Arizona Governor Proposes Increased Betting Tax

State leaders in Arizona are contemplating following the example of Illinois and increasing the betting tax as the industry continues to grow rapidly

Players in the Arizona sports betting market wagered over $8 billion last year, and under the current system, Arizona collects roughly 10% of taxable revenue from online sportsbooks, which account for most of the state’s gambling. Governor Katie Hobbs has proposed increasing that rate to 45% for the largest operators, a move her office says could generate an extra $150 million in state revenue.

The proposal would apply only to sportsbooks with more than $75 million in monthly revenue, and only four operators: DraftKings, Caesars, FanDuel, and Fanatics meet that threshold. Together, those companies represent roughly three-quarters of Arizona’s sports betting market, and all offer excellent Arizona sportsbook promos.

Arizona’s existing tax rate is the fifth-lowest among states with legalized online sports betting, while some states operate rates close to or exceeding 50%. According to Daniel McIntosh, a marketing professor at Arizona State University, Arizona’s rate leaves room for growth. The proposed increase would affect only online sportsbooks, not the state's brick-and-mortar casinos. 

However, speaking to a local media outlet, McIntosh warned that sportsbook profit margins are often as low as 2% to 3%, so higher taxes could hit cash flow. He also noted that increased regulation and taxation should be linked to efforts to protect the integrity of professional and collegiate sports, particularly regarding prop bets on player performances. 

Despite the potential revenue upside, Hobbs’ proposal also faces political hurdles. Arizona’s constitution needs a two-thirds legislative majority for tax increases, and Republican lawmakers have historically opposed any tax rises. 

Illinois betting slowdown raises tax concerns

While Arizona is considering raising sportsbook taxes, the Illinois sports betting market is dealing with the consequences of last year’s tax rise. Since July, when the state introduced a per-bet tax ranging from 25 to 50 cents on online wagers, betting activity has dropped sharply. 

Data from the Illinois Gaming Board shows 25.1% fewer wagers in December 2025 compared year-on-year, or nearly 10 million fewer bets. From September through December, wagers fell by over 27.6 million. Industry experts say the fall followed the launch of the new tax. 

In response, sportsbooks introduced minimum bet requirements or surcharges to offset costs, with DraftKings and FanDuel implementing 50-cent fees, which have led to fewer bets and larger average wager sizes. In December, the average bet passed $50 for the first time, up from $39 the year before. 

More concerning for state officials, the total amount wagered also fell year-on-year in December, reversing earlier trends. Analysts warn that sustained declines in betting volume could ultimately hit sportsbook revenue and reduce the state tax collections that the tax was designed to boost.