Regulating online poker and sites by "taxing" the rake?

[bluefall]

To regulate poker within the US and draw taxes, what if the US government installed a separate rake-like tax? I would suggest this would have to be about 2.5% of the pot, perhaps mandating the site charge no more than 2.5% additional rake. My proposal would then eliminate the requirement to report poker winnings as income.

To make this work internationally, there would need to be a way to tax only US citizens meaning the sites would need to be very strict on verifying people's identities. So any pot an American wins, the gov't taxes the pot 2.5%. They would also take half of the typical 10% tournament entry fee.

I can't see this working without the tax portion of the rake being uncapped so that people aren't earning millions without paying a significant tax. That would seemingly limit the amount of super high stakes games unless those pros think their edge is enough to overcome the uncapped rake.

So the gov't gets their take, sites pay their tax by earning only 2.5% instead of 5% rake, and players pay more tax by playing in rake-uncapped pots.

The best thing for the government is that winning and losing players are taxed because it's done on every pot a US player pulls, not based on "sessions." Plus they'd be guaranteed to get their take since players aren't required to report their income.

It would then make sense to teach poker in schools to: 1) tax more and, 2) improve the trade deficit by taking more pots off foreigners.

Thoughts? This tax strategy seems balanced and makes sense to me. If I missed someone else's post on this idea I apologize.

[Spaded]

An extra 2.5% (the sites already rake 5%) would be devastating to anyone's winrate, especially if there was no cap. I would much prefer that uncle sam take 25% of all my cashouts instead of 2.5% of every pot that I win.

[bluefall]

It would be 5% total...2.5% for Uncle Sam, 2.5% for the site. I just don't see how it could be done without charging more than $3 on a $100k PLO pot. And I don't see how Uncle Sam would allow a cap on their cut either since he doesn't give a lick about our winrate.

[Lottery Larry]

So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[NickMPK]

I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

[bluefall]

[ QUOTE ]
So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[/ QUOTE ]

How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.


[ QUOTE ]

I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

[/ QUOTE ]

But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

[LT22]

[ QUOTE ]
So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[/ QUOTE ]

he's sayin the rake would be the same (5%), split profits between site/gov't

[ericicecream]

[ QUOTE ]
An extra 2.5% (the sites already rake 5%) would be devastating to anyone's winrate, especially if there was no cap. I would much prefer that uncle sam take 25% of all my cashouts instead of 2.5% of every pot that I win.

[/ QUOTE ]

If i am understanding correctly, the sites make only 1/2 their normal profit whenever a u.s. citizen wins a pot. Correct?

If I'm a site, I'm thinking that if I agree to this then soon other countries will be demanding the same. I mean, why wouldn't they? Why should only the u.s. get to tax global online gambling?

I commend you for coming up with a unique idea, it's out of the box thinking that eventually comes up with innovative products. But this doesn't seem to work.

[ericicecream]

[ QUOTE ]
It would be 5% total...2.5% for Uncle Sam, 2.5% for the site. I just don't see how it could be done without charging more than $3 on a $100k PLO pot. And I don't see how Uncle Sam would allow a cap on their cut either since he doesn't give a lick about our winrate.

[/ QUOTE ]

Oops, meant to quote this one in my above response.

[Spook]

you can large number this, and get an average number of pots that are won by americans. Lets say 80%, then the poker site is paying 2% rake and collecting 3% rake for itself.

Irregardless of who actually wins the pot.

So if they want to make 5%, they up their rake to 7% rake and pay the 2.5% to USG on american pots which is 2 percent if 80% of players are american, and keep 5%.

So now everyone is taxed and the poker site makes its desired rate.

[KEW]

Three problems..

1..IRS will never do away with income taxes on gambling winning..If if they taxes every pot...Income taxes will still be paid by the winners..Plus your scheme ignores FICA taxes to "Pros"..

2..Sites will not be willing to cut there rake in half..This also infer the 2.5% would be on behalf of the players the sites would still be responsible for normal corporate profit taxes..Nor will foreign sites be willing to go along with it..

3..A uncapped 2.5% would bankrupt the games...That's 2.5% of EVERY pot leaving the game..At an avg of 60 hands per hours what's left in front of the players..This does not even take into consideration the "normal" house rake...

[ericicecream]

[ QUOTE ]
you can large number this, and get an average number of pots that are won by americans. Lets say 80%, then the poker site is paying 2% rake and collecting 3% rake for itself.

Irregardless of who actually wins the pot.

So if they want to make 5%, they up their rake to 7% rake and pay the 2.5% to USG on american pots which is 2 percent if 80% of players are american, and keep 5%.

