November 13, 2018 by

Taxation of Casino Gaming is Taxing for Governments

As everyone continues to talk about regulating online casinos, much of the discussion relates to how to collect the taxes that would be generated from legal online casino gaming. In many countries players pay no taxes on their online casino winnings. In some countries the tax is minimal and in a few countries winnings are considered as income in all regards.

Since these countries don’t tax winnings, they also don’t tax casino bonuses.

The main reason that most countries don’t try to collect taxes on the winnings of their citizens is because it’s so much easier to collect “taxes” at the casino level rather than at the player level. The most commonly used term for these taxes are “point of consumption” taxes.

To collect taxes from gamers would require far more people working in the tax collection departments. It would be politically difficult because people would naturally object to so much intrusiveness in their lives. The government would have to monitor every player’s gaming history. Top casinos also monitor every gamer’s playing history as a way of having documented evidence when a disagreement arises. For the government to monitor every player’s gaming activities just for tax purposes would be politically very unpopular.

We mentioned bonuses above. If the government wanted to tax bonuses, it would have to monitor the progress of the player’s wagering requirement. Then, if there were winnings after the player had completed his or her wagering requirement, would the government levy the tax then or would the government allow the player to continue gambling with the winnings? Collecting taxes on casino bonuses would be a nightmare.

Point of Consumption Taxes

These are taxes collected from the casinos themselves. Whenever a government decides to legalize and regulate online casinos, they impose a set tax rate for all income. This is usually determined by income from all sources minus payouts. So, if an online casino has a payout rate of 96% covering all its games, it would pay the tax rate set by the government on the 4% that is left after payouts.

From the money left after payouts and taxes, the casino would pay all salaries and other expenses and what is left would be profit. Although this sounds like the casinos are making very little profit, they are actually doing quite well if they are located in a country with a long tradition of gambling and if the casino has many promotions to attract and keep players.

The United States

When the United States was founded, the states saw themselves as independent “countries” that had joined together to do the few things together that they would find difficult to do individually. Today, the central government is far more powerful than any of the 50 separate states.

The Congress passed a law in 1992 that made sports betting illegal in all but four states. This past year, the Supreme Court voided that long-standing law and now each individual state is wrestling with whether or not to legalize sports betting, how to regulate, and how to collect the ubiquitous taxes. It has become a mess of legislation as the states progress at their own speed toward full legalization, regulation, and taxation of sports betting.

Online casino gaming was legal in the United States until Congress passed a law in 2006 that made it very difficult under threat of imprisonment for financial institutions to transfer money to online casinos. The same companies were still allowed to continue to transfer money to land-based casinos but it became so hard to run an online casino in the U.S. that lots of online casinos pulled out of the American market.

Now, online casino gaming is making a comeback in the U.S. The states have to decide how to run online casinos, how to regulate them, and how to collect the taxes. Collecting taxes as cheaply as possible is the main byword these days as states are strapped for money to pay for all state services such as education, to finance the state debt, and to pay for unfunded liabilities such as pension funds.

Finding the Happy Medium

The tax rate is not a number pulled out of a hat. Ostensibly, a committee studies the issue and decides what the tax rate to casinos should be. If the tax rate is too low, the states will lose out on revenues it could have had. If the tax rate is too high, it might intrude upon the casinos’ ability to earn enough profits to make staying in business in that particular state worthwhile.

Factors States have to Think About

The state has to determine who the casinos’ primary customers are. In Albania for instance, the government wants casino gambling to be almost exclusively a tourist attraction. The same is the case in the Philippines, Japan, and Singapore.

The state might impose a lower tax rate on an Integrated Resort, an idea that has come all the way from the Far East to North America in just a few years. An Integrated Resort is many things in addition to being a land based casino. It has a convention hall, at least one theater, high-end restaurants and family-style restaurants, family-friendly attractions such as a water park, shopping, high-end hotel, spa, and many other amenities in addition to the casino.

The state might tax an Integrated Resort at a lower rate than a regular casino because the Integrated Resort will draw on a much broader range of customers. It will be politically more palatable to those locals who oppose a casino.

Nevertheless, the state still has to arrive at a fair and business-like tax rate.

In the News Daily

The very fact that the question of how any state or country will regulate and tax land based and online casinos is part of almost every news cycle indicates the extent to which the public wants regulated casino gambling both at land based and at online casinos; the degree to which the state needs the expected tax revenues; and the growth of gambling in all its forms in an affluent society.

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David is our amateur economist and political philosopher, weather enthusiast, killer Sudoku fan, and best darn game analyst we've found.

In the twenty or so years since graduating college David has completely changed his gaming practices. Where once he played mostly video games with the occasional swing at blackjack at land-based casinos, David switched course and became a regular Sudoku player. David says that he likes the intellectual challenge of solving difficult problems.

Since he began playing Sudoku in earnest, David has ... [Read David Connor full bio]