Michigan Gambling Laws And Taxes

Michigan online gambling law

Introduced in March 2019 by Rep. Brandt Iden, the Lawful Internet Gaming Act, officially known as Act 152 of 2019, underwent the evaluation of two House committees during the same month.

The 13-page document affirms the importance of implementing a secure, responsible, fair, and legal system of internet gaming for the benefit of the state and its citizens. Essentially, the legislation grants legality to online casinos and real money poker sites in Michigan.

Under the act, every casino operator in the state has the opportunity to provide internet gaming services using two distinct brands, one for interactive poker and another for casino-style games. Alternatively, they can choose to combine both services under a single brand. In addition, each federally recognized tribe is permitted to offer one online casino and one online poker platform. Consequently, the online gambling market has the potential to flourish with a total of 30 online casino and online poker sites.

All online casinos and poker sites, including those associated with a tribe, are regulated and supervised by the Michigan Gaming Control Board.

The types of casino games offered will be determined by the online gambling rules. The law sets a minimum requirement for poker, blackjack, cards, slots, and other commonly found games in casinos. However, it does not encompass pick numbers or other games typically provided by the Bureau of Lottery.

Nevertheless, the legislation does not forbid the sale of online lottery games, encompassing an array of digital versions of lottery games.

Key elements of the Michigan online gambling law

• The licenses for internet gaming operators are valid for a duration of five years and can be renewed thereafter.
• Internet gaming will only be available once a tribal casino operator and a commercial casino operator are both licensed.
• In order to retain their Michigan class III gaming status, casinos are required to uphold a minimum of 50% of the original number of gaming positions established when the law was passed.
• Internet gaming operators must show evidence of implementing one or multiple systems to identify age verification (21+), geolocation, and ensure that individuals are not listed on the MGCB’s responsible gaming database.
• The platform must clearly display proof of the internet gaming operator’s license.
• Operators will provide monthly reports that will categorize internet slots, poker, and table games. These reports will include detailed information on the total amount of wagers, payouts, free play redeemed, deductions, and adjusted gross receipts.

Michigan internet gambling taxes

Taxes and accounting are crucial aspects of the online gambling law, with specific regulations for deductions related to gross receipts. During the initial three years of implementation, online casino and poker operators are limited to deducting no more than 10% of gross receipts as “free play” to calculate adjusted gross receipts. In the fourth year, the maximum deduction is reduced to 6%, and in the fifth year, it further decreases to 4%.

Starting from Year 6, it is not allowed to deduct any free play. The commencement of “Year 1” is based on January 1 of the year after the operator’s launch.

To apply for an internet gaming operator license, a payment of $50,000 is required as an application fee. Additionally, there is an initial license fee of $100,000 along with an annual fee of $50,000 for each subsequent year. On the other hand, an internet gaming supplier is required to pay an initial license fee of $5,000, which can be renewed for $2,500 annually thereafter.

The tax rates for online casino and poker operators are determined based on their adjusted gross receipts for each calendar year. The tax rates start at 20% and increase gradually according to the following tax brackets:

• An Annual Gross Revenue (AGR) below $4 million corresponds to a 20% rate.
• Between $4 million and less than $8 million, the percentage is 22%.
• The percentage of $8 million to less than $10 million is 24%.
• Between $10 million and $12 million, the value is 26%.
• 28% is $12 million or more.

Taxes are due monthly, with payment required by the 10th day of the subsequent month.

Detroit online gambling taxes

The distribution of taxes from operators associated with Detroit casinos is as follows:

• The funds will be allocated towards various services and programs in Detroit, including but not limited to: street patrol officers, neighborhood development initiatives aimed at job creation, public safety programs such as emergency medical services, fire department initiatives, and street lighting, anti-gang and youth development programs, quality of life programs, taxpayer relief from city-imposed taxes or fees, capital improvements, and road repairs and enhancements.
• The internet gaming fund receives a 65% allocation.
• A contribution of up to $3 million will be allocated to the Michigan agriculture equine industry development fund, representing 5% of the total amount.

It is worth mentioning that Detroit receives a yearly assurance of $183 million in funds from online gaming.

What is the internet gaming fund?

Revenue from online gaming taxes is used to establish the internet gaming fund within the state treasury.