So now everyone is taxed and the poker site makes its desired rate.

[/ QUOTE ]


...and 90% of the winning players become losing players due to the increased rake

[PokrLikeItsProse]

The U.S. government would be better off requiring poker rooms to determine taxable income for each user who makes over $500 in the year and forwarding that data to the IRS.

[oldbookguy]

What you are suggesting is basically an excise tax?

Or would this replace any income tax the site may owe the U.S. government.

Additionally, the rake you propose would require determing what portion of the total rake came from U.S. players and non U. S. players, the government would not be entitled to the latter.

There are excise taxes in place already, .25% (from legal wagering, 2% from illegal wagering), why should this be any different?

There is a House Bill that deals with this, a simple 2% excise tax of deposits made from the U. S., no by the game / hand excise tax / rake. Thios would be much simplier and easier for all to enforce and accept.

BTW, the 2% proposed has a claus that it NOT be deducted from the deposit credited to the players account as well.

obg

[bluefall]

[ QUOTE ]
Three problems..

1..IRS will never do away with income taxes on gambling winning..If if they taxes every pot...Income taxes will still be paid by the winners..Plus your scheme ignores FICA taxes to "Pros"..

2..Sites will not be willing to cut there rake in half..This also infer the 2.5% would be on behalf of the players the sites would still be responsible for normal corporate profit taxes..Nor will foreign sites be willing to go along with it..

3..A uncapped 2.5% would bankrupt the games...That's 2.5% of EVERY pot leaving the game..At an avg of 60 hands per hours what's left in front of the players..This does not even take into consideration the "normal" house rake...

[/ QUOTE ]


It's not a perfect plan I understand. I'm not sure what you said exactly in the first point but we all know the player that wins the pot pays rake. So, the player that wins a pot pays income tax by paying the tax rake....not separately reporting it as income to the IRS in April.

Sites would HAVE to go along with it or they'd be denied access to US players. If they didn't agree to it, guess what, Harrah's or whomever would certainly pop in and get a site up and running to take advantage of the opening. By reducing the amount the site earns per hand won by a US player, the site is essentially taxed. Therefore, no additional corporate tax would be instituted. A lot of industries are taxed differently so it's not crazy to think that the online poker industry can't have a separate tax code.

Plus the policy makers should be willing to agree to any plan that maximizes their tax. Without the rake, poker is a zero sum game. The only way to guarantee taxes are taken is to break it down to the pot level or just tax the site, since they're the only one guaranteed to make money.

Point 3 has merit. But, a full 5% is already charged in all micro games. They still run, though somewhat due to the constant influx of new players or bad players willing to reload. The tax would not need to be a full 2.5% though. Maybe 1% tax, 1% to site....or whatever ratios work. Capping the site's rake. I dunno.

Somebody else commented on the international community and their unwillingness to go along with this plan. Why would they care? Only American players pay the tax. What do I care if Canadians don't pay any tax on gambling winnings?

I've had the opportunity to think about this for a long time I've probably convinced myself it's a good option. It seems like a good idea to present things to Congress in more than just the standard way. Oh well.

[Tuff_Fish]

Good out of the box thinking Bluefall.

IF there were no other taxes involved, the player walked away with 100% of whatever he cashed out, the poker room walked away with 100% of their profits, then this is something that merits serious consideration.

BTW, doesn't the UK do something similar? My understanding is that gambling winnings are not taxed at the player level.

Keep thinking, and do some math.

Go on Poker Scout here (http://www.pokerscout.com/) and try to figure out how much the various goverment entities are missing out on this very minute. This assumes that the various gov entities share in the loot. 2 1/2 % is plenty, but the gov is always hungry. We would have to insure any such tax law was ironclad and the thieves in gov don't start a new tax on us on top of the 2 1/2%. An almost impossible task BTW.

Good job.

Tuff

[NickMPK]

[ QUOTE ]

[ QUOTE ]

I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

[/ QUOTE ]

But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

[/ QUOTE ]

So you are suggesting that internet gambling winnings be exempted from income tax? This is never going to happen, nor should it. Gambling winnings (at least net winnings) are income. To not tax them on the same scale as wages would be unfair to everyone who has a real job.

[bluefall]

[ QUOTE ]
[ QUOTE ]

[ QUOTE ]

I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

[/ QUOTE ]

But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

[/ QUOTE ]

So you are suggesting that internet gambling winnings be exempted from income tax? This is never going to happen, nor should it. Gambling winnings (at least net winnings) are income. To not tax them on the same scale as wages would be unfair to everyone who has a real job.

