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A screen shows a baseball game next to various betting lines at the Westgate Superbook in Las Vegas, Nevada. John Locher/AP Photo

Jennifer Roberts,
University of Nevada

The gambling world is waiting with bated breath for the United States Supreme Court decision that could result in an expansion of sports betting. The decision could be announced anytime between today and the end of June.

Since I teach sports betting regulation and gambling law, I’ve been closely watching the developments as well. Although Nevada has had a robust sports betting industry for decades, New Jersey has been at the forefront of the push to legalize sports betting.

In recent years, many other states have prepared for a ruling from the Supreme Court that would overturn the prohibition of sports betting. Even professional sports leagues – which have emerged as the leading opponents of efforts to legalize and regulate sports betting – are looking to cash in.

How we got here

According to the 10th Amendment of the United States Constitution, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

For this reason, states have traditionally overseen and regulated casino gambling. The Nevada Supreme Court specifically recognized, in a case involving the infamous Frank Rosenthal (portrayed as Ace Rothstein by Robert De Niro in the movie “Casino”), that gaming is “a matter reserved to the states within the meaning of the 10th Amendment to the United States Constitution.”

However, in 1992, responding to concerns about the spread of state-sponsored sports wagering, Congress enacted the Professional and Amateur Sports Protection Act, also known as the Bradley Act, named after its lead sponsor, then-U.S. Senator Bill Bradley.

The Bradley Act made it unlawful for any governmental entity, such as states, municipalities or Indian tribes, to “sponsor, operate, advertise, promote, license, or authorize by law or compact” any sports betting. In addition, the act prohibited any individual from operating any sort of sports betting enterprise.

However, the Bradley Act exempted four states from the prohibition: Nevada, Oregon, Delaware and Montana. Of these four states, Nevada was – and remains – the only one with full-scale sports wagering. New Jersey was given a one-year window to legalize sports wagering, but the state legislature failed to take action within the allotted time.

Fast forward to 2011. That year, New Jersey government officials decided they wanted to have regulated sports wagering, so the state introduced a referendum on a statewide ballot that would amend the state Constitution to permit wagering on college, amateur, and professional sports at Atlantic City casinos and racetracks across the state.

New Jersey voters supported the ballot referendum, and in 2012 the New Jersey legislature passed a law to legalize sports wagering.

However, the major professional and college sports leagues – NCAA, NFL, MLB, NBA and NHL – opposed the legislation and filed a lawsuit to stop New Jersey from regulating sports wagering.

In response, New Jersey claimed that the Bradley Act was unconstitutional because it violated the state’s 10th Amendment rights to regulate gambling in the form of sports wagering. In 2013, the Third Circuit Court of Appeals ruled in favor of the leagues, and the U.S. Supreme Court declined to consider the case. The Bradley Act remained intact.

New Jersey pressed on. Having lost on the argument that legalizing sports wagering is equivalent to “authorizing” it under the existing Bradley Act, New Jersey got creative and decided to simply repeal the state’s criminal laws and regulations that prohibited sports book operations in casinos and racetracks.

Once again, the sports leagues sued to stop New Jersey. In response, New Jersey argued that it would be a violation of the 10th Amendment if the state were prevented from repealing an existing law. Again, the lower courts and Third Circuit Court of Appeals ruled in favor of the leagues – but for the first time, the U.S. Supreme Court decided it would weigh in.

Prepping for the inevitable?

Now we await the decision.

It’s important to note that this case is about more than sports betting, which is simply the subject matter before the Supreme Court. It has more to do with states’ rights, and the decision has the potential to affect other areas of dispute, from marijuana legalization to the ability of cities to protect undocumented immigrants to gun control.

There are several possible outcomes. The U.S. Supreme Court could decide in favor of the leagues, which would mean New Jersey – and any other nonexempted state – would remain prohibited from allowing any sports wagering.

At the other end of the spectrum, the court could declare the Bradley Act unconstitutional, and states and Indian tribes would no longer be blocked from authorizing and regulating full-scale sports wagering.

Another possibility is that the court sides with New Jersey and allows the state to decriminalize sports wagering – on an either limited basis (in casinos and racetracks) or entirely – but not regulate it.

Finally, the Supreme Court could strike the prohibition that prevents states and tribes from permitting sports wagering, but keep the restriction so that individuals cannot conduct legal sports wagering. If this were to happen, sports betting could be permitted by states, but individuals would be prevented from operating their own sports betting business.

About 20 states are already preparing for the event that the Bradley Act gets overturned and are gearing up to pass laws (or have already done so) that will give them the ability to offer regulated sports wagering.

However, there are many unknowns and issues that will need to be addressed: Will state-sponsored sports wagering be run by state lotteries or private enterprise such as casinos or racetracks? Will amendments be needed to permit Indian tribes to offer sports wagering? And will information on sporting events for wagering purposes – such as scores, outcomes or game statistics – be restricted to data generated from the leagues?

There are already disagreements over something called an “integrity fee.” In states where sports betting will likely become legal, leagues have been pressing to receive 1 percent of all amounts wagered on a sporting event.

In Nevada – where legal, regulated sports wagering has taken place since 1949 – such a fee has never been in place. Instead, casinos simply pay the state up to 6.75 percent in a tax on revenues (which is the same tax paid by casinos on other forms of gambling), in addition to a federal tax of 0.25 percent on amounts wagered. States looking to legalize sports betting are proposing varied rates of taxation.

So how might an integrity fee affect sports books?

