Profiting from the profiteers – How the US Government are planning to tax online gambling when it regulates

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Back in the summer of 2011, the Internet Gambling Regulation and Tax Enforcement Act (H.R.2230), which is a federal bill, was introduced and referred to the Committee by Rep. Jim McDermott.

Operators Of Online GamblingIf it the bill gets passed (which is currently still in the early stages of the legislative process), it will not receive a warm welcome because of the steep taxation that will affect both the operator and the player. Most bills do not make it past the committee stage but if it does, it appears as though players will certainly not be able to gain from it. In fact, quite the opposite will happen.
This bill will modify the 1986 Internal Revenue Code and is solely aimed at taxing and regulating Internet Gambling.

Operators of online gambling portals will still have to apply for a separate gaming license for the particular US state that they seek to operate their business from. The legislation will mean that operators are obliged to collect tax details and data from their registered users and details of all of their cash wagers. This information that they collect will then have to be relayed to auditors.
It will be more complicated for operators because they will also be required to force a 28% withholding tax on each of their player’s cash prize earnings. There will also be a similar taxation structure for non-US players. The government plans to let operators allow non-US players to sign up, but they intend to still tax these US operators for their non-US players.

The aim of the bill will be to eventually regulate the industry, but under closer inspection it seems as though people and operators will have to pay a high price to have their long-awaited, legally regulated online gambling industry.
The bill could threaten players and push them away, leaving them no choice but to rebel and search for unregulated websites or offshore operators just to avoid the harsh tax plans.

There will also be an unscrupulous 2% tax on deposits made into player’s accounts. The bill will also mean that states will have the power to add an additional 6% tax on all deposits.

The new bill also makes it clear that it aims to squeeze as much as possible out of online gambling portals that operate from outside the US, for example European operators. The aim is not to ban these operators from offering their online gambling services towards the US market, but with the steep taxes that will be imposed on these ‘outsider’ companies, it hardly seems worth them tapping into the market and appears to be more like daylight robbery.

The proposed bill will mean that these foreign operators that are unlicensed in the US will be forced to suffer as much as 50% taxes on deposits. This bill has yet to be passed but if it does become legislation, it will not be very well received by either the players or the operators (both US and non-US).

Fortunately, until that day arrives, states will be able to impose their own style of regulation, which will not be as taxing as the proposed federal H.R.2230 bill appears to be.