[/ QUOTE ]

Everything in the tax code already is unfair to somebody. Why should the rich have to pay a higher percentage of their income? Why are session winnings reported as income but losses as deductions? That's unfair to poker players already.

How much are poker players contributing as tax now? $500 million? What about the $$ the IRS loses when people claim the maximum deduction? I have no idea what either value could possibly be. But let's assume the IRS nets more with this method than they do by the current standard. Why would Congress not agree to a system that nets more tax, regardless of how fair it "seems" to be to the regular worker?

I never thought this far ahead but I would assume the poker player would be ineligible for any normal deductions. Maybe a tax accountant can offer their insight.

[NickMPK]

[ QUOTE ]


How much are poker players contributing as tax now? $500 million? What about the $$ the IRS loses when people claim the maximum deduction? I have no idea what either value could possibly be. But let's assume the IRS nets more with this method than they do by the current standard. Why would Congress not agree to a system that nets more tax, regardless of how fair it "seems" to be to the regular worker?


[/ QUOTE ]

Well, the system that would net the most taxes would be to tax the sites and have gambling winnings be reportable as income (or tax each pot and have gambling winnings reportable as income). Why wouldn't Congress just do this?

Congress is never going to exempt gambling winnings from the income tax. Never. Such a proposal will lose 90% of the politicians who already support online gambling. You also add additional complication to the tax code, which no one wants (since you are now distinguishing online gambling from land-based gambling).

To find a realistic potential system of taxation for poker sites, you might want to consider looking into how gambling operators are currently taxed at the state level.

[DeadMoneyDad]

[ QUOTE ]
[ QUOTE ]
Three problems..

1..IRS will never do away with income taxes on gambling winning..If if they taxes every pot...Income taxes will still be paid by the winners..Plus your scheme ignores FICA taxes to "Pros"..

2..Sites will not be willing to cut there rake in half..This also infer the 2.5% would be on behalf of the players the sites would still be responsible for normal corporate profit taxes..Nor will foreign sites be willing to go along with it..

3..A uncapped 2.5% would bankrupt the games...That's 2.5% of EVERY pot leaving the game..At an avg of 60 hands per hours what's left in front of the players..This does not even take into consideration the "normal" house rake...

[/ QUOTE ]


It's not a perfect plan I understand. I'm not sure what you said exactly in the first point but we all know the player that wins the pot pays rake. So, the player that wins a pot pays income tax by paying the tax rake....not separately reporting it as income to the IRS in April.

Sites would HAVE to go along with it or they'd be denied access to US players. If they didn't agree to it, guess what, Harrah's or whomever would certainly pop in and get a site up and running to take advantage of the opening. By reducing the amount the site earns per hand won by a US player, the site is essentially taxed. Therefore, no additional corporate tax would be instituted. A lot of industries are taxed differently so it's not crazy to think that the online poker industry can't have a separate tax code.

Plus the policy makers should be willing to agree to any plan that maximizes their tax. Without the rake, poker is a zero sum game. The only way to guarantee taxes are taken is to break it down to the pot level or just tax the site, since they're the only one guaranteed to make money.

Point 3 has merit. But, a full 5% is already charged in all micro games. They still run, though somewhat due to the constant influx of new players or bad players willing to reload. The tax would not need to be a full 2.5% though. Maybe 1% tax, 1% to site....or whatever ratios work. Capping the site's rake. I dunno.

Somebody else commented on the international community and their unwillingness to go along with this plan. Why would they care? Only American players pay the tax. What do I care if Canadians don't pay any tax on gambling winnings?

I've had the opportunity to think about this for a long time I've probably convinced myself it's a good option. It seems like a good idea to present things to Congress in more than just the standard way. Oh well.

[/ QUOTE ]


You are asking for too much politically.

To get on-line poker, you want to change on-line poker economics, gambling and corporate tax rates?

Pretty much a dead on arrival suggestion, IMO.

Uncollected on-line poker taxes is estimated at 3 Billion annually already.

The US market is already paying a 5% "excise tax" on deposits, through the UIGEA but collected by e-pass and the like.

Most of the corporate tax is currently uncollected by the US except for any earnings reported by US tax paying "owners".

To regulate the usual course is to require licensing fees to cover the new "costs" to the government.

I too think that any ultimate solution advanced should include a change in income taxes to individual players, and I "like the way you think", but as is this idea is dead politically.


D$D

[Richas]

The UK system is 15% of the sites gross profit to the taxman and no income tax. Even this is relatively unattractive to major sites (bookmakers have the same deal).