If we look at the most recent Super Bowl, over US$158 million was wagered in Nevada on the game. If there was a mandated integrity fee, this means that the NFL would have received $1.58 million from Nevada sports books.

But in the case of the Super Bowl, Nevada sports books only made $1.17 million, or 0.7 percent of the total amount wagered. So that means that if Nevada sports books had to pay an integrity fee on the Super Bowl, it would have lost money even before having to pay state and federal taxes, rent, employee salaries and the other costs of operating a sports book. From the industry’s perspective, sports wagering isn’t always as lucrative as it’s often portrayed to be.

The ConversationFor this reason, states must be educated and informed when considering whether to legalize sports betting. If they think they’ll get a tax windfall for schools and roads, they could be sorely mistaken – especially if the leagues end up getting a cut.

This article was originally published on The Conversation.



The GOP Tax Plan – State And Local Tax Deductions – And You

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The Capitol is lit up at dawn on Nov. 30, 2017 as Senate Republicans work to pass their sweeping tax bill. AP Photo/J. Scott Applewhite

December 7, 2017

Capri Cafaro,
American University

While Washington is claiming victory, states are crying foul.

Late last week, the U.S. Senate passed its version of the tax reform package that cleared the House a few weeks earlier. Within the hundreds of pages of legislative language in each bill lay a number of provisions that have significant impact on state governments, including modifications to the state and local tax deduction.

Under current tax law, individuals who choose to itemize and deduct eligible expenses on their federal tax return are able to deduct state and local income, sales and property taxes. Both the House and Senate bills eliminate the so-called “SALT deduction” for state and local taxes while capping the property tax deduction at US$10,000.

As a former Ohio state senator, I served on the Senate Ways and Means Committee for a number of years. I also went through five state budget cycles over 10 years. Because of that experience, I believe the federal changes to the SALT deductions will be detrimental to American families and have long-term negative impacts on balancing state budgets.

An uncertain future

I am not alone in my concern.

The bipartisan National Conference of State Legislators issued a scathing statement on the proposed changes to the SALT deduction. The organization’s president, South Dakota State Senator Deb Peters, a Republican, expressed her opposition by saying, “SALT is one of the six original federal tax deductions and has been a staple of the federal tax code and the state-federal fiscal relationship for over 100 years. We will continue to fight for the more than 43 million Americans who claim this deduction every year.”

Page 3 of the 1913 1040 form, showing a deduction for state and local taxes.

State lawmakers have reason to be worried, as most state budgets rely on state income and sales tax as primary revenue streams for their operating budgets. According to the center left think tank Center for Budget and Policy Priorities, eliminating the SALT deduction could place strain on funding needed for critical programs and services provided at the state level such as education and infrastructure. Cities and towns usually benefit from property taxes. So the fact that the tax plan caps – rather than eliminates – the property tax deduction could help insulate local governments for now.

However, it has been my experience in Ohio that when the state cuts funds for essential services, the funding burden gets dropped to the local communities. During my time in the Ohio Senate, state government cut allocations to local governments. This caused local communities across my home state to cut safety forces and scale back infrastructure repairs. This is why the SALT deduction is so important. It essentially protects against double taxation and serves a bit like a subsidy to the state and local governments. If the SALT deduction goes away, state and local governments may try to lower taxes to offset the cost of higher federal taxes. What does this mean in real terms? According to modeling done by the Government Finance Officers Association, budget cuts caused by revenue shortfalls could result in cities and towns losing five police officers, 10 teachers and five public works employees.

The changes to the SALT deduction could hit Americans in two significant ways. First, citizens often carry the burden when states scale back their services. For example, when police and fire forces get cut, response time gets longer and community safety is jeopardized.

Second, individual Americans would also shoulder increased tax burdens should the proposed SALT deduction changes be signed into law. Elimination of the state and local income and sales tax deductions would result in a tax increase for those who itemize their deductions and deduct SALT. A report recently issued by the Government Finance Officers Association in partnership with seven other nonpartisan state and local government associations stated 30 percent of all taxpayers across all income levels use the SALT deductions, and 50 percent of those choosing to use SALT make under $200,000 per year. This means the SALT deduction is widely used by middle-income Americans. While the amount would vary by income, the Urban-Brookings Microsimulation Model estimates a roughly $2,000 increase in taxes on those taking the deduction.

Capping the property tax deduction at $10,000, while better than a full elimination, still falls short for a number of communities. California, Illinois, Texas, New York, New Jersey and most of the Northeast have the majority of property owners nationally that would exceed the $10,000 threshold. For example, in New Jersey the average property tax deduction is $9,500, meaning a fair number of property owners in the Garden State would fall above the $10,000 cap. In states with high numbers of properties that are above the $10,000 deduction, the cap threshold is not sufficient to offset the costs associated with the SALT deduction change.

The ConversationThe data suggest that changes to the SALT deduction would result in higher taxes and fewer local services for a large number of middle-income Americans. Changes to SALT have passed both the House and the Senate. The bills must now come together in conference where the differences between the two versions are negotiated. While it is possible that changes could still be made, both versions of the bill have the same language. That makes it less likely to be modified. States and individuals alike will need to start planning for the changes on the horizon.

Capri Cafaro, Executive in Residence, American University

This article was originally published on The Conversation.

Disclosure statement

Capri Cafaro is affiliated with the Democratic Party as a registered Democrat in Ohio and was elected to the Ohio Senate as a Democrat for 10 years.