Earlier this week, the National Council of Legislators from Gaming States (NCLGS) published its draft “Model Internet Gaming Act,” which is open for public comment. The organization plans to ban sweepstakes casinos and introduce a tax rate of between 15% and 25% on internet gaming.
“In crafting this document, we fully realize that each state has a unique gaming sector with disparate interests and concerns. Nonetheless, we believe the regulatory framework set forth herein may be a useful tool for consideration as states embrace the vast potential of internet gaming,” the document reads.
The model legislation is built around several fundamental principles, such as the fact that iGaming must complement existing casino and racino operations, must be strictly regulated, and unapproved iGaming should be subject to sanctions.
NCLGS wants to ban sweepstakes gambling
Chapter 20 of the model, titled “Sweepstakes Games Prohibited,” argues against the operation or promotion of sweepstakes within the state. Sweepstakes contests, promotions, and games use virtual currencies that players can exchange for prizes or cash. They offer a “free-to-play” alternative to real-money online casinos in states where such gambling is prohibited.
Earlier this year, the American Gaming Association (AGA) called for increased regulation on sweepstakes casinos, saying they offer “a prime opportunity for illegal activity.” Such sites tend to lack responsible gambling options and regulatory oversight.
“Gaming regulators and state attorneys general should investigate companies or platforms that offer casino games or a form of sports betting under the ‘sweepstakes’ model to determine whether or not these operators are in compliance with their respective laws and regulations and take appropriate action if not,” the AGA wrote.
As many states seek legal clarity around sweepstakes casinos, the model legislation would explicitly ban their operation. It proposes a fine of between $10,000 and $100,000 for any person or entity found to violate the section.
Balancing revenue and competitiveness with new tax rate
Among its principles, the NCLGS says “it is important to establish a tax rate for internet gaming that will maximize revenues and allow for competitiveness with other gaming jurisdictions.” The organization goes on to recommend taxing licensees’ revenue by between 15% and 25%, which it believes would achieve this result.
Currently, the average tax rate in the U.S. is 19%, excluding Pennsylvania, where online slots are taxed at 54%. Rhode Island also applies one of the highest tax rates of 51%.
The organization also acknowledges the potential for implementing a graduated tax rate, which Michigan currently does. Online casino and poker operators earning less than $4 million in a calendar year are taxed at a rate of 20%, up to as high as 28% for those bringing in more than $12 million.
About the NCLGS
NCLGS, an organization of state lawmakers,meets on a regular basis to discuss issues in regard to gaming. All U.S. states and territories, including the Commonwealth of Puerto Rico, are deemed to be members.
The NCLGS 2024 Winter Meeting is scheduled for Dec. 12-15 at Caesars New Orleans.
