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US Casino Tax Guide: A Tale of Two Levies

US Casino Tax Guide: A Tale of Two Levies

One of the best things about internet gambling in the United States is that you won't be taxed on your good fortune. Whether you walk away with $20 or hit the jackpot, Her Majesty's Revenue and Customs won't get their hands on your winnings. That's true whether you enjoy games, poker, or other forms of internet gambling.

While it is correct that licenced gambling sites do pay a tax levy, this doesn't impact players directly. Still, it's worth taking a look at recent changes made by the US government and Gambling Commission, as well as the history of gambling taxes in the United States.

The State of The Game

When it comes to online gambling in the US the difference between the industry's operators and its players is a marked one. Despite recent legislative reforms by the US government and the Gambling Commission, two fundamental principles currently exist in the US online casino world:

  • Online casino and poker players aren't subject to any taxation.
  • Online casino and poker operators are subject to a tax levy.

While the existence of a tax levy might seem bothersome, it's ultimately good news for players. This will be obvious to anyone who understands what this fee entails. Rather than tax gamblers like some countries, the government has opted to tax casino profits. Gambling sites effectively give 15% of their earnings to the government. That means you can play with confidence and comfort, knowing that your winnings will be yours to keep.

While this dynamic is not so great for gambling sites, it's certainly one that favours the canny iGamer. In fact, it's vastly superior to the way things used to operate in the US. Let's take a look back through the history of gambling within the United States to examine why this is the case.

The 1960 Gambling Act and Betting Tax

Following the enactment of the Betting and Gambling Act in 1960, betting shops, bingo halls, and casinos became a reality. During this time a slew of regulations were introduced, one of which was a tax on operators.

Along with this tax, betting shop visitors (those placing sports bets) were also subject to a tax. Almost from the time gambling regulation became a reality, betting shops were charged a 6.75% duty on all transactions. Bookmakers subsequently passed this cost on to customers through a 9% gambling tax.

For example, if you walked into a US betting shop and placed a bet and received a $10 win, the owner would take $0.90 from this win and give the punter $9.10. This system was used for just over 40 years until the 2001 Chancellor of the Exchequer, Gordon Brown, abolished the betting tax.

Betting Tax Abolished in 2001

Owing to a downturn in the US gambling economy duty to tax-free gambling which was now available to US residents through offshore sites, Brown decided to scrap the levy and, instead, tax the operators more. From that point on, all betting winnings in the US were tax free, which meant that any resident could ante-up live or online and whatever they won wouldn't be liable for tax.

This dynamic sits in stark contrast to other countries in Europe and North America. In fact, before online casino and poker sites were outlawed in the US, players were required to fill in tax returns at the end of each financial year and declare exactly how much they'd won and lost with tax being taken from the net profit. If you ever happen to visit Las Vegas and win big, prepare to surrender a sizeable portion of your winnings.

The Status of Gambling Taxation in the Future

Although there have been numerous suggestions that the US government will seek to tax players, none of these have ever come to fruition. Indeed, while many would assert that poker is a game of skill, even this game hasn't been subjected to tax talks over the last 50 years. In fact, according to an in-depth study by Dr Dennie van Dolder of Erasmus University Rotterdam and VU University Amsterdam, poker was once again recognised as a game of skill.

Following this research, suggestions that a tax on players could soon be in the offing came up once again.

" It's up to legislators to decide whether the role of chance diminishes fast enough for poker to be considered a game of skill. If so then our findings represent both good and bad news for players.

The good news is they'll have the satisfaction of knowing the game they love is recognized as requiring real skill. The bad news is that one day they might have to start handing some of their winnings to the taxman if the policymaking community takes notice of findings like ours," explained Dr Dolder.

Fortunately, this research hasn't affected the tax status of poker, casino, or bet within the US. Since November 2014 it's become clear that the government is more interested in taxing iGaming operators than players.

US iGaming Laws and Operational Changes

After changing laws regarding the way in which remote operators (online gambling websites located offshore but serving US customers) can operate in the US, a new tax regime was introduced. As part of the US's new regulations, all iGaming sites are now required, by law, to hold a valid remote gaming licence.

In place since November 2014, this stipulation not only meant that all online casino gambling sites must abide by certain standards of quality and pay a licensing fee, but that a new tax levy would be enforced. Known as the point of consumption tax, all online casino, poker, and sports bettings operators serving customers in the US must now pay 15% tax on all profits accrued through their US services.

To help quantify and validate the earnings each US-facing online site makes, online operators have been forced to filter US players through regional portals. Today, instead of US residents anteing via a .com URL, it's highly likely they will filter through a extension.

While this change doesn't mean US residents are prevented from accessing international player pools, it does mean that all the branding will be US-centric. The reason for this system is to ensure that all sites are properly licensed by the US Gambling Commission (UKGC) and the government can properly tax operators.

US Online Casino Wins Still Tax Free

Fortunately, these operational changes haven't affected the way in which US-facing online casino serve US players. In fact, if you didn't know any better, then you'd swear nothing had changed. Today, when you ante-up you'll still receive all the best bonuses and offers and, more importantly, every penny you win will be yours to keep and nothing will be owed to the tax man.

When you consider that the best run gambling sites are highly profitable and have far lower overheads than their offline cousins, it's hard to feel sorry for online casinos. Look at it another way. The shift in the tax burden from players to operators makes for a better playing experience. Under the current system, it's not only easier to track your performance, but you are liberated from dealing with needless paperwork and worrying about your obligations.