Michigan's Gambling Tax Stays Unchanged as Proposed Bills Stall

The efforts to revise Michigan’s gambling tax policies in 2024 hit a roadblock as Senate Bills 1193 and 1194 failed to advance. With the failure of these measures, the current tax framework for gambling in the state remains intact. These bills, if passed, would have implemented slight tax increases and adjusted the allocation of tax revenues.

Slight Tax Increases Proposed in SB 1193

Senators Sam Singh and Jeremy Moss spearheaded the introduction of Senate Bill 1193, aiming to make minor adjustments to both the taxation of gambling and the distribution of the resulting funds. The proposed changes were unlikely to heavily burden gambling operators.

One of the key points in SB 1193 was a proposed increase in the sports betting tax rate, raising it by 0.1% to a total of 8.5%. This minimal increase was designed to generate additional state revenue without significantly impacting the profitability of gambling businesses.

The proposed bill also targeted the online casino gaming tax, which in Michigan varies based on operator revenue. The current tax structure is as follows:

Revenue below $4 million: 20%
Revenue between $4 million and $8 million: 22%
Revenue between $8 million and $10 million: 24%
Revenue between $10 million and $12 million: 26%
Revenue over $12 million: 28%

SB 1193 sought to raise each of these tax tiers by an additional 1%, providing the state with increased funds for public use.

Changes to Tax Allocation Proposed in SB 1194

In parallel, Senate Bill 1194 aimed to revise how the tax proceeds are distributed. Currently, 65% of the tax revenues are allocated to the Internet Gaming Fund, 30% support Detroit services, and 5% go to the Agriculture Equine Industry Development Fund.

The proposal in SB 1194 suggested adjusting these percentages to:

Internet Gaming Fund: 63.5%
Detroit services: 31%
Agriculture Equine Industry Development Fund: 5.5%

This reallocation would have slightly increased funding for Detroit services and agricultural development at the expense of the Internet Gaming Fund.

No Plans to Extend the Bills into 2025

Despite being modest compared to tax increases in other states, these proposed changes did not garner sufficient support. Consequently, Senate Bills 1193 and 1194 will not be carried over into 2025.

However, the backers of these bills have the option to reintroduce similar proposals in the future if they choose to continue their efforts.

Michigan’s Gambling-Friendly Status Remains

For now, Michigan retains its reputation as a state with operator-friendly gambling regulations. The state’s comparatively low tax rates and the allowance for sportsbooks to deduct promotional spending from taxable revenue make it an attractive market for gambling companies.

In terms of gaming legislation, Michigan has established a comprehensive legal framework to regulate various forms of gambling, including casino gaming, sports betting, horse racing, and charitable gaming. The Michigan Gaming Control Board (MGCB) oversees these activities, ensuring compliance with state laws and regulations. In December 2019, Governor Gretchen Whitmer signed legislation legalizing online casino gaming and sports betting, with the first online platforms launching in January 2021. This expansion has positioned Michigan as a significant player in the U.S. gambling industry, offering residents and visitors a variety of legal gambling options.

The economic impact of Michigan’s gambling industry is substantial. In 2022, online casinos contributed $289.2 million in state taxes and $77.8 million in city taxes, alongside $32.8 million from online poker. Sports betting has also seen significant activity; in February 2024, Michigan sportsbooks handled $415.8 million in bets, with online sports betting accounting for 96.8% of the total handle. This reflects a 16.4% increase from February 2023, indicating a growing market. The revenue generated from these activities supports various state programs and services, highlighting the industry’s role in Michigan’s economy.

Nationally, the U.S. gambling industry has experienced significant growth. In 2023, the online gambling market in the United States was valued at approximately $19.54 billion, representing a 39% increase from the previous year. Projections suggest this market could reach $39.82 billion by 2029, indicating a compound annual growth rate (CAGR) of 9.77% from 2024 to 2029. This expansion is driven by the increasing legalization of online gambling across various states, technological advancements, and a growing acceptance of gambling as a form of entertainment. Michigan’s regulatory framework and market participation contribute to this national growth, reflecting broader industry trends.

Individual Gambling Taxation

In Michigan, gambling winnings are subject to both federal and state income taxes. At the federal level, a flat rate of 24% is withheld on gambling winnings exceeding $5,000. Additionally, Michigan imposes a state income tax of 4.25% on these winnings, aligning with its flat income tax rate. This means that a substantial portion of large gambling winnings is withheld upfront to cover tax obligations. For example, a $10,000 casino win would result in $2,400 withheld for federal taxes and $425 for state taxes, leaving the winner with $7,175 before considering any potential deductions or additional tax liabilities.

When comparing Michigan’s tax structure to other states, notable differences emerge. For instance, Illinois applies a flat state income tax rate of 4.95% to gambling winnings, slightly higher than Michigan’s 4.25%. In contrast, Indiana’s rate is lower at 3.23%, and Pennsylvania imposes a 3.07% tax on gambling income. These variations can influence gamblers’ net earnings across state lines. Furthermore, some states have no state income tax, such as Florida and Texas, meaning residents only owe federal taxes on their gambling winnings. These disparities highlight the importance for gamblers to understand both federal and state tax obligations in their respective jurisdictions to accurately assess their potential tax liabilities.

Lottery Scams: A Timely Warning

In related news, the Michigan Lottery issued a public warning about potential scams, emphasizing the importance of staying vigilant, particularly during the holiday season when fraudulent activities tend to rise.

The lottery reminded residents that legitimate prize claims require a purchased ticket and that there are no fees involved in claiming winnings. The only requirement for claiming a prize is presenting a valid winning ticket.

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