States are emerging as big winners in legalized gambling as analysis by the National Council of State Legislatures is tracking tax trends on a cash cow that's still growing.
"Most states tax sports betting revenue at 10% to 20%," writes Andrea Jimenez, a policy specialist in NCSL's Fiscal Affairs Program.
"However, there are several outliers, with Iowa and Nevada imposing just 6.75% and New Hampshire, New York and Rhode Island levying fees of 51%."
It's estimated that the Super Bowl generated $1.76 billion in bets with the March Madness college basketball tournament expected to produce over $3 billion.
State revenues are projected to take a hit from the One Big Beautiful Bill Act as Medicaid funding is cut and Supplemental Nutrition Assistance Program requirements are stiffened.
"Midway through fiscal year 2026, state fiscal conditions are largely stable, but challenges loom fiscal year 2027 and beyond, said NCSL.
Tax revenue attached to gambling could provide relief.
Illinois, Louisiana, Maryland and New Jersey increased taxes on sports book operators last year.
Georgia is looking to start a market and Mississippi is moving towards mobile betting.
According to the Tax Foundation, New York's 51% rate generated over $1 billion in tax revenue as of 2024.
The 50% rate in Illinois pulled in over $240 million. Pennsylvania came in third with a rate of 36% generating over $197 million.
Under federal law, the Internal Revenue Service considers gambling winnings as income.
Up until the beginning of the year gambling losses could be deducted up to the full amount of gambling winnings for taxpayers who itemized their deductions.
OBBA changed the rules as gamblers can now only deduct 90% of their losses. The remaining 10% is taxed even if the gambler broke even or lost money.
The billions of cash now legally changing hands was made possible by a 2018 Supreme Court ruling that confined sports betting to Nevada.
"This change has generated tax revenues for state governments while also raising concerns about problem gambling and the social costs of widespread betting accessibility," according to the Budget Lab at Yale.
The IRS also taxes gambling operators with a 0.25% tax on the total amount legally wagered and a 2% tax on the total amount illegally wagered.
The Budget Lab has crunched numbers looking for reforming tax laws in order to "target the most problematic forms of gambling, like in-game or live betting, which research suggests may be particularly addictive due to their rapid pace and immediate gratification.
It compares a per unit tax on bets, and a sales tax on the value of a bet.
"Aside from the revenue, each of these proposals reduce the number of bets made in a year," said the Budget Lab.
"Assuming sports gambling is evenly distributed across the income and age distribution, reducing adolescent gambling from 4-10% is a plausible result."
Lawmakers are also attempting to tinker with taxes and gambling.
In September Senators Catherine Cortez Masto D-Nev. and Cindy Hyde-Smith R-Miss., introduced legislation that would change the tax code to repeal the federal 0.25% excise tax on legal sports wagers.
If the bill became law lost federal revenue is estimated at $400 million per year.
Congressman Andy Barr R- Ky., introduced a bill in July that would undo OBBA's cap on deductions for losses.
