Vermont & North Carolina Legalize Sports Betting
As of the first week of June, North Carolina and Vermont became the 37th and 38th states to legalize sports betting.
In Vermont, the new law will allow for the issuance of licenses to online operators only. There is no provision for in-person sports betting as of yet, so all wagers must be completed online or through a mobile app. The bill will also change the legal age to participate in Daily Fantasy Sports from 18 to 21 (remember DFS is considered gambling for tax purposes).
In North Carolina, the new law will allow for the issuance of licenses to online operators and select in-person venues. It also legalizes online horse racing.
Although already signed into law, operators in both states will not have the infrastructure in place to begin accepting wagers until late 2023 or early 2024. As they prepare to do so, it is important to understand the tax consequences of sports betting in North Carolina and Vermont.
North Carolina and Vermont are not favorable states for recreational gamblers (similar to Ohio).
North Carolina allows itemized deductions at the state level, but gambling losses are not considered an itemized deduction. Residents are unable to deduct gambling losses from their winnings on their state tax return.
Vermont does not allow itemized deductions (other than certain medical expenses). Taxpayers will almost always use the standard deduction and exemptions at the state level, receiving little to no benefit from their gambling losses.
Neither state allows the “netting” of winnings and losses on the state level. This means that recreational gamblers will be subject to tax on substantially all of their gross gambling winnings. Even in a losing year, tax will still be assessed on gross winnings.
North Carolina taxes all income at a flat rate of 4.75%, including gambling winnings.
Vermont state tax rates range from 3.3% to 8.75% on all income, including gambling winnings.
If you are a professional gambler, these tax regulations do not apply. Professional gamblers are considered self-employed and are taxed on their net business profit. This allows professional gamblers to deduct their gambling losses, and other operating expenses, before being subject to state tax rates.
If you are a recreational gambler, make sure you are aware of the tax consequences before gambling in either state! This is especially relevant for sports betting, as gross winnings can accumulate quickly. And remember to keep detailed records of all wagering activity, including your session results, as this will serve as your documentation and could reduce your gross winnings.