Editor’s note: The full House of Representatives passed the bill by a 63-45 vote on Wednesday afternoon after publication.
Tax rates are going way up for proposed online gambling legislation in Michigan.
Before advancing the Lawful Internet Gaming Act through the House Ways and Means Committee on Tuesday, Rep. Brandt Iden added a tiered tax structure that would reach as high as 26.25% for commercial casinos.
Iden made the change in an effort to gain support from Gov. Gretchen Whitmer and her administration, which has been elusive so far.
Rep. Rebekah Warren, who is close to Whitmer, was the lone opposing vote as H 4311 passed 10-1. The package of iGaming bills, which includes sports betting, will get a vote from the full House later this week.
As introduced, the Michigan online gambling bill called for an 8% tax on adjusted gross receipts.
Iden’s plans to move the legislation through the committee in May were derailed when representatives of the administration spoke out in opposition, citing a potential reduction in state revenue from the disparity between the tax rate on iGaming and brick-and-mortar casino revenue.
Gov. Whitmer later released analysis from the Michigan State Treasury, calling for a tiered tax structure that started at 8% and went up to 40%. In the time since, Iden has tried to discuss the financials with Whitmer to no avail.
“The number one concern we have heard on this particular piece of legislation was related to the tax rate,” Iden said. “I was very disappointed when I reached out to the administration numerous times throughout the course of the past two months, and the administration responded in writing that they were too busy to engage on this issue.
“Despite that, we have moved the tax rate upward.”
Iden revealed a tiered tax structure based on the revenue that would be phased in over the course of five years. For the first three years of operation, online gambling operators would pay:
This structure would provide a tax break to tribes that operate smaller casinos.
Rates would then increase by 2% each of the next two years before settling at that permanent level. For the three commercial casinos, which pay an additional 3.25% to the city of Detroit, the effective tax rate would likely reach 26.25% at maturity.
Another concern expressed by this administration and last year — when the previous governor vetoed the bill — is school funding.
In Michigan, more than a quarter of all lottery revenue goes straight to the School Aid Fund. During a previous hearing, a representative of the State Budget Office noted Whitmer’s worries that iGaming could cannibalize MI online lottery sales, reducing funding for children’s education.
Iden addressed this concern with the following language:
“By Dec. 31, 2020, and each Dec. 31 after that date, if the contributions from the bureau of lottery’s iLottery program to the state school aid fund … are less than $70 million, the board shall distribute from the [iGaming] fund to the school aid fund … an amount equal to the difference between $70 million and the amount received from the bureau of lottery’s iLottery program.”
Iden previously said he wasn’t going to negotiate against himself if the Gov. Whitmer wasn’t going to engage on the tax rate. Not wanting to face another veto, however, he ended up negotiating with stakeholders in her place.
The Treasury Department requested the removal of slot games from the bill to try to thwart iLottery cannibalization. Removing the most-profitable vertical while imposing high taxes could doom the industry altogether, though, and stakeholders are apparently willing to make the compromise on taxes to keep slots.
The administration also asked for initial license fees of up to $1 million, with annual renewals costing up to $500,000. Iden instead chose to keep those at $100,000 and $50,000, respectively.
“I believe this is a major concession on behalf of the stakeholders, and it was great that they worked with us to be able to get to this point,” Iden said. “I think that’s evidenced today by the number of cards of support and neutrality that we see in front of us.”