Is The Low Tax Rate For Iowa Sports Betting Hurting The State?

• Iowa has seen solid turnout since legalizing sports betting, but its tax revenue lags behind other states.
• Only one other state taxes sports betting revenue at as low a rate as Iowa.
• The state legislature is not capitalizing on the sports gambling industry as much as it could or should be.

DES MOINES, Iowa – In January, Iowa sportsbooks topped $58 million in bets for the third consecutive month. Despite this lofty total, Iowa is seeing little benefit in terms of tax revenues.

Iowa imposes one of the lowest tax rates in the country on sports betting, at a measly 6.75%. This is the same tax rate as Nevada uses, despite the fact that Nevada handles roughly ten times as many bets on average.

The result is that Iowa is collecting only $275,000 a month in sports betting taxes through five full months of operation, and will likely see that number decrease now that the NFL season has ended.

Only one other state that reports sports betting financial data, West Virginia, is collecting less tax revenue on average. West Virginia, it should be noted, has a population 43% lower than that of Iowa.

The closest state to Iowa in both population and total betting handle is Mississippi, which brought in an average of $674,000 in monthly taxes despite handling slightly fewer bets. Mississippi imposes an 8% state tax on sports betting and a 4% city tax.

Why Iowa Can’t Be Nevada

A 6.75% tax for Iowa sports betting operators makes sense for the purposes of incentivizing more operators to launch sportsbooks and saturate the market to become a tourist destination. But this strategy can only work for early adopters.

Nevada managed to become the gambling capital of the United States thanks to its near 70-year monopoly on the industry and buoyed this by developing Las Vegas into a premier tourism destination. Despite a similar population to Iowa, Nevada collected over $22 million in sports betting taxes in 2019.

It will be difficult for Iowa to replicate this feat because sports betting is no longer a unique commodity. By the end of 2020, more than 20 states across the country will offer legal sports betting, including the three highest population states within reasonable driving distance of Iowa (IL, IN, MI).

Four other bordering states (MO, KS, NE, and SD) appear likely candidates to launch sports betting by the end of 2021, so the market for sports betting tourism in Iowa will likely only shrink in the future.

Nothing in Iowa compares to the splendor of The Strip in Las Vegas or Atlantic City in New Jersey, and it would be impossible to develop such an area in time to establish Iowa as a Midwestern market leader before sportsbooks launch in neighboring states.

Hindsight Is 20-20

In hindsight, the Iowa Legislature likely would have been better served to tax sports betting at a high rate, even if it meant a marginal decrease in total betting handle.

Pennsylvania, as an example, levies a 34% state tax and a 2% city tax on all sports betting revenues. Despite this seemingly inhibiting industry growth, Pennsylvania sportsbooks still handled $1.5 billion in sports wagers in 2019, and as a result collected a nation-leading $37.1 million in tax revenue.

There is currently no legislative plan to increase the sports betting tax rate in Iowa.

News tags: Iowa | Mississippi | Nevada | Pennsylvania | Tax Revenue | West Virginia