Michigan Gambling Laws And Taxes

michigan online gambling laws

In December 2019, Gov. Gretchen Whitmer signed a series of bills into law, expanding gambling options in Michigan after a years-long legislative struggle with many stops and starts.

The laws add sports betting, online casinos, and online poker to the state’s wagering menu. Other long-standing gambling activities, such as betting on horse racing online and fantasy sports, were brought under the regulatory umbrella for the first time, too.

It was a long process with ups and downs and one veto, too. The added complication of tribal gaming in the state proved to be another uphill battle. But the end result changed the course of gaming in Michigan.

The Lawful Internet Gaming Act and the Lawful Sports Betting Act were the two most influential laws established in the process. This is a closer look at both including taxation, rules of play, and the intersection of tribal casinos.

Michigan online gambling law

The Lawful Internet Gaming Act is, officially, Act 152 of 2019. It was introduced as House Bill 4311 by Rep. Brandt Iden in March 2019, reaching two House committees that month.

The 13-page document declares that “it is in the best interest of this state and its citizens to regulate this activity by establishing a secure, responsible, fair, and legal system of internet gaming.” It essentially legalizes online casinos and real money poker sites in Michigan.

The act allows for each casino operator in the state to offer internet gaming under two separate brands — one each for interactive poker and for casino-style games. It can also be one brand for both. Each federally-recognized tribe can also offer one each of online casino and poker. Therefore, the online gambling market could mature at 30 total online casino and online poker sites.

The Michigan Gaming Control Board oversees all online casinos and poker sites, including those linked to a tribe.

The online gambling rules will dictate the types of casino games offered. The law establishes a baseline minimum of poker, blackjack, cards, slots, and other games typically offered at a casino but does not include pick numbers or other games typically offered by the Bureau of Lottery.

However, the act does not prohibit selling internet lottery games, including, but not limited to, digital representations of lottery games.

Key elements of the Michigan online gambling law

  • Internet gaming operator licenses are good for a 5-year period and are renewable after that.
  • Internet gaming will not be offered until at least one operator is licensed with a tribal casino and another is licensed with a commercial casino.
  • Casinos must maintain Michigan class III gaming status and at least 50% of their gaming positions that were in place when the law was enacted.
  • Internet gaming operators are required to demonstrate one or more mechanisms to detect age verification (21+), geolocation, and that individuals are not on the MGCB’s responsible gaming database.
  • Evidence of the internet gaming operator’s license must be clearly displayed on the platform.
  • Monthly reports from operators will be broken down to at least internet slots, poker, and table games, further breaking down total amount of wagers, payouts, free play redeemed, deductions, and adjusted gross receipts.

Michigan internet gambling taxes

Some of the most important portions of the online gambling law deal with taxes and accounting. For instance, in years 1-3 of implementation, online casino and poker operators cannot deduct more than 10% of gross receipts as “free play” to determine adjusted gross receipts. In year 4, it’s a 6% maximum, and in year 5, it’s 4%.

No free play deduction is permitted starting in year 6. The clock on when “year 1” begins is on Jan. 1 of the year following launch by the operator.

An initial application for an internet gaming operator license must be accompanied by a $50,000 application fee. There is also an initial license fee of $100,000 with an annual license fee of $50,000 each year after that. Meanwhile, an internet gaming supplier pays an initial license fee of $5,000, renewable for $2,500 each year after that.

Online casino and poker operators pay a graduated tax rate based on adjusted gross receipts each calendar year, beginning at 20%. The rates are taxed as follows:

  • AGR of less than $4 million: 20%
  • $4 million to less than $8 million: 22%
  • $8 million to less than $10 million: 24%
  • $10 million to less than $12 million: 26%
  • $12 million or more: 28%

Taxes are paid on a monthly basis by the 10th day of the following month.

Detroit online gambling taxes

Taxes from operators linked to Detroit casinos are proportioned as follows:

  • 30% to Detroit services, such as street patrol officers; neighborhood development programs with a focus on job creation; public safety programs such as emergency medical services, fire department programs, and street lighting; anti-gang and youth development programs; quality of life programs; taxpayer relief from 1 or more taxes or fees imposed by the city; capital improvements; or road repairs and improvements
  • 65% to the internet gaming fund
  • 5% to the Michigan agriculture equine industry development fund, up to $3 million

Of note, Detroit gets a guarantee of $183 million in funds annually from online gaming.

What is the internet gaming fund?

The internet gaming fund is created in the state treasury with revenue from online gaming taxes.

The fund covers:

  • MGCB costs of regulating and enforcing internet gaming
  • $500,000 annually to the compulsive gambling prevention fund
  • $2 million annually to the first responder presumed coverage fund
  • All remaining money to the state school aid fund

Michigan sports betting law

House Bill 4916, which would later become the Lawful Sports Betting Act, was introduced in September 2019 by Iden. After advancing through House and Senate committees and the full legislature, the bill was signed by Whitmer in December 2019.