The fund covers:

• The costs incurred by MGCB for regulating and enforcing internet gaming.
• The compulsive gambling prevention fund receives an annual amount of $500,000.
• The first responder presumed coverage fund will receive an annual amount of $2 million.
• The entirety of the remaining funds will be allocated to the state school aid fund.

Michigan sports betting law

In September 2019, Iden introduced House Bill 4916, which later transformed into the Lawful Sports Betting Act. After successfully progressing through committees in both the House and Senate, as well as the full legislature, Whitmer signed the bill into law in December 2019.

Michigan sports betting has gained legal prominence with the introduction of a comprehensive 14-page document that encompasses internet betting. Following the enactment of the law, the three commercial casinos in Detroit promptly established retail sportsbooks in March 2020. The National Indian Gaming Association granted clearance to the tribes and their casinos, allowing them to participate. However, the majority of these establishments chose to wait until the summer of 2020 before officially offering sports betting services in Michigan.

For now, the Michigan online sportsbook market will be limited to a maximum of 15 total sites. Each casino operator is permitted to have only one internet sports betting brand, which must be prominently displayed on their platform. Additionally, tribal casino operators are granted one sports betting license per tribe, rather than per tribal casino.

According to the law, when it comes to betting, the term “athletic event” excludes pari-mutuel horse racing, events involving participants at the high school level or below (unless the majority of participants are 18 or older), casino-style games, and fantasy contests.

The regulations for retail sports betting solely apply to the three Detroit casinos, while Native American tribes are accountable for overseeing and supervising sports betting activities at tribal casinos. However, the jurisdiction of the Michigan Gaming Control Board (MGCB) extends to online sports betting due to its statewide nature.

Key elements of the sports betting law in Michigan

• Sports betting conducted on “Indian lands” in accordance with a tribal gaming ordinance approved by the chair of the National Indian Gaming Association is not covered by the act.
• The legislation makes it illegal to offer sports betting devices for use in public venues, such as clubs or other associations.
• Sports betting platforms must have one or more mechanisms in place to verify the age (21+), geolocation, and ensure that individuals are not listed on the MGCB’s responsible gaming database.
• In order to retain their Michigan class III gaming status, casinos are required to preserve a minimum of 50% of their original gaming positions as established under the act.
• Sports betting operators can be asked by US sports leagues to utilize official league data.

Michigan sports betting taxes

To apply for a sports betting operator license, an initial application fee of $50,000 must be submitted. Additionally, there is an initial license fee of $100,000, followed by an annual license fee of $50,000 for subsequent years. As for sports betting suppliers, they are required to pay an initial license fee of $5,000, which can be renewed for $2,500 each year thereafter.

Adjusted gross sports betting receipts are subject to an 8.4% tax rate. Additionally, the law permits the city of Detroit to impose a 1.25% fee on the adjusted gross sports betting receipts of its casinos.

Detroit sports betting taxes

• The funds allocated will be used for various purposes in Detroit, including but not limited to: supporting street patrol officers, neighborhood development programs with a focus on job creation, public safety initiatives such as emergency medical services, fire department programs, and street lighting, anti-gang and youth development programs, quality of life programs, providing taxpayer relief from certain city taxes or fees, capital improvements, and road repairs and enhancements.
• 65% of the funds will be allocated to the internet sports betting fund.
• The Michigan agriculture equine industry development fund is eligible for a contribution of up to $3 million, equivalent to 5% of the total amount.

Monthly taxes must be paid by the 10th day of the subsequent month.

What is the internet sports betting fund?

Revenue from online sports betting taxes is used to establish the internet sports betting fund within the state treasury.

The fund covers:

• The costs associated with regulating and enforcing internet gaming by MGCB.
• The compulsive gambling prevention fund receives a yearly sum of $500,000.
• The first responder presumed coverage fund receives $2 million on an annual basis.
• The entirety of the remaining funds will be allocated to the state school aid fund.

How does Michigan benefit from online gambling and sports betting?

Naturally, it has always been acknowledged that increased gambling would generate income for public entities. However, the question remains: to what extent?

In December 2019, when Whitmer signed the bills, the news release projected that Michigan would generate approximately $19 million in fresh revenue each year.

