US Missing Out On Gambling Tax Windfall

by Mike Godfrey, Tax-News.com, Washington

28 April 2010

A study of the potential for a regulated US real money Internet gambling market by H2 Gambling Capital, a leading supplier of data and market intelligence on the global gambling industry, suggests a potential national gross win of USD22.0bn in year one (if sports betting is included) rising to USD42.0bn by 2015. If sports betting is excluded, then the corresponding figures are USD14.4bn rising to USD26.7bn.

Currently the offshore real money Internet market generates approximately USD105bn in turnover and USD5.1bn in gross win from the US. The results of the H2 Study imply that, during the period from the signing into law of UIGEA until the end of the current year, there could have been a total of just under USD5.0bn raised in taxation and 33,480 additional Full-Time-Equivalent (FTE) job years generated.

H2 note that, via spending in the US, the overseas real money Internet gambling sector generated expenditure of approximately USD7.7bn during the period 2007 to 2010.

H2 calculated that all forms of real money Internet gambling (including sports betting) across the US would generate a total gross expenditure in the nation’s economy of USD94bn over the first five years, which in turn would generate just under 159,750 FTE job years (an annual average of 19,420 direct/12,530 indirect) and USD57.5bn in domestic taxation.

All forms of Internet gaming being permitted (but no sports betting allowed) across the US would generate gross expenditure of USD67bn in the nation’s economy over the first five years, according to the study.

H2 Gambling Capital developed its US regulated Internet Gambling model in order to assess the complete potential fiscal and economic impact of the sector under a model of Federal legislation. In undertaking this work it built upon previous taxation studies by PricewaterhouseCoopers and the Joint Committee on Taxation during last year.

The study combines H2’s own proprietary US regulated Internet gambling market forecasts with information regarding patterns of employment in the existing Internet gambling sector and other fiscal and economic data.

The full range of taxes (income tax, property tax, unrecoverable sales tax, etc) was considered and not only ones such as direct license fees, wagering tax, winnings tax and corporation tax. Also both direct (for Internet gambling operators and software suppliers) and indirect employment along the supply chain was included which would suggest approximately 9,070 (2,270 average per annum) FTE job years have been created.

In undertaking its assessment H2 claimed to have employed extreme prudence, utilizing relatively low multipliers and assuming some leakage of both spending and profits from the United States even if there are provisions within any legislation to prevent this.

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