The 14-page document puts Michigan sports betting into the legal spotlight and includes internet betting. The three commercial casinos in Detroit opened retail sportsbooks in 2020 as a result of the law. The tribes and their casinos were cleared through the National Indian Gaming Association. Even so, most waited until summer 2020 to officially bet on sports in Michigan.

Only one internet sports betting brand is allowed per casino operator. A casino operator must clearly display its own brand on the platform. Tribal casino operators receive one sports betting license per tribe (not one per tribal casino). This means the Michigan online sportsbook market will max out at 15 total sites.

For the purposes of betting, the law states that an “athletic event” does not include pari-mutuel horse racing, events where participants are high school level or below (unless the majority of participants are 18 or older), casino-style games, and fantasy contests.

Retail sports betting rules cover only the three Detroit casinos. Native American tribes are responsible for maintaining and monitoring sports betting at tribal casinos. However, online sports betting by virtue of being statewide falls under the jurisdiction of the MGCB.

Key elements of the sports betting law in Michigan

  • The act does not cover sports betting that is conducted on “Indian lands” in accordance with a tribal gaming ordinance approved by the chair of the National Indian Gaming Association.
  • The act prohibits making sports betting wagering devices available in a place of public accommodation, including a club or other association.
  • Sports betting platforms are required to demonstrate one or more mechanisms to detect age verification (21+), geolocation, and that individuals are not on the MGCB’s responsible gaming database.
  • Casinos must maintain Michigan class III gaming status and at least 50% of their gaming positions that were in place when the act was enacted.
  • US sports leagues can request the use of official league data for sports betting operators.

Michigan sports betting taxes

An initial application for a sports betting operator license must be accompanied by a $50,000 application fee. There is also an initial license fee of $100,000 with an annual license fee of $50,000 each year after that. A sports betting supplier pays an initial license fee of $5,000, renewable for $2,500 each year after that.

There is an 8.4% tax rate for adjusted gross sports betting receipts. The law also allows the city of Detroit to impose its 1.25% fee on its casinos’ adjusted gross sports betting receipts.

Detroit sports betting taxes

  • 30% to Detroit services, such as street patrol officers; neighborhood development programs with a focus on job creation; public safety programs such as emergency medical services, fire department programs, and street lighting; anti-gang and youth development programs; quality of life programs; taxpayer relief from 1 or more taxes or fees imposed by the city; capital improvements; or road repairs and improvements
  • 65% to the internet sports betting fund
  • 5% to the Michigan agriculture equine industry development fund, up to $3 million

Taxes are paid on a monthly basis by the 10th day of the following month.

What is the internet sports betting fund?

The internet sports betting fund is created in the state treasury with revenue from online sports betting taxes.

The fund covers:

  • MGCB costs of regulating and enforcing internet gaming
  • $500,000 annually to the compulsive gambling prevention fund
  • $2 million annually to the first responder presumed coverage fund
  • All remaining money to the state school aid fund

How does Michigan benefit from online gambling and sports betting?

Of course, there’s always been an understanding that expanded gambling will raise revenue for public entities. But how much?

When Whitmer signed the bills in December 2019, the press release estimated $19 million of new revenue annually for Michigan.

This came from a legislative analysis from the House Fiscal Agency, which forecasted about $7.7 million originally and about $12.1 million eventually in tax revenue from sports betting. The same group projected about $11.7 million in initial online gaming tax revenue, maturing to as much as $52.5 million.

Using the mature estimates, the Michigan market is projected to add nearly $64 million in new revenue for the state.

The Office of Administrative Hearings and Rules issued impact statements earlier this year that anticipated $25 million of new revenue annually at the launch of online gambling: $18 million for internet gaming and $7 million for sports betting.

Iden told PlayMichigan that a $30 million guess is reasonable for year one, but that the market could mature to $80-$110 million of new tax revenue by year two.

Tribal casinos and online gambling in Michigan

Michigan has 12 federally recognized Native American tribes that all operate at least one casino. Each of the tribes — not each of the different casinos — are a casino operator that can issue a license to a partnering online platform (one apiece for sports betting, online casino, and online poker).

Much of the legislative process over the last few years about online gambling dealt with the relationship between the state government, the tribes, and the commercial casinos in Detroit.

Since the tribes would be offering online gambling statewide, they no longer could police all the gambling activity by themselves, on their own land with their own rules.

According to both laws, Michigan’s tribes must waive sovereign immunity for certain administrative purposes, granting oversight to the MGCB and Ingham County circuit courts.

Taxes from internet gaming operators linked to tribal casinos go to:

  • 20% to the tribal government for services
  • 70% to the internet gaming fund
  • 10% to the Michigan strategic fund

For sports betting operators linked to tribal casinos, taxes go to:

  • 90% to the internet sports betting fund
  • 10% to the Michigan strategic fund

How does Michigan online gambling compare to New Jersey?

New Jersey legalized online gambling in 2013 and sports betting in 2018. That’s a few years ahead of Michigan, but the two states share a lot in common. New Jersey boasts online casino, online poker, and online sportsbooks.

