Pennsylvania Democrats Looking to Tax Event Contracts

• A group of 12 Pennsylvania Democrats introduced a bill to tax event contracts in the Keystone State
• The legislation will tax, license prediction market operators in Pennsylvania
• If approved, the bill will institute a 22% tax on gross revenues of event contracts

Several Pennsylvania Democrats are hoping to push a bill through the Keystone State to implement a new tax on the gross revenues of event contracts.

Rep. Danilo Burgos, (D-197), recently introduced HB 2497, which will require prediction market operators to be licensed to offer event contracts in Pennsylvania and implement a new 22% tax on event contract gross revenues.

The bill currently sits in the House Gaming Oversight Committee, but has yet to be scheduled for a hearing.

Regulatory Framework For Predictions Now Necessary

Burgos and his 11 Democrat co-sponsors noted in the bill’s language that taxes and a regulatory framework for prediction markets are necessary if states are to be expected to not interfere in the markets.

“The General Assembly finds and declares that a regulatory framework at the state level for event outcome prediction wagering is necessary, in light of the adoption of a noninterference approach by the Commodity Futures Trading Commission, to regulate prediction markets,” Burgos wrote in the bill.

If approved, the legislation will impose a 20% tax on the sale of event contracts in Pennsylvania, plus an additional 2% tax for a “local share assessment.” Revenues deposited into the “local share assessment” will be used exclusively for grants for projects in the “public interest” in the Commonwealth.

In addition to a new tax, prediction markets operators will be required to receive a license to do business in the state, which includes a $1 million licensing fee. Renewal fees for a license are also set at $1 million.

The legislation also raises the minimum age of customers participating in the prediction markets to 21. Currently, prediction market operators allow customers as young as 18 to trade on their online platforms.

Will Prediction Market Operators Acquiesce?

If the legislation makes it way through the Pennsylvania legislature and is eventually signed into law, there is no guarantee prediction market operators will follow the law. If eventually legalized, the Commodity Futures Trading Commission (CFTC) would likely challenge the law in court.

The CFTC recently filed several lawsuits against states such as Wisconsin and New York to reaffirm its exclusive regulatory jurisdiction over prediction markets. It is unlikely that the CFTC would not challenge the Pennsylvania bill, which seeks to implement new regulations and a tax on the prediction markets.