(The Center Square) – Free bets, bonuses and other incentives offered by sports betting websites could become less common in Virginia under a new law that imposes taxes on those promotions, according to groups associated with the gambling industry.

When the General Assembly passed the state budget in June, lawmakers quietly added a new tax on sports betting, which is now in effect. Under the old rule, promotional credits and free bets were exempt from taxes, but under the new rule, those bets are subject to Virginia’s 15% tax on revenue for sportsbooks.

“It is likely to reduce the number of bonuses and free-play incentives in Virginia and will likely have a negative effect on overall sports betting,” Bea Gonzalez, a spokesperson for Sports Betting Alliance, told The Center Square.

Under the new law, Gonzalez noted sportsbooks incur a tax burden on promotional bets, despite not being able to obtain revenue from those bets to pay for the tax burden.

“Because of this, the effective tax rate on cash bets increases significantly, cutting into the operator’s profits,” Gonzalez added. “This creates an incentive system against providing any free bets or promotional credits—despite the long term market benefits of providing them.”

Russ Mitchell, the managing editor of the sportsbetting analysis website PlayVirginia, told The Center Square, the tax will slow down the timing for when Virginia reaches its market maturity in sports betting, but that sportsbooks are still trying to entice customers in the relatively new market.

“The removal of the tax exemption for promotional credits does remove some of the direct financial incentive on the operator side,” Mitchell said. “They’ll be less aggressive with their offers because of this tax. We are entering the busy season for sports betting, though, and Virginia is a young enough market that sportsbooks are still jockeying for their share of new customers. In the end, free play and bonus incentives represent between 2-4% of a state's handle (handle = total amount bet by customers) on average. It’s not a terribly large percentage of bets.”

Taxing rules vary from state to state. Some states, like Pennsylvania, do not tax any promotional or free bets. However, states like Ohio and West Virginia subject promotional bets to the same taxing rules as any other bets. Some states fall somewhere in the middle, in which they only exempt promotional credits up to a certain amount.

“The Virginia General Assembly leaves a lot of taxable money on the table by not allowing bets on in-state teams,” Mitchell said. “People are still betting on the Cavaliers and Hokies. They’re just going out of state or using an off-shore sportsbook to do it.”

At least in the short term, the new rule is generating more tax revenue for the state. In July, the state government received more than $3 million in online sports gambling revenue, which is nearly 64% higher than the previous month.

The Center Square reached out to Del. Mark Sickles, D-Fairfax, who was one of the main proponents of the tax, but could not reach him for comment.

Tyler Arnold reports on Virginia and West Virginia for The Center Square. He previously worked for the Cause of Action Institute and has been published in Business Insider, USA TODAY College, National Review Online and the Washington Free Beacon.

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