North Carolina increases tax rate on sports betting from 18% to 23%

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The Backstory

A young market becomes a budget target

North Carolina’s decision to raise its sports betting tax rate to 23% marks a notable shift for one of the newest major U.S. online wagering markets. The state launched mobile sports betting in March 2024 with an 18% tax on gross wagering revenue, a rate that placed it near the middle of the national pack and was designed to attract a broad roster of operators. Within two years, lawmakers concluded the market was mature enough to carry a heavier fiscal burden.

The new rate is less severe than earlier proposals but still changes North Carolina’s competitive position. At 23%, it moves above New Jersey’s newly approved 19.75% rate, Massachusetts’ 20% rate and Ohio’s 20% rate. It remains well below New York, New Hampshire and Rhode Island, where operators share 51% of revenue with the state, and below Pennsylvania’s 36% rate. The compromise suggests lawmakers wanted more revenue without adopting the most aggressive model available.

The political calculation was shaped by strong early performance. Operators including FanDuel, DraftKings, Caesars, BetMGM, bet365, Fanatics and others generated substantial handle and revenue soon after launch, giving budget writers a clearer view of the market’s capacity. As tax collections grew, the original 18% rate became less of a fixed settlement and more of a starting point for a renewed debate over how much of the industry’s proceeds should flow to public programs.

How the 36% proposal set the terms

The 23% rate emerged after months of pressure from Senate Republicans, who initially sought a far larger increase. In May, the Senate budget proposed doubling the operator tax from 18% to 36%, which would have placed North Carolina alongside Pennsylvania and among the highest-taxed sports betting states. That plan was outlined in a North Carolina Senate proposal to double the online sports betting tax, which framed the increase as a way to generate tens of millions of dollars for athletic departments and other state priorities.

The Senate plan was not simply a tax measure. It also tied wagering revenue to a broader college athletics agenda, including proposed requirements that the University of North Carolina and North Carolina State play basketball games against other schools in the University of North Carolina system. The funding formula would have directed significant annual sums to the state’s flagship programs while also sending tiered support to smaller campuses. That structure made sports betting tax policy part of a wider debate over college sports finances, public university obligations and the distribution of new gambling revenue.

The House showed more caution. Lawmakers there signaled they were reluctant to alter a program that had quickly generated revenue and participation. That resistance helped pull the final agreement down from 36% to 23%. The compromise still gave the Senate a revenue increase but avoided the kind of jump that operators said could disrupt pricing, promotions and consumer migration from illegal markets to regulated platforms.

Operators warned of worse odds and fewer incentives

The industry’s response was swift because the stakes were direct. Sportsbooks opposed the higher tax rate on the grounds that operators would pass some of the cost to bettors through less favorable odds, reduced promotional offers and tighter product economics. In the industry pushback against North Carolina’s tax increase, the Sports Betting Alliance argued that a sharp tax hike could weaken the legal market and make unlicensed alternatives more attractive to price-sensitive bettors.

That argument has become a standard industry response to tax increases across regulated states. Operators say legal sportsbooks compete not only against each other but also against offshore and illegal bookmakers that pay no state taxes, offer credit in some cases and face fewer compliance costs. If regulated operators are taxed too heavily, the industry argues, the state may collect a higher percentage of a smaller market while weakening consumer protections.

Lawmakers counter that operators have already shown they can generate high revenue under legal frameworks and that states are entitled to revisit tax rates once markets prove profitable. North Carolina’s early returns strengthened that view. The state had collected more than US$100 million in taxes within its first year of mobile betting, and monthly performance showed the market was not merely benefiting from launch promotions. It was becoming an established revenue source.

Revenue momentum made the increase easier to justify

The strongest argument for a higher tax rate was the market’s own performance. North Carolina’s January figures showed gross wagering revenue of US$74.5 million, more than double the prior month, according to the North Carolina State Lottery Commission. As reported in North Carolina’s sports betting revenue surge, bettors wagered US$646.9 million that month, while operators paid US$13.4 million in state taxes under the 18% rate.

Those numbers mattered because they gave lawmakers a real-time case study. The state was no longer estimating what legal mobile betting might produce; it had months of operating data, tax payments and consumer behavior to assess. By the time budget negotiations intensified, sports betting had become a visible revenue line rather than a speculative policy experiment.

The use of tax proceeds also helped lawmakers defend the increase. North Carolina’s sports betting revenue supports gambling addiction education and treatment programs, amateur sports and university athletics. The Senate’s emphasis on athletic departments connected the tax debate to a politically resonant funding need, especially as college sports face higher costs from athlete compensation, conference realignment and competitive pressure on facilities and coaching budgets.

That connection does not eliminate industry concerns. Higher taxes can change operator strategy, especially in a state where betting is still relatively new. Sportsbooks may reduce customer acquisition spending, trim bonus offers or adjust pricing. But the compromise rate suggests lawmakers accepted some risk to operator margins while stopping short of the level most likely to trigger a sharper industry response.

Other states are testing the same limits

North Carolina’s move is part of a wider reassessment of online gambling tax policy. States that legalized sports betting earlier are now asking whether initial rates were set too low, particularly as operators have scaled nationally and as digital gambling has become a recurring budget contributor. New Jersey, long viewed as a model for regulated online gambling, recently finalized a 19.75% tax rate for both igaming and sports betting after Gov. Phil Murphy initially proposed 25%. The outcome, detailed in New Jersey’s finalized igaming and sports betting tax increase, reflected the same balancing act: raise revenue while preserving market competitiveness.

Massachusetts is considering a more aggressive path. State Sen. John Keenan has proposed increasing the online sports betting tax from 20% to 51% as part of a broader package of restrictions focused on public health, advertising and bet types. The measure, described in the Massachusetts Bettor Health Act proposal, would also ban in-play betting and prop bets, increase operator contributions to problem gambling programs and require more data sharing for research.

Together, these state debates show that tax policy is becoming a second-stage issue in U.S. sports betting. The first stage was legalization: licensing operators, launching apps and moving bettors into regulated channels. The second is optimization: determining how much revenue states can extract without damaging the legal market or undermining consumer protections.

North Carolina’s 23% rate places it in that middle ground. It is high enough to make the state more aggressive than several peer markets but low enough to avoid the national ceiling. For lawmakers, the increase offers a relatively immediate budget benefit. For operators, it signals that early success can invite heavier taxation. For bettors, the practical effects may appear more gradually, through odds, promotions and the level of competition sportsbooks are willing to maintain in the state.