North Carolina Looking to Double Sports Betting Operator Tax Rate

The Tar Heel State is attempting to do something many others have failed at. 

A group of North Carolina republicans has introduced a budget proposal that would make significant changes to the state’s sports betting tax revenue. The proposal would double the operator tax rate from 18% to 36%, and change how the revenue is distributed among UNC system schools. 

The state is considering the change after its first year of regulated sports betting far exceeded expectations, especially in terms of tax revenue.

New Tax Rate Would be Among Highest in US

If approved, North Carolina’s 36% tax rate would be tied for the third-highest flat rate in the country. While still significantly lower than the rate in New York and New Hampshire (51%), it will test how valuable sportsbook operators believe the state is.

It is estimated that North Carolina made over $130 million in tax revenue in its first year of legal sports betting. The state just set a new record for monthly handle in March, showing that the market isn’t done growing. 

There are a total of eight operators, led by FanDuel and DraftKings. 

UNC Schools Would Benefit

North Carolina uses tax revenue to fund 13 schools in the UNC system. The list does not include the two largest state schools, the University of North Carolina at Chapel Hill and North Carolina State University. The proposed budget would increase revenue to all 13 schools and cut the two largest universities in the industry.

In exchange for receiving tax revenue from sports betting, UNC Chapel Hill and NC State would have to play other schools in the UNC system in basketball. This would help boost revenue for the 13 smaller schools, which include several Historically Black Colleges and Universities (HBCUs). 

Proposed Tax Hike Faces Long Odds

There is little reason to expect that the proposed tax hike will be included in the final budget. We have seen many states try to double their rates, but those efforts have been squashed in the face of industry opposition.

Given that sports betting operators overperformed in their first year in the state, they’ll feel like they are being punished for their success. Other common arguments against hikes include the investment made in the state, which is partly determined by the operator tax rate.

Expect to see a united front from the state’s online operators as they threaten to water down odds and limit bonuses to make up for the loss in revenue.