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The Likely Reality of Taxed Internet Gambling

May 27, 2010 (CAP News Wire) – Riding the wave of media coverage from last week’s congressional hearing on the possible taxation of online gambling, the issue has generated even more headlines this week (see tomorrow’s weekly media coverage recap for more).

One of the more interesting of this week’s mainstream media stories on online gambling was found in the Las Vegas Sun, a newspaper from a city that understandably takes considerable interest in this issue, being primarily fueled by the gambling industry.

According to Liz Benston in the article, a lot of the new debate on this topic is over just how to tax an industry that’s “ready, willing and able to pay”. And, as many reports have underlined lately, the amount pulled in by the government could be in the double-digit billions.

“McDermott estimates more than half of that money would come from gamblers declaring taxable winnings,” Benston explains. “The legislation would require online casinos to send 1099 forms to the Internal Revenue Service that list winnings and losses. The IRS allows gamblers in casinos to deduct losses against winnings, although much activity — with the exception of big jackpots that require IRS disclosures — goes unreported.”

“Under the bill, online casinos would pay corporate income taxes because they would be required to locate computer servers and corporate offices in the United States. … In addition, Web casino operators would pay a quarter-percent tax on wagers and a 6 percent tax on the money gamblers deposit into online accounts before laying bets.”

Sounds pretty complicated. And that’s not even the half of it. In her article Benston also describes a deposit tax, and the reasons why this concept may hurt the chances of the taxation actually happening. She also explains how some solutions could be created to simplify the whole mess — which would probably be welcome news to those of us in the industry who actually still want regulated online gambling after considering all these taxation details …

For his part, John Pappas of the PPA is downplaying the taxation talk. “We’ve got to first win the war on whether Internet gambling should be regulated before engaging in battle over how it should be taxed,” he said Pappas. “I think this was putting the cart a little before the horse.”