Chavdar Vasilev is a gambling news writer with several years of experience in the iGaming industry. He started creating promotional content but soon found he loved reporting on the industry itself. Since then, he’s delivered...
Read Full BioThe Maryland Lottery has proposed sharply limiting how much online sportsbooks can deduct in promotional free bets, a move aimed at boosting state tax revenue.
Under the proposed changes to Chapter 13 of the state’s “Sports Wagering Licensee Minimum Internal Control Standards,” online sportsbooks could deduct only 5% of their previous year’s gross gaming revenue in free play, down from the current 20% allowed after the first year.
Currently, a sportsbook (retail or mobile) can deduct all free promotional play from its taxable proceeds in its first year. After, the figure drops to 20%. Retail sportsbook will still be able to deduct that 20% if the lottery’s changes are implemented.
If operators exceed these limits, the excess promos would be treated as taxable revenue.
Maryland Recently Raised Sports Betting Tax
The proposal comes on the heels of the recent tax rate increase for online sports betting operators from 15% to 20%.
The 5% increase was still some relief for operators. Maryland Gov. Wes Moore had proposed a 30% rate as part of his larger Budget Reconciliation and Financing Act.
Moore had argued that the rate will keep up with some neighboring states, such as Pennsylvania (a 36% tax) and Delaware (a 50% tax).
Maryland is already among the more aggressive states when it comes to gambling taxation. For example, slots at retail casinos are taxed between 50% and 61% depending on the casino.
Additionally, while it did not pass, Maryland considered legalizing online casinos in 2024 with a proposed tax rate of around 46%. That would have been the highest among iGaming states.
Besides tax rates, Maryland has relatively high licensing fees for sports betting operators. Mobile sportsbooks must pay up to $2 million upfront, which consists of the license fee and a performance bond.
Meanwhile, large retail sportsbooks must put up to $1 million. These figures rank Maryland among the most expensive states to enter.
Other States Have Implemented Similar Changes
The Maryland Lottery proposal is not unprecedented. Limiting promo deductions is a common move by states after the initial launch of sports betting, when operators rely heavily on promos to attract customers.
As the markets mature, some regulators move to remove or reduce the deduction cap as a means to increase tax revenue. At the same time, they close a “loophole” that operators use to pay less taxes.
If Maryland adopts the proposed changes, it will join several others. Recently, Colorado passed a bill that will reduce the promo deduction percentage to 2% until December 31, 2025. Between January 1, 2026, and June 30, 2026, the rate will decrease to 1%, and thereafter, it will be zero.
In 2022, Virginia limited promotional deductions to the first 12 months of the operator’s activity, effectively phasing out deductions after that.
Meanwhile, Connecticut has adopted a gradual decrease from 25% downward by 5% annually until full elimination.
Some states have attempted but failed to enact similar measures. North Carolina proposed a gradual elimination of promo deductions in 2024, but the measure did not pass in the legislature.
Meanwhile, in Missouri, which expects to launch sports betting in December, voters rejected a ballot proposal to cap promotional deductions at 25% of total wagers.
One notable outlier is Ohio, which initially banned promo deductions when it launched the sports betting market in January 2023.
However, the state has decided to loosen the rules. Starting in 2027, operators will be able to deduct up to 10% of promotional credits wagered. From 2032 onward, the figure will increase to 20%.
