Arizona Governor Katie Hobbs has unveiled a bold proposal to significantly increase the state’s tax rate on sports betting, a move that aims to generate additional revenue for the state budget. Under the proposal, the tax rate for large sports betting operations would rise from 10% to 45%, targeting sportsbooks with monthly revenue exceeding $75 million. This measure is designed to address a shortfall in federal funding, which Hobbs claims will place added pressure on the state’s budget.

The proposal comes as Arizona’s sports betting industry continues to grow, with the state’s sportsbooks collectively reporting impressive earnings since legalization. In 2025 alone, Arizonans wagered over $8 billion on sports, generating substantial tax revenue. However, the current tax rate, the fifth-lowest in the nation, has prompted some state leaders to reconsider how they can capture more of the profits from this booming sector.

Aiming for More Revenue From Top Operators

Gov. Hobbs’ budget proposal aims to raise an additional $145 million in the first year alone, with the potential to reach $202 million by 2029. However, the proposed increase would only apply to the largest operators, including market giants such as DraftKings, Caesars, FanDuel, and BetMGM, which together account for the majority of the state’s sports betting revenue. Smaller sportsbooks and those run by Native American tribes would continue to pay the current 10% tax rate.

The move is part of Hobbs’ $17.7 billion budget for FY2027, which seeks to fill budget gaps left by a reduction in federal support. Despite the promise of increased revenue, the proposal faces significant challenges. Republicans, who control both chambers of the Arizona legislature, have historically opposed any tax increases, and the state constitution requires a two-thirds supermajority for laws that raise state revenues.

Hobbs’ proposal faces an uphill battle in the state legislature, where tax-averse Republicans are expected to push back against the plan. In addition, the Arizona constitution’s two-thirds supermajority requirement for tax increases further complicates the situation. The governor’s office has argued that the increase would not technically be a tax hike but would instead allow the Arizona Department of Gaming to adjust fees for large sportsbooks, sidestepping the constitutional hurdle.

While the tax increase could provide much-needed funds for the state, some critics warn that it may have unintended consequences for Arizona’s sports betting market. A recent study found that several other states have implemented similar tax hikes, but not without raising concerns about the impact on operator profitability and the potential for bettors to seek alternatives in less-regulated markets.

Comparison With Other States’ Tax Rates

Arizona’s proposal follows a broader trend in the United States, where several states have raised or are considering raising their sports betting tax rates. Illinois, New Jersey, and Louisiana have all implemented or proposed increases to their sports betting taxes in recent years. Illinois, for example, recently switched to a tiered tax system that charges up to 40% for operators making over $200 million annually. In New Jersey, the tax rate for online sports betting was raised to 19.75% in 2023, a significant increase from the previous 13% rate.

As more states look to capitalize on the growing sports betting market, Arizona’s proposal could signal the beginning of a wave of tax increases nationwide. However, the challenges of balancing revenue generation with maintaining a competitive, thriving market will likely remain a point of contention for lawmakers in Arizona and beyond.

While the proposed tax increase has the potential to generate significant revenue for Arizona’s budget, it also raises questions about the long-term sustainability of the state’s sports betting market. The rise in taxes could lead to higher operational costs for sportsbooks, potentially driving some operators out of the market or prompting them to increase fees for consumers.

Daniel McIntosh, a sports business professor at Arizona State University, expressed concerns that higher taxes on sportsbooks could lead to unintended negative effects. “Increased taxes could cause operators to pass the costs onto consumers or even drive business to unregulated markets,” McIntosh explained.

Furthermore, recent scandals in major sports leagues, including the NBA and MLB, have raised concerns about the integrity of prop bets, where gamblers place wagers on individual players’ performances. As reported by KJZZ, McIntosh cautioned that such betting could alienate fans and impact the long-term health of sports leagues, calling for greater oversight and regulation in this area to preserve the integrity of the games themselves.