Josh Hart (3) leads top-seeded Villanova into the NCAA Tournament as millions of people take part in office pools across the country. If one Pa. legislator proposes a fantasy sports bill, could that mean that winning the office pool means you have to ...
Shhhh!Don't tell the Legislature about the office's March Madness bracket pool. Lawmakers might be tempted to tax your winnings.
A bill to legalize and tax fantasy sports — which bracketology surely can be considered due to long odds of winning — soon could start winding its way through the Legislature.On Monday, state Rep. George Dunbar, R-Westmoreland, issued a memo that he is crafting a bill that would "require fantasy sports contest providers to be licensed and regulated by the Pennsylvania Gaming Control Board," which oversees casinos. The bill also would tax fantasy contest gross revenue and require providers to create consumer protection safeguards.The memo does not define fantasy sports and the bill has not yet been written. Typically, these bills, including one that failed last year in Harrisburg, are aimed at taxing online companies that market so-called "skill" games in which contestants win prizes or money based on season-long mock drafts and trades involving real-life professional athletes. But is it conceivable that such a bill could include online March Madness wagers where the chances of winning are less about luck than the skill of picking teams after tracking players' strengths, weaknesses and injuries all season long?
To be sure, neither Dunbar nor any other lawmaker is publicly advocating for taxing March Madness winnings. But the odds could make an enticing argument for classifying the brackets as fantasy sports in legislation.The odds of blindly picking 32 first-round winners in the NCAA's 64-team bracket is an astonishing 1-in-9,223,000,000,000,000,000 (9.2 quintillion), according to Mark Ablowitz, a professor of applied mathematics at the University of Colorado. The odds of randomly picking the Sweet 16, the final 16 teams in the tournament, is about 1 in 282 trillion, he said."The real essence here is the issue of the behavior of large numbers," said Ablowitz, who specializes in the mathematics of laser and water waves. "When numbers get exponentially larger and larger, things get out of hand very, very quickly."
So does gambling in the three-week frenzy of March Madness, which begins in earnest Thursday.The American Gaming Association, a national casino lobbying group, estimates $10.4 billion, a 13 percent increase over last year, will be wagered on college basketball this month. Most of that betting will be done through illegal bookies and offshore websites, the association said. Still, every little bit of legal taxable gambling income would help fill Pennsylvania's perpetual $3 billion budget deficit.Dunbar could not be reached. But his memo says Pennsylvania should reap a share of online fantasy sports wagering that is going on anyway despite federal law prohibiting sports betting in all states except Nevada. "This federal exemption coupled with the argument that fantasy sports games are skill-based games has led to the creation of an unregulated industry that an estimated 50 million Americans are participating in," Dunbar wrote. The Revenue Department defines gambling as a prize won with consideration, which typically means a participant risked something of value to play for the prize won "primarily by chance and only secondarily by skill and experience." Chance typically means a random outcome such as nightly Pennsylvania Lottery drawings. Skill and expertise cover knowledge of participants and odds on a particular bet.According to tax law experts, the Pennsylvania Department of Revenue and IRS have multiple ways to catalog jackpots of chance or skill. But the experts are split on whether the state can tax all types of NCAA-related jackpots like the federal government can."As a general rule of thumb, any income is taxable, not only to the federal government, but to state government unless they specifically exclude it and this is not one they normally exclude," said Ed Liva, director of Villanova University's Graduate Tax Program and a tax law professor at the university's law school. If the taxpayer attempts to classify a sports bet win as nonreportable income based on "skill" alone, the state Revenue Department would reject the claim, said James Edward Maule, another tax law professor at Villanova's Charles Widger School of Law. First, the department would argue the outcome was based as much on chance, such as a horse breaking its leg, as it is on a gambler's skill at understanding horse racing. . The department also would reject the claim by pointing out "if the winnings are derived from 'skill' then they are compensation from self-employment, also taxable," he said.Michael J. Hussey, tax law professor at Widener University Commonwealth Law School, isn't so sure NCAA prize winnings offered by CBS Sports and ESPN would be considered taxable gambling proceeds under existing state Revenue Department guidelines and a possible fantasy sports bill. There's no consideration to play because companies' online brackets are free, he said, even though participants register their email addresses, he said."So, I think it's unlikely these winnings are taxable in Pennsylvania but they are most definitely taxable on someone's federal 1040," Hussey said.Any fantasy sports bill becomes a matter of enforcement, said Anthony C. Infanti, tax law professor at University of Pittsburgh School of Law. A fantasy sports law would require online companies to send the state information on which residents won prizes just as casinos do with slot winnings and companies do with their employees' W-2 tax forms, he said. That third-party notification, he said, ensures there's less tax cheating. But if it's an NCAA office pool, Infanti said, you'd have to be a real honest individual to tell the government you won."People who are honest pay more," Infanti said.So whether it was a win of skill or quintillionth luck, keep your victorious 2017 bracket — and bragging rights — at the office water cooler while a fantasy sports bill is debated in Harrisburg.firstname.lastname@example.org
MARCH MADNESS BETTING•40 million people fill out roughly 70 million brackets.•Average person completes nearly two brackets.•Average bet per bracket is $29.•Half of all March Madness viewers have filled out a bracket at least once in their lifetime.Source: American Gaming Association
March Madness,NCAA,fantasy sports,Legislature