Arizona could soon join a growing group of U.S. states seeking higher returns from legalized sports betting. Governor Katie Hobbs has proposed a significant increase to the state’s sportsbook tax rate as part of her $17.7 billion executive budget, aiming the highest rate at the largest online operators.
Since Arizona launched legal sports betting in 2021, sportsbooks have paid a flat 10% tax on revenue, one of the lowest rates nationwide. Hobbs’ proposal introduces a tiered system that would raise the rate to 45% for “large operators,” defined as those generating more than $75 million in monthly revenue. Sportsbooks below that level would remain at 10%, while the 8% tax on retail sports betting would stay unchanged.
Revenue Goals And Budget Context
The proposed tax hike appears in the context of broader budget pressures. Hobbs has said the state faces declining federal support following passage of the One Big Beautiful Bill Act, which she stated “adds significant costs to the Arizona taxpayer by shifting expenses from the federal government to the state.” Budget projections estimate the sportsbook tax changes could bring in more than $145 million in fiscal year 2027, increasing to $202 million by FY2029.
Separate estimates tied to the plan suggest the state could collect roughly $150 million annually from qualifying operators. That projected income forms part of nearly $950 million labeled as “uncertain funds” within the budget.
Arizona allows up to 20 licensed sportsbooks, though revenue data from the Arizona Department of Gaming shows that a small number of brands account for much of the market’s activity. Hobbs highlighted that concentration in her budget explanation.
“As the industry changes, it is clear that not all operators are alike, with a handful of large operators capturing the majority of the market. Low privilege fees and generous tax deductions have allowed these operators to achieve record corporate profits,” continued Hobbs. “In response, states across the country have continued to modify and update their regulatory structures since 2021, raising fees and leaving Arizona in a competitive disadvantage.”
Political Challenges And Wider Trends
The proposal faces legislative resistance. Republicans control both chambers of the state legislature, and Arizona’s constitution generally requires a two-thirds supermajority to approve revenue increases. The Hobbs administration argues sportsbook payments function as fees, which it says could bypass that threshold.
Industry observers have warned lawmakers against aggressive increases. “It’s a very unwise time to increase burdens on the companies that are operating within the rules in the state and contributing significant dollars,” industry consultant John Pappas said.
If enacted, Arizona would follow states such as Illinois, New Jersey, Maryland, and Louisiana, all of which raised sports betting taxes in recent years. At an industry conference, Illinois Rep. Jehan Gordon-Booth cautioned against expecting large gains. “Lawmakers need to understand, what you think you’re going to get from raising taxes, you’re not going to get,” Gordon-Booth said. “We want this industry to continue to strike the right balance. This will be a problem in budgets for the foreseeable few years. I don’t want to see us continue to deteriorate the industry.”
Source:
“Arizona latest state to propose massive sports betting tax hike on large operators”, igamingbusiness.com, February 9, 2026
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