Sports Wagering - TAXANSWERS

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Sports Wagering Excise Tax FAQs

Effective June 29, 2023, House Bill 551 imposes a 9.75% excise tax on the adjusted gross revenue on wagers placed at the licensed track and a 14.25% excise tax on the adjusted gross revenue on wagers placed online via websites, mobile applications, or other off-site technology approved by the Kentucky Horse Racing Commission (KHRC).

The new statutory language is provided in KRS 138.552.

Q:Which sports betting licensees are responsible for filing monthly returns and paying the new sports wagering excise tax rates?

A: Sports wagering operators (i.e., licensed tracks) and service provider licensees authorized by the KHRC are required to report and remit the new sports wagering excise tax. Wagers placed in person at the licensed track must be reported to the Department of Revenue (DOR) by the sports wagering operator licensee. Online wagers placed through licensed service providers must be reported to the DOR by the service provider licensee.

Q: When is the tax due?

A: The sports wagering excise tax is due monthly on or before the 20^th day of the next succeeding calendar month from when the reportable wagers occur. Licensed Kentucky racetracks and their satellite facilities with operator licenses began in-person sports wagering on September 7, 2023. Licensed service providers operating mobile sports wagering applications began taking sports wagers on September 28, 2023. Therefore, the first monthly reporting period, September 2023, is due October 20^th.

Q: How does a person file and pay the tax due?

A: The sports wagering excise tax is filed and paid electronically to the DOR through the Sports Wagering Tax Application.

Q: What is the adjusted gross revenue as defined in KRS 138.552?

A: Adjusted gross revenue is “the total sum of wagers collected on all sporting events, less winnings paid to participants in the contest and all excise taxes paid pursuant to federal law."

Q: How should negative adjusted gross revenue be handled (i.e., when winnings and federal excise taxes exceed the total sum of wagers in a reporting period)?

A: If adjusted gross revenue for a month is a negative number, the negative amount will carry over as a credit to the return filed for the subsequent month. However, the credit amount shall not be carried over in any period more than twelve (12) months after the month in which the amount carried over was originally due. The sports wagering tax application will automatically prepopulate any remaining credits from prior period returns.

Q: What method should be used for reporting adjusted gross revenues?

A: Wagers should be reported on the monthly return after they are settled and realized by the licensee (i.e., wagers are not realized until the payout of winnings are settled).

Q: Are promotional bet credits included in the total sum of wagers?

A: Yes. A wager is defined in 809 KAR 10:001 and 809 KAR 10:001E as “a sum of money or representation of value that is risked on an occurrence for which the outcome is uncertain." Promotional wagers, “free bets," credits, and the like constitute wagers and should be included in the total sum of wagers calculation.

Q: Are promotional free bet offers included in winnings (i.e., Race and Sports Book offers a free bet up to $1,000)?

A: No. Winnings are defined in 809 KAR 10:001 and 809 KAR 10:001E as “the total cash value of all property or sums, such as the currency or instruments of monetary value paid to a patron by a licensee as a direct result of a winning Sports Wager." Anything that does not have a cash value or is not paid to the patron as the direct result of a winning wager (such as a free bet refund) cannot be included in the “winnings paid" calculation.

Q: Are early cash outs included in winnings?

A: Yes. The total cash value of property or sums paid to a patron following an early cash out or wager buy back may be included in the “winnings paid" calculation.

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