Wes Moore, the Governor of Maryland, has a tax plan to boost revenue. He wants to double the sports wagering tax rate in the state to 30%. He is also proposing to raise the online gaming tax rate from 20 to 25%.
The proposed tax hikes are part of broader tax reforms that Moore says would make the tax system simpler, fairer, and more able to meet the needs of the state. These changes will still need to be approved by the legislature and will help to address a $3 billion budget deficit in the state.
Legalizing sports betting
Governor Larry Hogan signed a bill legalizing sports betting in 2021 but the launch only happened in late 2022 when mobile sportsbooks started to accept bets. There are currently 11 Maryland sportsbooks taking wagers that brought in $43.4 million in sports betting revenue in December.
Maryland online sports betting legislation allows for up to 60 mobile licenses. In September 2024, contributions toward education funding went over $100 million since the start of Maryland sports betting.
Gambling tax hikes in recent years
This is the third gambling tax hike since Ohio went from 10 to 20% in 2023 and Illinois introduced a graded 20 to 40% rate in 2024. The hike in Maryland could have a negative effect on the future of online gambling.
Those in favor of the hike say the proposed raise in the sports wagering tax rate may seem high but most of the rates in neighboring states have tax rates higher than 15%. For example, Pennsylvania’s tax rate is 36%. After the budget announcement, operators saw declines in share prices.
Analyst opinions on the tax hikes
Analysts at JMP Securities believe the tax hikes could hurt smaller operators and allow larger ones to dominate the market. Larger operators can reduce their marketing spend to offset the tax hike.
The tax hikes could also mean less investment and more players moving to illegal sites. In 2024, Maryland Lottery and Gaming sent 11 cease-and-desist letters to unregulated operators. Six of these operators responded.
Analysts at Trust Securities view the news as detrimental to gaming stocks. They expressed a greater concern that if other states follow suit and increase their tax rates, it could pose an even more significant risk. With substantial growth in the gambling industry, states are increasingly looking to generate more tax revenue to support public initiatives and drive economic development.
The proposed tax hikes are still subject to approval but investors in sports betting and gambling stocks keep a close eye on developments. An increase in taxation could have an impact on the growth of companies in this sector.