Internet Gambling Regulation and Taxation

The most recent federal legislation introduced that would affect online poker is from Congressman Jim McDermott (D-WA). This bill was introduced as a companion bill to H.R. 2046 which is Congressman Barney Frank’s bill. The main purpose of McDermott’s bill is to tax internet gambling revenue. McDermott’s bill is H.R. 2607, the Internet Gambling Regulation and Tax Enforcement Act, and was introduced on June 7, 2007.

Under this bill the licensee has some important requirements. The licensee must make sure taxes from internet gambling, both federal and state, are collected at the time of payment. Payment is not defined by the bill so it’s unclear as to whether or not payment would mean as soon as the money goes into your account or when you withdraw any funds. The main purpose of this bill is to regulate and tax internet gambling. It would be up to the licensee to come up with a way to ensure the taxes are paid.

This bill would also derive fees from the license holders of internet gambling operations. Every 30 days the licensee would have to pay two percent of deposited funds as a fee to the Director of the Financial Crimes Enforcement Network. This may seem like a small portion but paid every 30 days it can add up to a substantial amount. PricewaterhouseCoopers performed a study that estimated $8.7 billion to $42.8 billion dollars would be generated from this bill within the first ten years. While the fees would be paid to the director those fees would then be sent to the Treasury and treated as any other taxed revenue.

The estimated revenue is based on assumptions that internet gambling licensees are incorporated in the United States. It was also assumed for purposes of the study that the fees were paid in addition to federal wagering and corporate income taxes. The study was done featuring two different scenarios, one where no state opted out of Congressman Frank’s bill and one where up to 10 states opted out.

As of June 7, 2007 this bill was referred to the House Committee on Ways and means. This is the committee responsible for tax issues. No new action has been taken on this bill.