Illinois lawmakers are voicing concerns over a proposed 10.25% city tax on online wagers in Chicago, introduced by Mayor Brandon Johnson. The proposal comes amidst the backdrop of recent state-level tax increases that have put pressure on the sports betting industry. In particular, state officials have implemented new tiered tax rates and per-wager fees that have already affected how sportsbooks operate within Illinois.
A group of thirty Illinois representatives has reached out to Chicago’s city council members, cautioning them about the potential repercussions of adding a significant city tax. Lawmakers argue that piling a new city levy on top of the state’s existing tax structure could drive local bettors towards untaxed offshore sites, ultimately reducing the state’s overall revenue from legal sports betting.
Their intervention follows a notable shift observed after the introduction of per-wager fees. Illinois saw a reduction in the total number of bets placed, but an increase in the average bet size. This change led to a slight uptick in tax revenue, highlighting the delicate balance that must be maintained between maximizing tax collections and ensuring the legal market remains competitive.
Mayor Johnson introduced the city tax in his $16.6 billion budget proposal last month, projecting it would contribute an additional $26 million to city finances. However, state lawmakers warn that the rising costs associated with betting could deter bettors from using regulated platforms within the state.
“If you increase the tax so it becomes cost prohibitive for gamblers, they will seek out overseas sites that are more dangerous, more predatory, untaxed, and unregulated,” emphasized Rep. Dan Didech, chair of the House Gaming Committee. He argued that such a shift would result in a direct loss of tax revenue for Illinois, thus impacting the state’s ability to fund infrastructure and other public investments.
In response to the proposal, Didech introduced legislation aimed at prohibiting local taxes on sports betting. This move comes after the City Council Finance Committee rejected a separate corporate tax proposed by Mayor Johnson, which was anticipated to generate $100 million in revenue.
The issue of sports betting taxes in Illinois is not new. When the state first launched sports betting, a 15% flat tax was imposed on sportsbook revenue. However, changes in 2024 led to a tiered system with tax rates ranging from 20% to 40%, depending on the volume of revenue generated by sportsbooks. This year, the state added a per-wager tax, charging sportsbooks 25 cents for the first 20 million bets and 50 cents thereafter.
In September, the first full month under the new per-wager tax, Illinois bettors placed 30.6 million bets, approximately 15% fewer than in September 2024. Nevertheless, the average bet size increased by 28%, and the overall handle grew to $1.42 billion, marking a 9% year-over-year rise. As a result, the state collected $28.7 million in taxes in September, with $10.6 million attributed to the new per-wager tax. Despite the complex tax environment, Illinois saw a net gain of $740,920 in taxes compared to the same period last year.
Flutter CEO Peter Jackson commented on the impact of these fees during a recent earnings call. He noted that while there was a reduction in the number of bets, the handle per bet increased, aligning Illinois’ performance with trends observed in other states.
The case of Illinois is not isolated. Across the United States, various states are revisiting and adjusting their sports betting tax rates. Maryland recently increased its tax from 15% to 20%, and Ohio doubled its rate from 10% to 20% last year. New Jersey opted for a more moderate increase, raising the rate from 13% to 19.75%, while Louisiana increased its tax from 15% to 21.5%.
Industry stakeholders believe that as states continue to seek additional revenue, lawmakers may propose further tax increases in upcoming legislative sessions. The ongoing adjustments in tax rates reflect the broader trend of states balancing the need for increased fiscal resources with the sustainability of their legal gambling markets.
While some argue that increased taxes will inevitably drive bettors to unregulated offshore sites, others believe that the industry can adapt through innovative measures that maintain its competitiveness. These measures could include promotional strategies or technological advancements that enhance the betting experience for users, thereby retaining their interest in legal platforms despite higher costs.
The debate over sports betting taxes in Illinois highlights a critical issue facing not only the state but the entire industry: finding a sustainable path that supports government revenue needs without stifling the growth and viability of the regulated market. As discussions continue, stakeholders across the board will need to weigh the potential economic benefits of increased taxes against the risks of driving consumers away from legal betting environments.
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