The data provided in this statement originates from an analysis conducted by the House Fiscal Agency. Initially, they estimated that sports betting would generate approximately $7.7 million in tax revenue, which is expected to eventually increase to around $12.1 million. Additionally, the agency projected that online gaming would yield about $11.7 million in tax revenue initially, with the potential to mature and reach as high as $52.5 million.

Based on conservative estimates, it is projected that the Michigan market will contribute approximately $64 million in additional revenue to the state.

At the launch of online gambling, the Office of Administrative Hearings and Rules projected that impact statements would result in a yearly influx of $25 million in new revenue. These estimates included $18 million for internet gaming and $7 million for sports betting.

Iden informed Playinmichigan that estimating $30 million for Year 1 is a sensible assumption, while also suggesting that the market has the potential to grow and generate $80-$110 million in new tax revenue by Year 2.

Tribal casinos and online gambling in Michigan

In Michigan, there are 12 Native American tribes that have been federally recognized, and each tribe operates at least one casino. It is important to note that each tribe, rather than each individual casino, acts as a casino operator and has the authority to grant licenses to online platforms. Specifically, they can issue licenses for sports betting, online casinos, and online poker, with each tribe having the capability to issue one license for each category.

In recent years, a significant portion of the legislative proceedings regarding online gambling has focused on the dynamic between the state government, tribal entities, and the commercial casinos located in Detroit.

Due to the expansion of online gambling across the entire state, the tribes are no longer capable of solely regulating all gambling activities within their territory using their independent rules.

Both laws stipulate that Michigan’s tribes must relinquish their sovereign immunity for specific administrative purposes, thereby granting oversight authority to both the MGCB and Ingham County circuit courts.

The taxes derived from internet gaming operators associated with tribal casinos are allocated to:

• The tribal government receives a 20% allocation for the services provided.
• The internet gaming fund receives 70% of the total amount.
• The Michigan strategic fund receives a 10% allocation.

The division of taxes for sports betting operators associated with tribal casinos is as follows:

• The internet sports betting fund receives a contribution of 90%.
• The Michigan strategic fund receives a 10% allocation.

How does Michigan online gambling compare with New Jersey?

In 2013, online gambling was legalized in New Jersey, followed by the legalization of sports betting in 2018. Despite being a few years ahead of Michigan in this regard, the two states have many similarities. New Jersey takes pride in offering online casino, online poker, and online sportsbooks as well.

Do you recognize this? You should. Michigan took inspiration from the Garden State and built its market in a similar way, resulting in record-breaking betting handle and online casino revenue almost every month. New Jersey has become a benchmark for states aiming to legalize online gambling. However, Michigan has the potential to equal or surpass New Jersey’s achievements.

We shall now analyze several factors in play in both NJ and MI for comparison.

1. Population size

Despite New Jersey’s ability to attract out-of-state bettors, Michigan holds an advantage due to its larger population, as estimated by the US Census in 2019. With just under 10 million residents, Michigan ranks as the 10th-most populous state, while New Jersey falls behind as the 11th with just under 9 million residents. Although New Jersey compensates for this disparity by drawing in bettors from neighboring areas like New York City, the demographics in Michigan offer the state a potential long-term advantage.

2. Tax rates

Michigan imposes a tax rate of 20-28% on online casinos and 8.4% on sports betting. On the other hand, New Jersey taxes sports betting at 9.75% for in-person retail sportsbooks and 14.25% for online platforms. Additionally, New Jersey levies a 15% tax on internet gaming gross revenues along with a 2.5% tax for the Casino Reinvestment Development Authority.

3. Total apps

In Michigan, there are currently 15 casino operators, each holding a license for sports betting, online casino, and online poker. As the industry develops, Michigan has the potential to accommodate a total of 45 sites. The situation in New Jersey is slightly different, as there are no tribal casinos but instead eight casino operators and three operational racetracks.

In New Jersey, every casino operator has the privilege to establish a maximum of five distinct online casinos alongside three online poker sites. Moreover, each casino and racetrack operator is permitted a maximum of three online sports betting sites. Consequently, residents of New Jersey can anticipate a wider variety of apps to choose from.

4. Cross-selling

However, the real indicator of Michigan’s triumph could stem from cross-selling. A number of online casino operators entering Michigan’s market have intentions to also function as sports betting brands, like FanDuel and DraftKings. These companies stand to gain advantages from their dual roles by cross-selling to customers who initially only sought to engage in a few online slots.