Sound familiar? It should. Michigan modeled its market largely around the Garden State, which sets records seemingly every month in betting handle and online casino revenue. New Jersey has become a measuring stick for states seeking to legalize online gambling. But the potential for Michigan to match or outpace New Jersey is there.

Let’s compare a few factors at play in NJ and MI.

1. Population size

Michigan has a larger population, and therefore, a larger market for operators. The US Census estimated in 2019 that Michigan was the 10th most populous state with just under 10 million residents. New Jersey was 11th with just under 9 million. New Jersey probably makes up the difference with an influx of out-of-state bettors who cross state lines from places such as New York City. But the demographics in Michigan give the state an edge nonetheless.

2. Tax rates

In Michigan, the tax rate for online casinos ranges from 20-28%. For sports betting, the tax rate is 8.4%. In New Jersey, sports betting is taxed at 9.75% for in-person retail sportsbooks and 14.25% for online. New Jersey has a 15% tax rate for internet gaming gross revenues, in addition to a 2.5% tax for the Casino Reinvestment Development Authority.

3. Total apps

Michigan has 15 casino operators distributing one license apiece for sports betting, online casino, and online poker. At maturity, Michigan could play host to 45 total sites. It’s a little more complicated in New Jersey where there are no tribal casinos but eight casino operators and three active racetracks.

Each of the NJ casino operators are allowed up to five unique online casinos and three online poker sites. There’s also a maximum of three online sports betting sites per casino and racetrack operator. This means there is the potential for a larger selection of apps in New Jersey.

4. Cross-selling

But the true measure of Michigan’s success may come from cross-selling. Several of the online casino operators coming to Michigan plan to double as sports betting brands, such as FanDuel and DraftKings. Those companies could benefit from the dual roles, cross-selling customers who may have only wanted to spin a few online slots.

In NJ, cross-selling between platforms has boosted revenue month after month, with online casinos reporting $90 million in revenue in 2020. There is no reason to think that Michigan operators won’t do the same.

Online gambling law timeline

The Lawful Internet Gaming Act and Lawful Sports Betting act were the biggest changes in Michigan gambling law since a 1996 statewide vote that permitted the construction of three downtown Detroit casinos.

The legalization of sports betting and internet gaming goes back years before 2019 though. Rep. Brandt Iden pushed the bills uphill most of the way. Iden got a bill out of committee in 2017 and then again in 2018, reaching then Gov. Rick Snyder’s desk. It was vetoed late that year as one of Snyder’s final acts.

Before Iden, Rep. Robert Kosowski had been working for a couple of years to move sports betting closer to the governor’s desk. Those efforts never made it out of the Committee on Regulatory Reform.

Tribal gaming throughout the state also proved to be a big wrinkle in the online gambling legalization process.

Michigan’s 12 federally recognized Native American tribes have compacts with the state that dictate their gambling provisions. The compacts require the tribes to pay the state 8% of each casino’s net win on electronic games of chance and 2% to local municipalities.

Those were the only arrangements the state and the tribes had for gambling. The sovereign nations are allowed to operate within their own laws while on reservation land.

However, since the tribes would become statewide casino operators for internet gambling, compromises needed to be made. One of those was to allow some of the tax revenue from online casinos to go back to the tribes’ own local governments.

History of casino gambling in Michigan

Michigan has a rich history in the gambling world. Here are some of the key dates in the state’s history with casino gambling:

  • Dec. 31, 1983: Fred Dakota of the Keweenaw Bay Indian Community opened “The Pines,” a small casino in a two-car Upper Peninsula garage in Zeba. Later that year, two other tribes opened casinos in northern Michigan.
  • Nov. 5, 1996: State voters pass Proposal E, the Michigan Gaming Control and Revenue Act, 51% to 48%. The passage allowed for the state’s first non-tribal casinos and established the Michigan Gaming Control Board. Temporary homes for Detroit’s Greektown, MGM Grand, and MotorCity casinos would open starting in the summer of 1999.
  • Dec. 28, 2018: In one of his final acts as Michigan’s governor, Rick Snyder vetoed a series of bills that would’ve legalized online casinos and sports betting. It was back to the drawing board for lawmakers including Iden and other stakeholders, who went back to work in 2019 with hopes of getting the next governor to sign off.
  • Dec. 20, 2019: Gov. Gretchen Whitmer signed the Lawful Internet Gaming Act and Lawful Sports Betting Act, part of expanding gambling options in Michigan to include sports betting and online casinos. Each of Detroit’s three casinos and the state’s 12 federally recognized Native American tribes could each partner with an online casino, sports betting, and poker brand.
  • March 11, 2020: The state’s first retail sportsbooks opened at Greektown and MGM Grand in Detroit. A day later, MotorCity Casino opened the FanDuel Sportsbook with Detroit Lions legend Barry Sanders placing the first bet. Online sports betting and casino launches are delayed until early 2021.
  • Jan. 22, 2021: Michigan’s first online gambling sites went live after the MGCB gave the all-clear for launch three days earlier. Ten online brands kicked things off accounting for eight online casinos and 10 sportsbooks. A week later, the state’s first online poker site, PokerStars, arrived.
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