Remote gambling

Types

Is remote gambling permitted and, if so, what types?

Congress enacted the UIGEA to attack the perceived problem of internet gambling by targeting the processing of financial transactions necessary for the gambling to take place. ‘Unlawful internet gambling’ means a ‘bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made’ (31 USC section 5362(10)(A)). The UIGEA created a federal crime - the knowing receipt by a person ‘in the business of betting or wagering’ of monies in connection with participation of another person in ‘unlawful internet gambling’ (31 USC section 5363). The statute specifically exempts intrastate wagering if authorised by state law and horse race wagering that is consistent with another federal statute, the Interstate Horse-Racing Act (IHRA). See IHRA, 15 USC section 3001 et seq. It also does not prohibit wagering between states that each authorise that activity.

Only four states - Delaware, Nevada, New Jersey and Pennsylvania - currently permit and license internet casino or poker gambling. See 29 Del Code section 4826; Nev Rev Stat section 463.745 et seq; NJ Stat Ann section 5:12-95.17 et seq; 4 PaCSA et seq. Delaware, New Jersey and Pennsylvania permit poker, casino and sports gambling; Nevada permits poker and sports. In addition, seven other jurisdictions - the District of Columbia, Illinois, Indiana, Iowa, Montana, Tennessee and West Virginia - have passed laws that permit mobile and online sports betting.

Delaware, Nevada and New Jersey have entered into an agreement to share liquidity by allowing gambling among the states; however, an opinion letter issued by the Department of Justice’s (DoJ) Office of Legal Counsel in early 2019 has cast doubt on the legality of that interstate agreement, and litigation arising from that opinion letter is currently pending.

In Delaware, only the state Lottery Commission is authorised to conduct internet gambling, and it has contracted with suppliers to that end. In New Jersey, Nevada and Pennsylvania, licences are generally restricted to brick-and-mortar casino licensees who obtain permission to offer wagers online. New Jersey and Pennsylvania have both announced plans to authorise mobile sports betting operations.

The remaining states and the District of Columbia do not allow online gambling, although a few states offer some form of online lottery (either sale of online tickets or even the play of online lottery games). In the wake of the invalidation of PASPA (see question 35), several other states have indicated plans to move ahead with sports betting, which in many cases may include mobile or other remote activity.

In addition, many states permit off-track telephonic or internet pari-mutuel wagering on horse-racing. The IHRA sets out the conditions under which such wagering can be offered across state lines. Among other requirements, the wagering activity must comply with the laws of the states in which the race and wagerer are located. The DoJ has historically taken the position that interstate internet horse race wagering violates the Wire Act, notwithstanding its authorisation under the IHRA. That proposition has not been tested and is widely disregarded, with numerous advance deposit wagering operators offering the service in many states across the country.

Licensing

What are the criteria for obtaining a licence to operate remote gambling?

The licensing criteria to operate remote gambling are largely the same as for land-based gambling. The licensing regime will vary from state to state, but is typically intrusive and requires deep scrutiny of the licensee applicant and its key employees. Even certain categories of service providers are subject to scrutiny, although typically at a lesser degree of intensity.

How do the licensing criteria for remote gambling operators differ from those applicable to land-based operators?

The licensing criteria are not materially different from those applicable to land-based operators. States do limit the number of available licences, either expressly or by requiring that the remote operator be a land-based licensee.

Cross-border gambling

May operators located in other countries offer internet gambling to consumers in your jurisdiction without obtaining a licence there?

No, but US licensees may contract with service providers from other countries to support their activities. Those service providers, in turn, may obtain licences to provide that support.

May operators licensed in your jurisdiction offer internet gambling to consumers in other countries?

This issue is unresolved. State laws in certain states that have licensed internet gambling do contemplate this type of activity, but no jurisdiction that has legalised remote gambling has yet authorised the offering of remote gambling by its licensees to consumers in other countries.

Taxes

What tax rate applies to each form of remote gambling?

Remote gambling tax rates vary among the four jurisdictions. For example, in New Jersey, there is a 15 per cent annual tax on internet gross gaming revenues plus an investment alternative tax of 5 per cent (or, instead of that investment alternative tax, actual investment of 2.5 per cent). See NJSA section 5:12-95.19. Nevada taxes internet gaming based on GGR at the same rates as it does land-based gaming. See Nev Rev Stat section 463.770. Pennsylvania has three tax rates for internet gaming:

  • 14 per cent of daily gross interactive gaming revenue from peer-to-peer interactive games;
  • 14 per cent of its daily gross gaming revenue from non-peer-to-peer interactive games that simulate table games; and
  • 52 per cent of its daily gross interactive gaming revenue from non-peer-to-peer interactive games that simulate slot machines.

See 4 PaCSA section 13B52(a). In Delaware, internet gambling is operated by the state lottery so no tax is applied.