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New Jersey will raise taxes on internet gaming and online sports betting, but not by as much as Governor Phil Murphy initially proposed, in a partial win for an industry that state lawmakers are increasingly seeing as an easy way to increase tax revenue.
In a budget agreement reached late on Monday (June 23), Murphy and Democratic leaders of the New Jersey Assembly and Senate agreed to raise the state tax rate on both online sports betting and iGaming to 19.75 percent of gross revenue, down from the 25 percent that the governor proposed in his initial budget proposal, unveiled in February.
According to the Murphy administration, an increase to 25 percent on both forms of gaming would have generated more than $402m in new tax revenue. Early on in the budget process, however, lawmakers and gaming industry executives argued the proposed increase threatened the industry’s stability.
Currently, iGaming is subject to a state tax rate of 15 percent, while mobile sports betting is taxed at 13 percent. Online casino operators also pay an additional investment tax of 2.5 percent, while sports betting is subject to an additional tax of 1.25 percent, meaning the new effective tax rates should land at 22.25 percent and 21 percent of gross revenues, respectively.
Murphy, a Democrat, will be succeeded by a new governor in January 2026 following the end of his second term by either Democratic Representative Mikie Sherrill or by former Republican Assemblyman Jack Ciattarelli.
Political analysts believe a Sherrill administration could be more receptive to another tax hike on sports betting and iGaming than Ciattarelli, should he win the gubernatorial election in November.
The budget deal was first reported by NJ.com and independently confirmed Tuesday by Vixio GamblingCompliance, but those with knowledge of the agreement declined to comment because they were not directly involved in the negotiations.
New Jersey’s fiscal year ends on June 30. Under the state constitution, Murphy will have to sign the fiscal year 2026 budget before July 1, or the state government is required to shut down.
Barry Jonas, an analyst with Truist Securities, believes the compromise tax rate of 19.75 percent on iGaming and sports betting will remain untouched as the budget deal works its way through the legislature.
“We had expected an operator-friendly compromise and think (under) 20 percent is manageable in the shadow of New York, New Hampshire, and now Illinois’ 51 percent,” Jonas wrote in a research report. “We also think mitigation can be done via promo reductions alone, with a 50 percent mitigation in 2026 very reasonable and potentially higher afterwards.”
Jonas estimated a 19.75 percent tax rate would increase total tax payments for Flutter Entertainment’s FanDuel by about $67m annually, with $29m for online sports betting and $38m for iGaming, with fellow market leader DraftKings expected to pay increased New Jersey state taxes amounting to $56m, or $20m for online sports betting and $36m for iGaming.
Of the other brands, Jonas estimates BetMGM, a 50-50 partnership between MGM Resorts International and Entain, would pay $27m, or $5m more for online sports betting and $22m for iGaming. Caesars Entertainment would $18m more annually, or $3m from sports betting and $15m from iGaming, while Penn Entertainment would pay $4m, $2m from both sports betting and iGaming.
Trend Toward Modest Tax Hikes
Although taxes on online gambling will increase in New Jersey, the budget compromise continues a trend toward more modest tax increases than were initially proposed by state lawmakers or governors looking for new revenue to close budget deficits.
Both Louisiana and Maryland raised their tax rates this legislative session, in comparable circumstances.
Beginning August 1, the Pelican State’s tax rate on sports betting will increase from 15 percent to 21.5 percent. Republican Representative Neil Riser’s original bill would have increased the sports betting tax from 15 percent to 32.5 percent, the same rate as video poker devices at truck stops. However, the bill was amended to include the lower increase after discussions with the gaming industry.
In Maryland, the tax rate for mobile sports betting on July 1 will increase to 20 percent from 15 percent of gross revenues after Governor Wes Moore, a Democrat, signed the state’s new budget law. Moore had initially proposed a larger increase to 30 percent.
On the other hand, Illinois Governor J.B. Pritzker, a Democrat, enacted a far more radical tax increase after signing the state's fiscal year 2026 budget bill into law last month that includes a provision taxing sports-betting operators an additional 25 cents on every wager up to the first 20 wagers accepted annually. Every wager beyond 20m will be taxed at 50 cents per wager.
It was the second tax increase in Illinois in the last year. In June 2024, Pritzker signed the fiscal year 2025 budget that included a progressive tax rate for sports betting operators requiring them to pay a rate of 20 percent to 40 percent based on adjusted gross revenues, instead of a prior state tax rate of 15 percent.
In response, both DraftKings and FanDuel added a 50-cent transaction fee to every online wager placed in the state once the new law takes effect on July 1.
Jonas said he did not expect operators to implement similar surcharges in New Jersey with “mitigation efforts likely limited to promos”.
“Over time, we could see even greater mitigation of the higher tax rate,” Jonas added.