Someone said gambling should be treated as Income for Tax, many other places don't see it this way they take the money from the site and ignore the punter,

Shifting the tax with no increased rake to the site might help winning players and make little difference to losing players but it would hurt the sites at 50%, shoot 15% hurts. Plus it would never be competitive internationally and differentiated rakes/tax by nationality could not be WTO compliant.

IMHO a bit of a no hoper - go for a UK system and make clear the 15% of gross is more than the income tax on the few winers.

[Lottery Larry]

"but I would assume the poker player would be ineligible for any normal deductions. "

If they are a professional gambler, that isn't true. The gross wins/gross deducted losses is only for casual gamblers.

"Why should the rich have to pay a higher percentage of their income? "

They can afford to do so, having more disposable income...and since they most likely didn't earn it all by themselves, I don't have a lot of sympathy.

[Lottery Larry]

[ QUOTE ]
[ QUOTE ]
So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[/ QUOTE ]

How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.

[/ QUOTE ]

Mainly because, once implemented, sin taxes have NEVER, in my experience, been removed or had the rates reduced. Once you open the gate, the greed factor sets in. Look at cigarette taxes, liquor and other such items.

I don't know what rake the online sites are getting now, but I can't see them taking too much of a cut. Even though they'd probably make more money overall, going uncapped... wouldn't they be more likely to just tack on the gov't tax?

If you could get the sites and the gov't to agree to 'swap out' part of the rake as income tax, then maybe the effect wouldn't be too severe. But remember, paying a smaller rate on a larger pile of money is how we build billion-dollar casinos.


Let's look at some numbers-

I) You play two limit poker sessions $5/10 5% rake capped at $6. Each play lasts 1 hour. Online, we'll give you 6 winning pots per session - the rest, you fold or lost at some stage.

Winning pots, each session: $136, $80, $250, $101, $57 and $105 ($700 gross, after the rake of $29 taken out)

Losses: Session one, you lost a total of $450 on the other pots

Session two, you lost a total of $930


<u>CURRENT SYSTEM: </u> You report a $250 session and a -$230 session, for a gross win of 1bb per hour. What is the cost, including US income tax at 25%?

Tax: Approximately $5
Total cost of playing: $63 ($58 in rake, $5 in income tax)
Net win: $15

<u>YOUR SYSTEM </u> 5% uncapped rake, no income tax added on.
Now, your rake at each session is $36, total $72 raked:

Rake to casino $36 (a $22 loss)
Rake to US gov't $36 (an extra $31 in tax)

Your first session, you won $243. Your second session, you lost $237

Total cost to player: $72 (or almost 12% MORE)
Net win: $6 (60% less)

Now, if your goal is to pay more, make less, have the cardroom make 38% less.... and give the US government a relative windfall, then you're goot.

II) Let's check a bigger winning streak for you. You win an additional $206 pot in the second session.

Current- You have a $250 win and a -$30 loss
Tax: $55
Rake: $64
Total cost: $119


Your system- You have a $250 win and a -$41 loss
Tax rake $41
Site Rake $41
Total cost $82


You had to take down an extra 20bb pot every two hours in order to reduced your cost by $37. The government makes less, the site makes less.





Without doing the numbers, the only way for the site to make more money under your system is off of the losing players. The US government will also make more than they normally would.... so the losing players are going to lose MORE with an uncapped rake than they save, unless they lose every single hand.
If the losing players are losing more... how long will they be around to prop up your extra 20bb pot? Not to mention feeding all of your other pots.

Losing players don't end up paying extra taxes under the current system unless they have HUGE amounts bet (and then they pay by having a higher tax bracket).

[Seb86]

[ QUOTE ]
[ QUOTE ]
So you want to FURTHER encourage the IRS to treat gross session wins as if they are not affected by gross losses?

Bad idea imo

[/ QUOTE ]

How so? If you play terrible poker, losing every hand, you'll pay zero tax. That would mean you only pay tax when you win.

Shoot, I've spent 4 years grinding limits where I more often than not pay 5% rake and yet I make money. Therefore, I don't see how paying the same 5% and then NOT paying income tax on top of that would be a bad deal for me.


[ QUOTE ]

I don't know of any state that taxes gambling in the way you describe. Typically, the tax would come in the form of a percentage of the casino's win (or the casino's total rake in the case of poker), or the casino's corporate profits. The consumer never actually "sees" the tax. I don't know why it would be any different for internet gambling.

[/ QUOTE ]

But the consumer still needs to pay income tax. The entity that is affected the most is the poker site, since the rake they charge will be half as much as they received from American players before.

[/ QUOTE ]

Dont try to think ever again.