On April 1, 2021, Rep. Dina Titus (D-NV) introduced H.R. 2350, the Discriminatory Gaming Tax Repeal Act, to fully repeal the outdated gambling excise tax set forth in Internal Revenue Code (I.R.C.) Chapter 35 Subtitle D. The bill has 9 bipartisan co-sponsors, including Reps. Reschenthaler (R-PA), Amodei (R-NV), Horsford (D-NV), Keller (R-PA), Souzzi (D-NY), Brown (D-MD), Hinson (R-IA), Joyce (R-PA), Garbino (R-NY), and Boyle (D-PA). While the bill has been referred to the House Ways & Means Committee, no hearings or further actions have been scheduled or taken place.
Congress enacted the wagering excise tax, I.R.C. Chapter 35 Subtitle D, (found at 26 U.S.C. §§ 4401-4405) in 1951 to target organized crime and discourage gambling. Over the past 70 years, provisions concerning the wagering excise tax have been amended to exempt wagers placed “with … a pari-mutuel wagering enterprise licensed under state law,” effectively exempting bets on horse and dog racing activity, and “in sweepstakes, wagering pool, or lottery which is conducted by an agency of a State.”
Currently, the wagering excise tax assesses 0.25 percent of the full amount of money wagered on a sporting event, as well as an additional $50 annual tax for every employee engaged in receiving wagers on behalf of any legal sports betting operator. The law has also been found to apply to pull tabs and certain lotteries. In the late 1990s and early 2000s, Tribal Governments fought the application of the wagering excise tax to wagers on pull-tab games conducted by Tribal gaming enterprises. Section 2719(d) of IGRA provides that:
The provisions of title 26 (including sections 1441, 3402(q), 6041, and 6050I, and chapter 35 of such title) concerning the reporting and withholding of taxes with respect to the winnings from gaming or wagering operations shall apply to Indian gaming operations conducted pursuant to this chapter, or under a Tribal-State compact … that is in effect, in the same manner as such provisions apply to State gaming and wagering operations. (Emphasis added).
Accordingly, Tribal Governments argued that since 1) state lotteries are expressly exempt from the wagering excise tax and 2) IGRA requires that the wagering excise tax must be applied to Tribal Governments “in the same manner as such provisions apply to States,” the Class II pull-tab games should also be exempt from the tax. Nevertheless, in Chickasaw Nation v. United States, the U.S. Supreme Court held that Tribal Governments are subject to the wagering excise tax. The Court reasoned that “it is unreasonable to assume that Congress intended, by way of negative inference from section 2719(d), to exempt Indian tribes from the federal wagering excise taxes.”
With time, however, public opinion and, in turn, public policy regarding gambling, including sports wagering, has drifted away from supporting the original purposes of the wagering excise tax. Furthering this movement was the U.S. Supreme Court’s 2018 decision in Murphy v. NCAA, which struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992 that effectively prohibited sports wagering nationwide. In the four years since the Murphy decision, dozens of Tribal Governments and at least thirty (30) states and the District of Columbia have legalized sports betting within their jurisdictions.
Now, the wagering excise tax is out of step with its intended purpose, which was to stop illegal gambling. Instead, the tax is now being imposed on legal sports betting in the United States, while illegal and often offshore unregulated sports betting remains prevalent in the United States. Illegal gambling operations continue to accept approximately $150 million annually, a figure that is only likely to increase thanks to the unintended benefit to illegal unregulated sports betting operators that escape this tax.
The wagering excise tax imposes the burden of increased operating cost on legal sports betting operations regulated by dozens of Tribal Governments and at least thirty (30) state governments. To eliminate the increased burden of the wagering excise tax on Indian gaming operations that now employ sports betting, and to overturn the Supreme Court’s misguided 2001 decision in Chickasaw Nation v. United States, we ask that you consider writing your Member of Congress to urge them to consider co-sponsoring H.R. 2350, which would finally repeal this outdated tax.
Below is a template letter for your use. Please contact Danielle Her Many Horses at email@example.com with questions or concerns with this alert.