In February 2026, Arizona Governor Katie Hobbs introduced a proposal to substantially increase the tax rate on large sportsbooks operating within the state. The proposal is part of her $17.7 billion budget plan, which seeks to raise the tax rate from 10% to 45% for operators handling monthly revenues of at least $75 million. This move, targeting major players like BetMGM, DraftKings, and FanDuel, is intended to boost state revenue amid anticipated federal cuts. If implemented, the proposal could generate an estimated additional $150 million annually.
Arizona has maintained a 10% tax rate on sportsbook revenue since legalizing sports betting in 2021, making it one of the lowest in the country. The proposed increase aligns with broader fiscal strategies aimed at closing budget deficits. However, the proposal is likely to face significant legislative resistance. Both of Arizona’s legislative chambers are Republican-controlled, and the state constitution mandates a two-thirds supermajority vote to pass any legislation that increases state revenue. Despite these hurdles, the Hobbs administration argues that the increase should be classified as a fee adjustment, circumventing the supermajority requirement.
This proposal is part of a broader national trend where several states are considering similar tax increases on gambling to address budget shortfalls. West Virginia, for example, has introduced legislation to raise its sports betting tax from 10% to 25%. These discussions come at a time when the gambling industry is under pressure from both regulated competitors and unregulated markets.
Industry experts caution against imposing higher tax burdens on licensed operators, emphasizing the risk of driving business away or into the unregulated sector. John Pappas, an industry consultant, suggested that increasing taxes could be counterproductive, potentially stalling industry growth and discouraging compliance among operators who contribute significantly to state economies.
Across the United States, several states have recently enacted or proposed tax adjustments in the gambling sector. Illinois, which debuted its sports betting market with a 15% tax rate in 2020, transitioned to a tiered system with rates between 20% and 40% based on revenue. It also introduced additional per-bet fees, leading operators to devise strategies to manage increased costs.
In Maryland, a proposal to double the existing tax rate from 15% to 30% was moderated, with lawmakers settling on a 20% rate. Similarly, New Jersey’s proposed tax increase from 13% to 25% was adjusted to 19.75%, and Louisiana raised its rate from 15% to 21.5%.
The ongoing adjustments in various states reflect a cautious approach to balancing fiscal needs with market sustainability. At a recent National Council of Legislators from Gaming States conference, Illinois Representative Jehan Gordon-Booth, among others, warned lawmakers of the potential pitfalls of overburdening the industry with steep taxes, which could ultimately undermine revenue projections.
In Ohio, Governor Mike DeWine succeeded in doubling the sports betting tax rate from 10% to 20% in 2023. Although he proposed another increase last year, the state legislature chose not to act further on his proposal.
The Arizona proposal, if pursued, will require careful negotiation and consensus-building among state lawmakers and stakeholders. The outcome will likely set a precedent for other jurisdictions grappling with similar fiscal challenges. The next steps involve navigating the legislative process, where the proposal’s future will be debated and decided. The outcome will be closely watched, providing insight into the broader landscape of gambling regulation and taxation in the United States.
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