Newest Virginia State Budget Limits Sports Betting Freebie Loophole

• Virginia Lawmakers Limit Sportsbook Tax Loophole for Free Giveaways
• Now Sportsbooks Can Only Deduct Freebies for First 12 Months in Market
• Those Freebies Cost Virginia a Potential $26.7 Million in Uncollected Tax Revenue

Virginia Lawmakers Limit Sportsbook Tax Loophole for Free Giveaways

Of the over thirty US states that have legalized sports betting for their residents, only eight of them have permitted the sportsbooks operating there to deduct the cost of freebies and giveaways from their total revenue, though starting in July you can take Virginia off that list.

To help sportsbooks attract new customers, Virginia lawmakers decided early on to let them deduct all the free bets and wager matches they gave away to new bettors from the money they could be taxed on by the state, a costly discount that it turns out they want to take back.

Virginia will do that through their new state budget which goes into effect on July 1, because in it is a language that closes those freebie loopholes for sportsbooks, forcing them to either discontinue using that type of marketing or begin to take on the cost of it themselves.

This move to close that loophole was the brainchild of Del. Mark Sickles, who from the start wanted to eliminate that tax break for the sportsbooks, an effort given further forward momentum by the coverage this issue received in the Times-Dispatch in early May.

Here’s how Virginia will handle those freebies from now on.

Now Sportsbooks Can Only Deduct Freebies for First 12 Months in Market

Because of the freebie loophole in Virginia, for the last year and a half, the state has lost millions in potential tax revenue, with only five of the twelve sportsbooks operating there paying any taxes at all, a systemic weakness that needed legislative help to fix.

According to the new state budget, sportsbooks will only be allowed to deduct those freebies and giveaways from their pre-tax revenue for the first 12 months that they are in operation, still a generous offering for newbies to the market but a cut-off point that makes more sense for VA.

Virginia’s online sportsbooks generated a $399.4 million handle in April which resulted in $36.3 million in revenue for those operators, big numbers that will continue to grow as that market matures and bettors there become more familiar with the process of placing wagers.

With that loophole closed, Virginia should see a major increase in tax revenue soon.

Those Freebies Cost Virginia a Potential $26.7 Million in Uncollected Tax Revenue

Due to that freebie loophole, the state of Virginia has been taking a massive hit in potential tax revenue as sportsbooks reportedly hid 43.7% of their revenue from taxation via those allowable deductions, and that resulted in $26.7 million worth of uncollected tax revenue so far.

That major leak in the state’s new income stream should be stopped by the amended state budget that starts in July, with the VA’s four largest sportsbooks – FanDuel, DraftKings, BetMGM, and Caesars – all affected since they have been operating there for more than a year.

It makes good sense to evolve these new sports betting markets as they develop the way Virginia is doing starting next month, a lesson the remaining states who have yet to legalize such an operation for their residents can learn before they ever take that same step.