Michigan Gambling Laws And Taxes
In December 2019, Michigan Gov. Gretchen Whitmer signed a series of bills into law, expanding gambling options in the Great Lakes State. The gaming expansion came toa fruition after a years-long legislative struggle with many stops and starts.
The laws added sports betting, online casinos, and online poker to the state’s betting menu. Other long-standing gambling activities, such as online horse racing betting and fantasy sports, were brought under the regulatory umbrella for the first time, too.
It was a long process, with many ups and downs, including a veto. The added complication of tribal gaming in the state proved to be another uphill battle. However, 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. We examine the details of both laws 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. It reached both 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.” The legislation legalized 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 brand for interactive poker and another brand for casino-style games. Alternatively, one brand can include both poker and casino games.
Each federally recognized tribe can also offer online casino and poker. The online gambling market could mature at 30 total online casinos and online poker sites.
The Michigan Gaming Control Board oversees all online casinos and poker sites, including tribe casinos. However, Native American tribes are sovereign nations thus, Michigan does not have general regulatory authority over them. The National Indian Gaming Commission and the governing tribes regulate tribal casinos. The state does have oversight on compliance with the Tribal-State Compact provisions.
Online gambling rules 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. It excludes pick numbers or other games typically offered by the Bureau of Lottery.
However, the act does not prohibit selling internet lottery games, including digital representations of lottery games.
Key elements of the Michigan online gambling law
- Internet gaming operator licenses are valid for 5 years and renewable for 5 years thereafter.
- Internet gaming was not to be offered until at least one operator was licensed with a tribal casino and another was 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 in the Michigan Gaming Control Borard’s (MGCB) responsible gaming database.
- Evidence of the internet gaming operator’s license must be clearly displayed on the platform.
- Monthly reports from operators must be categorized as internet slots, poker, and table games. Other categories are the total amount of wagers, payouts, free play redeemed, deductions, and adjusted gross receipts.
- The Michigan online gambling age is 21+
Michigan Internet gambling taxes
Some of the most important portions of the online gambling law deal with taxes and accounting.
For example, in the first three years of operation, online casino and poker operators cannot deduct more than 10% of gross receipts as ‘free play’ to determine adjusted gross receipts. That percentage lowers significantly in year 4, to 6% and 4% in year 5.
No free play deduction is permitted after the 5th year. ‘Year’ is defined as a calendar year beginning Jan. 1.
The application fee for an internet gaming operator license is $50,000. If the application is accepted the initial license fee is $100,000 followed by an annual license fee of $50,000.
Internet gaming supplier pays an initial license fee of $5,000, renewable for $2,500 each following year.
Online casino and poker operators pay a graduated tax rate based on adjusted gross receipts (AGR) each calendar year:
- 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 monthly by the 10th 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 one 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.
The Internet gaming fund
The internet gaming fund was created with revenue from online gaming taxes. The fund is placed in the state treasury and 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
Most of the sports betting laws are similar to the online gaming laws. The Lawful Sports Betting Act, House Bill 4916, was introduced in Sep. 2019 by Iden. After advancing through House and Senate committees and the full legislature, the bill was signed by Whitmer in Dec. 2019.
The 14-page document put Michigan sports betting into the legal spotlight and includes internet betting. The three commercial casinos in Detroit opened retail sportsbooks in March 2020. Tribal casinos were already legal through the National Indian Gaming Association. However, the majority of tribal casinos did not begin betting on sports in Michigan until the summer of 2020.
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 as opposed to one license for each tribal casino.
For the purposes of betting, the law states that an ‘athletic event’ does not include:
- Pari-mutuel horse racing
- Events with participants at high school level or below unless the majority of participants are 18 or older
- Casino-style games
- Fantasy contests
The 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, because it is 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
The initial application fee for a sports betting operator license is $50,000. The initial license fee is $100,000 and an annual license fee is $50,000. A sports betting supplier pays an initial license fee of $5,000, renewable for $2,500 annually.
The tax rate for adjusted gross sports betting receipts is 8.4%. The three Detroit casinos pay an additional 1.25% city tax.
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 one 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
Where Michigan online gambling tax revenue goes
The expansion of online gaming and sports betting came with provisions that the additional revenue would help support public entities.
When Whitmer signed the bills in Dec. 2019, the estimated annual revenue was $19 million.
This figure came from a legislative analysis from the House Fiscal Agency. The forecast included $7.7 million in tax revenue in the beginning increasing up to $12.1 million. The same group projected about $11.7 million in initial online gaming tax revenue, maturing to as much as $52.5 million.
The Office of Administrative Hearings and Rules issued impact statements that anticipated $25 million in new revenue annually at the launch of online gambling; $18 million for internet gaming and $7 million for sports betting.
At the time Iden told PlayMichigan that he estimated that $30 million was reasonable for Year 1, but that the market could mature to $80-$110 million of new tax revenue by Year 2.
As of Aug. 2023, just under $1 billion in lifetime tax revenue has been generated. Online casinos and sports betting have produced a minimum of $150 million in revenue in seven out of the first eight months of 2023. This has generated $28.6 million monthly in state taxes and $10.5 million to local jurisdictions.
Tribal casinos and online gambling in Michigan
Michigan has 12 federally recognized Native American tribes. All of them operate at least one casino. Each tribe is a casino operator rather than each of the casinos being an operator. Each operator can partner with an online platform and can issue up to three licenses:
- Sports betting
- Online casino
- Online poker
Much of the legislative process in the years following the passage of the 2019 gaming bills dealt with the relationship between the Michigan state government, the tribes, and the commercial casinos in Detroit.
Since the tribes can offer online gambling statewide, both laws require them to waive sovereign immunity for certain administrative purposes. This gave the MGCB and Ingham County Circuit courts oversight of some aspects of tribal gaming.
The tribes pay 2% of their net winnings to the state government or local revenue-sharing boards. In addition, some tribes make a payment to the Michigan Strategic Fund (MSF) and Michigan Economic Development Corporation (MEDC). Payments to these entities range from 1% to 12%.
In 2022, the tribes remitted a total of $30.8 million in taxes to the state and $52.8 million to the MSF and MEDC.
Michigan online gambling launch timeline
- 1996: A statewide vote passes the Lawful Internet Gaming Act and Lawful Sports Betting Act. The Act permitted the construction and operation of three downtown Detroit casinos.
- 2017: Rep. Brandt Iden successfully pushes online gaming bills through the committee process.
- 2018: Iden’s bills reach then-Gov. Rick Snyder’s desk. The bills are vetoed.
- 2019: Michigan lawmakers pass a package of bills legalizing online gambling, sports betting, fantasy sports, and online poker. Gov. Gretchen Whitmer signs the bills into law
- 2020: Retail and tribal sportsbooks launch.
- 2021: Online casinos, mobile sportsbooks, and online poker launch.