. According to the report, legalized online gambling could create 32,000 jobs, $94 billion in economic activity, and an additional $57.5 billion in tax revenue.

This bill primarily deals with how licensed and regulated online gambling websites would withhold and file taxes with the federal, state, and tribal authorities. Current law already requires players to report income earned from online wagering activities (currently taxed at 28 percent). According to a report from The Hill, the bill would have the most impact on players in that it requires online gambling platforms to provide the names, addresses, and tax identification numbers of players to the federal government.

According to a report from Accounting Today:

Online gambling site operators would also need to send information to the Treasury Department on the gross wagers, gross winnings, and gross losses of each player every calendar year, the taxes withheld on their winnings, and how much had been deposited and withdrawn from their accounts during the year.

Gamblers at brick-and-mortar casinos already must report earnings and can even claim expenses and losses as tax deductions. This bill, in conjunction with some sort of licensing scheme for online casinos, will bring online players into the American system of taxation. While this is definitely a sign that legalized online gambling is imminent, the truly best-case scenario would be to have just a taxation bill for all casinos (without a licensing scheme) and to overturn any legislation that could be interpreted to mean that online gambling is illegal. As I’ve always said, online gambling, like wearing red shoes on a Sunday, shouldn’t have to be declared officially “legal,” it should just not be criminal and treated under the law as any other activity.