Amended NJ Prediction Market Bill Reduces Potential Tax Rate

• An introduced New Jersey prediction market bill has advanced out of committee
• However, the amended bill no longer requires operators to be licensed and has reduced a potential tax rate on event contracts
• As it stands, the bill now only implements a 9% surtax on a prediction market operator’s gross income

A New Jersey bill establishing a tax on prediction market operators has been moved out of a Senate committee, but has been amended to reduce the originally proposed rate and eliminate several other requirements.

The Senate Budget and Appropriations Committee approved an amended version of Sen. Nicholas P. Scutari’s (D-22) bill, S4447, by a 9-4 vote last week. The amended bill will require prediction market operators pay a 9% surtax on gross income from event contracts, but no longer requires a license to operate or institutes any prohibitions on types of event contracts traded in the Garden State.

A fiscal note for the bill estimates New Jersey will see between $10.3 million to $15.3 million in new revenues if signed into law.

Amended Bill Drastically Pared Down

The Senate Budget and Appropriations Committee amended Scutari’s bill to only include the 9% surtax on gross income from event contracts.

“The Senate Budget and Appropriations Committee reports favorably a Senate Committee Substitute for Senate Bill No. 4447. As substituted by the committee, this bill establishes a surtax on certain incomes derived from operation of prediction markets,” the committee noted in a bill statement.

When originally introduced, his bill included a number of other provisions and a significantly higher proposed tax rate to operate in the state.

The legislation originally required prediction market operators offering sports event contracts in the state to be regulated in a similar manner as a sports betting operator. This included acquiring a New Jersey sports betting license or become licensed as an athletic event market operator and partnering with a sports wagering licensee.

The licensed operators would have been subject to the same 19.75% tax rate on revenues, plus an additional 10% surcharge. The 10% surcharge would have been applied to all other prediction market contracts, in addition to New Jersey business taxes and fees.

The legislation set a minimum age of 21 for any prediction market operator customers and required operators to establish self-exclusion and responsible gaming programs. Finally, certain event contracts would have been prohibited entirely in the state, such as those related to death, catastrophic events, and political markets.

None of these regulatory requirements were included in the amended bill.

Millions in Revenue

According to the Office of Legislative Services (OLS), New Jersey will likely see anywhere from $10.3 million to $15.3 million in new state revenues from the proposed tax on prediction market operators.

However, in the estimate the OLS said this does not take into consideration any potential cannibalization of tax revenues from the already established New Jersey sports betting industry.

“Owing to a lack of detailed industry data, this estimate makes the simplifying assumption that prediction market growth is uncorrelated with the financial performance of – and therefore also State revenue collection from – online and retail sportsbooks and brick and mortar casinos. If, however, the growth in prediction markets occurs at the expense of the other wagering and gaming licensees, there would be a reduction in the State revenue collections from those licensees,” the OLS noted in its fiscal estimate.