The implementation of cross-selling strategies in New Jersey has consistently increased revenue each month, resulting in online casinos generating over $100 million in monthly revenue by summer 2021. It is reasonable to expect that Michigan operators will achieve similar results.

Michigan online gambling law launch timeline

Since a statewide vote in 1996 allowed the establishment of three downtown Detroit casinos, the Lawful Internet Gaming Act and Lawful Sports Betting Act have emerged as the most significant alterations to Michigan’s gambling laws.

Before 2019, the legalization of sports betting and internet gaming had been a topic of discussion for several years. Rep. Brandt Iden played a significant role in advocating for these bills, facing numerous challenges along the way. In 2017 and 2018, Iden managed to successfully pass the bill through the committee and have it reach then-Gov. Rick Snyder’s desk. Unfortunately, Snyder vetoed the bill as one of his last actions in office that year.

Rep. Robert Kosowski had been diligently striving for several years to advance sports betting legislation closer to the governor’s desk, but unfortunately, his efforts were unsuccessful as the proposals failed to progress beyond the Committee on Regulatory Reform prior to Iden’s involvement.

The inclusion of tribal gaming across the state has significantly complicated the process of legalizing online gambling.

The state of Michigan has established agreements, known as compacts, with its 12 federally recognized Native American tribes. These compacts outline the gambling regulations that the tribes must adhere to. As per these agreements, the tribes are obligated to share a portion of their casino earnings with the state and local municipalities. Specifically, they are required to pay 8% of the net win from electronic games of chance to the state, and an additional 2% to the local communities.

The aforementioned arrangements constituted the sole agreements between the state and tribes regarding gambling. Sovereign nations possess the authority to operate under their own laws exclusively within reservation land.

However, in order for the tribes to operate internet gambling on a statewide level, certain concessions had to be made. Among these was the decision to allocate a portion of the tax revenue generated by online casinos to be returned to the tribes’ respective local governments.

History of casino gambling in Michigan

Michigan boasts a vibrant gambling heritage, encompassing various significant milestones in its casino gambling journey. Below are notable dates highlighting the state’s involvement in the gambling industry.

• On December 31, 1983, Fred Dakota from the Keweenaw Bay Indian Community established “The Pines,” a compact casino located within a two-car Upper Peninsula garage in Zeba. In the same year, two additional tribes also inaugurated casinos in the northern region of Michigan.
• On November 5, 1996, Proposal E, the Michigan Gaming Control and Revenue Act, was passed by state voters with a narrow margin of 51% to 48%. This significant milestone paved the way for the establishment of Michigan’s first non-tribal casinos and the creation of the Michigan Gaming Control Board. Subsequently, temporary locations for Detroit’s Greektown, MGM Grand, and MotorCity casinos were introduced, with their doors opening to the public in the summer of 1999.
• On December 28, 2018, Rick Snyder, Michigan’s governor at the time, vetoed a set of bills that aimed to legalize online casinos and sports betting. This decision sent lawmakers, including Iden and other interested parties, back to the beginning, as they resumed their efforts in 2019 with the aim of gaining the approval of the incoming governor.
• On December 20, 2019, Governor Gretchen Whitmer officially approved the Lawful Internet Gaming Act and Lawful Sports Betting Act, which aim to broaden the range of gambling opportunities in Michigan by incorporating sports betting and online casinos. This legislation permits Detroit’s three casinos and the state’s 12 federally recognized Native American tribes to form partnerships with online casinos, sports betting platforms, and poker brands.
• On March 11, 2020, Greektown and MGM Grand in Detroit made history by opening the state’s inaugural retail sportsbooks. The following day, MotorCity Casino’s FanDuel Sportsbook joined the fray, featuring a special appearance by Detroit Lions icon Barry Sanders, who made the inaugural bet. However, the launch of online sports betting and casino platforms had to be postponed until early 2021.
• On January 22, 2021, Michigan witnessed the launch of its inaugural online gambling sites, following the approval granted by the MGCB three days prior. A total of ten online brands commenced operations, encompassing eight online casinos and ten sportsbooks. Just a week later, Michigan welcomed its first online poker site, PokerStars.
• In September 2021, the Michigan casino market is approaching a state of operator maturity, as 14 out of the 15 potential operators or tribes have successfully introduced their online casino and sports betting products.